certified global business professional online course section 6a international market research alan...

CERTIFIED GLOBAL BUSINESS PROFESSIONALOnline Course

SECTION 6A

INTERNATIONAL MARKET RESEARCH

ALAN L. WHITEBREAD

MARKET RESEARCH OVERVIEW

Market Research

The collection and analysis ofdata for market decisions about

COMPETITORSMARKETS

PRODUCTSRESPONDENTS

STRATEGY OPTIONS

Strategic Marketing for Evaluation data for

-Strategy analysis -Setting objectives -New business analysis

Market Planning for Market segmentation Market share Market potential Competitive analysis

Product Management forIdeas for new or enhanced products Timing of product introductions4 P's decisions

Product Development for Product concept testingEnd use testing Sales techniques Price testing

WHY USE MARKET RESEARCH?

• TO UNDERSTAND CUSTOMER & PROSPECT NEEDS AND WANTS.

• TO IMPROVE THE CHANCE SUCCESS OF NEW PRODUCTS.

• TO SELL MORE, PRICE BETTER, AND IMPROVE ADVERTISING EFFECTIVENESS.

• TO GAIN EFFICIENCY [CUT COSTS].

REASONS FOR INTERNATIONAL MARKETING RESEARCH

• The firm needs to understand any new environment in terms of different– business conduct and practices,– cultures,– levels and types of competition,– product, service, package and other

requirements, and– distribution systems.

ASSESSING FOREIGN MARKETS

1. Screen for [country / region] markets

2. Determine the size of potential markets

3. Determine potential company sales by market

4. Conduct specialized research to improve the firm’s position

ENTERING FOREIGN MARKETS:FIVE INITIAL QUESTIONS

5. Can I expect a sufficient return to make it worth entering the market?

3. How intense is competition in those markets?

2. How large are those markets?

4. How much business can I reasonably expect to do in those markets?

1. Which markets are the most attractive?

SOURCES OF INFORMATION:IN-HOUSE

• The majority of corporate information– Financial & marketing information systems

• Develop a list of items

– Executives based abroad, subsidiaries & affiliates

• Face-to-face conversations increase understanding and gain subtleties

SOURCES OF INFORMATION:COMMERCIAL SOURCES

• Full-service research [give examples]– Exploratory

• Understand the problem

• Define issues and hypotheses

– Descriptive• Magnitudes

• Product potential, attributes, …

– Casual• Test cause-and-effect relationships

• Test hypotheses about cause-and-effect relationships


• Research approaches / methodologies– Observational– Focus Group– Survey– Behavioral– Experimental

• control groups, placebos, …


• Specialized research for certain techniques and markets– personal interviews– focus groups– telephone or mail survey– product tracking– customer satisfaction measurement, ...

Clearly define [1] the problem

and [2] theresearch

objectives

Clearly define [1] the problem

and [2] theresearch

objectives

Develop the research

plan

Develop the research

planCollect dataCollect data

Analyze thedata

Analyze thedata

Present thefindings

Present thefindings

Makedecisions

Makedecisions

THE MARKET RESEARCH PROCESS

• Library– Use a full government repository– D&B Exporter’s Encyclopedia [~184 countries]– CIA World Factbook [2004 – 268 entities online]

• Internet– Must be recognizable– Beware of bias, limitations, and lack of

comparability

SOURCES OF RELIABLE DATA

• SOURCES– International organizations

• IMF, World Bank, WTO,

• UN Statistics Division

– See http://unstats.un.org/unsd/default.htm

• UN Agencies

– World Bank Group– International Monetary Fund [IMF]– World Intellectual Property Organization [WIPO]– and more, see http://wipo.int/portal/index.html.en

or search for “WIPO home”.

SECONDARY DATA

• SOURCES– Governments – Trade [business] associations– Research firms standard reports– Periodicals / books– Numerous databases– Investment groups– University centers

SECONDARY DATA

U.S. SOURCES OF GOVERNMENT ASSISTANCE

– U.S. Department of Commerce• GLOBUS (Global Business Opportunities) offers

daily trade leads from the Trade Opportunities Program (TOPS), as well as the Department of Agriculture.

• GLOBUS also offers daily procurement activity from the Defense Logistics Agency, the United Nations, and the Commerce Business Daily leads.

• You can also explore USA Trade® Online and EuroTrade Online for additional detailed information.

U.S. SOURCES OF GOVERNMENT ASSISTANCE

Export-Import Bank [EXIMBANK] Foreign Agricultural Service [FAS]

Agency for International Development [USAID]Overseas Private Investment Corporation [OPIC]SBA International Trade Center [ITC]DOS Trade & Development Agency

Department of Transportation Department of the Treasury U. S. Trade Representative

Many, many more

EXPORT STATISTICS WEBSITES• GOVERNMENT• Export. Gov market research now includes the

Information Center data• http://www.export.gov/mrktresearch/index.asp

• MARKET RESEARCH FIRMS and SOURCES– Frost & Sullivan, Nielson, American Marketing

Association list of market research firms

• CONSULTING FIRMS– McKinsey & Company http://www.mckinsey.com/ – A. T. Kearny http://www.atkearney.com/

INTERNATIONAL SOURCES OF ASSISTANCE

• The World Bank http://www.worldbank.org • The World Trade Organization http://www.wto.org • Regional trade organizations http://www.aseansec.org/ • The United Nations http://www.un.org/en/databases/ • OECD http://www.oecd.org • IMF http://www.imf.org • Various international organizations and associations• Other governments• Many, many more

• USING DATA FROM EXISTING SOURCES– Data was not gathered for the specific project

• MINIMAL COST AND EFFORT

• POSSIBLE PROBLEMS– accuracy / reliability– availability– timeliness– comparability of data / degree of fit

SECONDARY DATA ISSUES

PRIMARY RESEARCH

• Used when good secondary data is not available

• Provides accurate data for answers to a given research problem

• Potential problems– Difficulty in obtaining the data– Cost– Time to gather the data

DATA AND ITS USE

• QUALITATIVE DATA

• Symbolic data• Only subjective data• Understand behavior• Evaluate reactions• Describe small groups of

subjects or individuals in depth

• Exploratory role [generate ideas and hypotheses]

• Depth and richness of information

• QUANTITATIVE DATA

• Numeric data• Objective data• Measure a market• Describe groups of

consumers [structured by parameters]

• Extrapolate from a sample to the general population [market or market segment]

• Representative data

INTERNATIONAL MARKETING RESEARCH ISSUES

• Research design may be much more complex

• Data collection costs may be much more

• The challenge of coordinating research across multiple markets/countries and languages can be very large.

• Understanding the results requires the appropriate paradigm adjustments.


• How do I compare markets to recognize unique characteristics?

• Different techniques may be required to study small or different markets.

• There is a lack of data consistency for a given term.– For instance, in the EU, there is not common

definition for any of the following terms.• Educational level, marital status, and social class

among others


• Developing country data and using unfamiliar resources may be questionable – at best!

• Test for the compatibility and the comparability of data.

• Consumers may be hard to reach.


• Markets have different definitions– Regional, national, international

• Data must have the same meaning & the same level of – Validity

• Does it measure what it intends to measure?– Integrity

• Is it accurate?– Reliability

• How much error exists?


SECTION 6B

MARKETING BARRIERS

ALAN L. WHITEBREAD

POLITICAL LEGAL ENVIRONMENT

• Governments have needs because of– Political reasons– Financial reasons– Special interest reasons– Different legal systems operate differently and

may not use the rule of law

MARKETING BARRIERS

• Impediments to the unrestricted free market flow of goods and services.

• Rationale for marketing barriers– Protect infant industries – Reduce unemployment– Equalize costs and prices to their nation’s level –

How?– Reduce balance of payments – How?– Enhance national security

TARIFFS

• Taxes levied by a government on an import [rarely an export] of an item to

1. Protect domestic industries by• Providing a price support• Assuring profits so they can be used for

reinvestment and growth• Building scale and becoming more competitive

2. Increase employment

TARIFFS

• Protective Tariffs – Increase domestic prices– Reduce consumption – Tend to have the highest rates

• Revenue Tariffs– Generate income for governments– Usually on high-volume products – Tend to have the lowest rates

TARIFF TYPES

• Single-Stage– Collected at one stage in the value chain

• Retail sales tax

• Value Added– Multistage, non-cumulative consumption tax on the

value added at each stage of a value chain

• Cascade– Cumulative and collected only once

• VAT [EU]

• Excise– One time charge levied on specific products

• Tires, alcohol

TARIFF DURATION AND TYPES

• Tariff– Effective until changed by the government

• Specific duties – tied to weight or quantity• Ad valorem duties – tied to product value• Combined duties – specific and ad valorem

• Tariff surcharge– Temporary

• Countervailing duty [see anti-dumping]– Long term

• Up to 5 years in the U.S.

HTS AND TARIFF ENGINEERING

• Tariff engineering is the deliberate changing of a product to reduce the amount of tariffs due coming into a country. A couple of examples will show what can be done.

– A nylon jacket typically has a duty of 32%. By adding a water-resistant coating the duty rate drops to 7%.

– Hypothetically, product A has an import duty of 40%. Product A has three components which have a duty of 6% each. So as long as you can assemble and repackage for less than the 34% difference, shipping components saves money.

IMPORT CONTROL REGULATIONS

• Voluntary export restraints [VER’s]– Exporting countries limit shipments

• Japanese limit auto imports into US in 1980’s• See also quotas and Orderly Market Agreements

[OMA]

• License or permit controls– A special license or permit is required for

every shipment• Items like alcohol, pharmaceuticals, explosives,

cosmetics


• Inspection– To classify products, verify document

accuracy, check license requirements, check health and safety requirements,

• Ingredients, diseases, design flaws, ...

• Price controls– Regulation of an industry or item

• Minimum price• Fixed price


• Rules of origin – NAFTA

• Anti-dumping – WTO plus country laws– In the U.S. it is a counterveiling duty

• Use of Fair Trade Laws• Embargo• Special documentation / license / approval[s]• Special fees

– Supplemental, administrative• Quota

– Units and/or monetary amount

IMPORT CONTROL REGULATIONS: QUOTAS

• Export Quotas– Usually at beginning of a value chain– Encourage value-added activities before

export

• Import Quotas– Absolute; impose specific limits on the

quantity within a time period• Japan: leather shoes

IMPORT CONTROL REGULATIONS: QUOTAS

• Tariff– Step-in tariff goes into effect once a specific

quantity has been reached– Tariff-rate quota [TRQ = tariff + quota]

• Voluntary– Quantity limits by exporters to specific country,

also called Voluntary Export Restraints [VER] or Orderly Market Agreements [OMA]


• Domestic content regulations– Australia: cigarettes must have at least 57%

domestic leaf content

• State Trading Enterprises [STE’s]– China, Japan, Korea, …

• Environmental– Germany Green Dot

• Sanitary and phytosanitary barriers– Guiding Principle: SAFETY

OMNIBUS TRADE AND COMPETITORS ACT OF 1988

• Allows the President to negotiate trade agreements

• Accepts the HS code system• Permits the U.S. Trade Representative to

respond to unfair international trade practices

• Permits antidumping and counterveiling duties

• Protects intellectual property [IP]• …

CONTRABAND (U.S.)

• Weapons

• Tobacco products and associated items

• Consumables– Foods, beverages, or medicines

• Alcoholic beverages

• Narcotics and drug paraphanalia

• Selective magazines

• All pornographic photos or materials

EXPORT CONTROLS

• EMBARGO– US October, 2002

• Cuba, Iran, Iraq, Libya, North Korea, Sudan, Syria

• Embargoes and other special controls http://www.access.gpo.gov/bis/ear/pdf/746.pdf – 27 nations with restrictions paced by US DOC, DOS, or DOT

• Nonproliferation, Arms Control, and International Security [NAI] Oversight List - 54 nations where you must watch subcontractors

• DOE Sensitive countries list http://www.ch.doe.gov/offices/OCI/SensitiveCountries/index.htm – 25 nations with proliferation / terrorist concerns

• TYPE OF PRODUCT– US – Encryption technology

EXCHANGE CONTROLS:CURRENCY

• Exchange rate management– World Bank [IMF], regional, or central bank

interference– Amount of exchange with another country or the

amount that can leave the country within a certain time period

• Conversion of the portion of country income to local / foreign currency

• Currency flows

• Devaluation

GOVERNMENT CONTROLS:EXCHANGE

• Taxes and Surcharges– India: Imports and protectionism– Indonesia: 10% VAT + 35% luxury tax + x% sales tax

• Restricted foreign investment– Ghana

• foreign investment is not allowed in 1-petty trading, 2-taxis, 3-lotteries, or 4-beauty salons and barber shops

– India• foreigners cannot own supermarkets

GOVERNMENT CONTROLS:EXCHANGE

• Local content and local laws– Japan: restricts the size [of a type of retail

outlet] and/or type of foreign operations.

• Restricted sales– Brazil: you must have a manufacturing /

assembly facility operating in the country to be eligible to sell that product in Brazil.

GOVERNMENT CONTROLS:MISCELLANEOUS

• Guidance

• Government Procurement & State Trading

• Subsidies:– Concessionary financing

• Lower than market interest rates

– Cash subsidies• Price cuts or price supports• Japan: for R&D expenditures

GOVERNMENT CONTROLS:MISCELLANEOUS

• Favorable foreign exchange conversion rate

• Rebates of various taxes– VAT rebates for transshipment– VAT rebate for company purchases in the

country in which the firm operates

NON-TARIFF TRADE BARRIERS:TRADE RESTRICTIONS

• Quotas– Commodity management

• Licensing procedures and requirements– Import license [GATT]

• Local content [country] or local area content [trade area] requirements

• Price controls

• Embargoes

NON-TARIFF TRADE BARRIERS:ADMINISTRATION & CUSTOMS

• Valuation

• Anti-dumping practice

• Tariff classification / rulings– Argentina: no performance sports footwear

imports– Korea: oranges ≥ 2” in diameter only

• Documentation– Certificates / certifications

• Fees

NON-TARIFF TRADE BARRIERS:STANDARDS & TESTING

• Additional standards– Manufacturing: ISO, CB Scheme, …– Quality: AQL, Six Sigma, …– Safety: CE Mark, CB Scheme, …

• Alternative testing methods

• Governmental acceptance of standards and testing methods

• Packaging, labeling, and marking requirements and standards

NON-TARIFF TRADE BARRIERS:GOVERNMENT

• Government procurement

• Export subsidies

• Countervailing duty practice

• Assistance for domestic entities

• Insurance– Panama, Nigeria – shipment must be insured by a

national insurance company

• Carrier– China – must use their flagged vessels for ocean

transport

NON-TARIFF TRADE BARRIERS:IMPORT CHARGES AND FEES

• Advance deposits

• Administrative fees

• Additional duties

• Phantom customs charges

• Import credit discrimination

• Variable duty and fee application

• Border taxes

NON-TARIFF TRADE BARRIERS:MISCELLANEOUS

• Voluntary export restraints

• Orderly marketing agreements

• Trade area issues– Prohibited / restricted imports

• EU: Genetically modified organisms [GMOs]

– Safe Harbor : US – EU on privacy

• Other restrictions– Singapore: small containers only

NON-TARIFF TRADE BARRIERS:BUSINESS PRACTICES

• Cartels and business associations– Switzerland allows them– Not illegal per se in Singapore– Korea: use of radio & TV for advertising– No Class A dairy products into the U.S.

• Corruption

CUSTOMS / ENTRY PROCEDURES

• Product Classification– Tied to rates and are often very arbitrary

• Product Valuation– Usually based on transaction value

• Documentation– Varies by country, often includes different documents

and differing quantities of:• Certificate of Origin

– a signed statement as to the origin of the export item• Bill of Lading• Packing List• Shipper's Export Declaration [SED]• Insurance Certificate [may be country specific]• Import License [country specific]

CORRUPTIONincludes, but is not limited to,

• Extortion

• Contract and other favors

• Skimming

• Fraud and/or misrepresentation

• Embezzlement

• Smuggling

• Money laundering

• Bribery [payoffs, kickbacks]

CORRUPTION[See Bribery – Transparency International Org.]

• Russian, Chinese, Taiwanese and S. Korean companies widely seenusing bribes in developing countries

• High propensity to bribe overseas also seen for companies from Italy, Hong Kong, Malaysia, United States, Japan, France and Spain

Construction and arms industries top sectors of heaviest bribery

Berlin, 14 May 2002


SECTION 7A

EVALUATING ENVIRONMENTS: RISK AND COMPETITIVE ANALYSIS

ALAN L. WHITEBREAD

EVALUTING RISK

• COUNTRY RISK

• POLITICAL RISK

• ECONOMIC RISK

• LEGAL RISK

• SOCIAL RISK

• GOVERNMENT RISK

• Bank of America World Information Services • Business Environment Risk Intelligence [BERI] S.A. • Control Risks Information Services [CRIS] • Duke University

– http://www.duke.edu/%7Echarvey/Country_risk/couindex.htm

• Economist Intelligence Unit [EIU]• Institutional Investor • Moody's Investor Services• Standard and Poor's Rating Group • Political Risk Services• Many, many more are available

COUNTRY RISK SOURCES

• Find a political risk map on the internet and find the highest risk nations.

• Economic planning failures

• External conflict

• Corruption [especially in government]

• Military or religion in politics

• Racial or national tensions

• Quality and strength of the legal system– “the rule of law”

COUNTRY RISK ITEMS

• Civil strife

• Process deterioration

• Contract repudiation [some or all]

• Currency controls, limits, & restrictions

POLITICAL RISK ITEMS

CONFISCATION: A government taking property without compensation.

EXPROPRIATION: Government confiscation with inadequate compensation.

NATIONALIZATION: Partial or complete government takeover of assets.

DOMESTICATION: Transfer of ownership from a government to local individuals or organizations.

GENERAL INSTABILITY RISK: Uncertainty regarding the likelihood of government actions in the future.

POLITICAL RISKS

• Centrally Planned and controlled– Cuba, North Korea

• Democratic Socialism – Sweden, Australia

• Radical Interventionism – USA

TYPES OF POLITICAL / ECONOMIC SYSTEMS

• Light Interventionism – Hong Kong, Singapore

• Laissez-Faire Capitalism – USA of the Founding Fathers

• Anarchy– ?

TYPES OF POLITICAL / ECONOMIC SYSTEMS

• Avoid high-risk situations

• Avoid unstable country situations

• Purchase risk insurance– Private insurance [CNA, …, many others]– OPIC [Overseas Private Investment Corp.]

MANAGING / REDUCING POLITICAL RISK

• Amount of foreign long-term debt – Loans

• What types of business loans are available?• Name some loan assessment measurements.

ASSESSING COUNTRY ECONOMIC RISK

• Some of many types of business loansBusiness equipment loans

Expansion financing

Factoring

Import-Export financing

Floor plan financing & Inventory loans

Machinery loans

M&A financing

Real estate loans [commercial & industrial]

Receivables financing

Working capital financing


• Inflation rate• Unemployment rate• Nationalized industries and trends• Foreign exchange• Economic volatility• Taxes [as a per cent of GDP]

– U.S. 31%

– France 50%

– Italy 46%

– Germany 45%


LEGAL AND SOCIAL RISKS

• Type of legal system and its use– Do they have laws?

– How well are they enforced [if at all]?

– Are some people / entities above the law?

• Products conflict with social norms– Women’s western clothing in Saudi Arabia

• Role and rights of – Firms

– Women

CULTURAL COMPATABILITIES

• What is the degree of fit between our culture and theirs?

• What do we have to do to succeed?

• Major potential areas of conflict– Social classes to caste systems– Politeness– Speed of doing things– ?

TYPES OF MARKET ENTRY BARRIERS

• Competitive– Examples?

• Duties and taxes– Examples?

• Non-tariff trade barriers– Examples?

TYPES OF GOVERNMENT RISK

• Regulations, registrations, approvals– Examples?

• Level of bureaucracy– Examples?

• Taxes– Examples?

• Support and programs– Examples?

MINIMIZE INTERNATIONAL RISK

• Political– Be involved at many levels

• Financial– Borrow locally especially if it is a weak currency– Buy investment insurance [public or private]

• Product and program– Understand product liability– Become culturally astute

• Intellectual property– Protect all knowledge

CERTIFIED GLOBAL BUSINESS PROFESSIONAL

Online Course

SECTION 7B

EVALUATING ENVIRONMENTS

ALAN L. WHITEBREAD

COUNTRY SELECTION:A MULTI-STAGE PROCESS

~270 country equivalents

Fail “must have” criteriaFail “must have” or “key

selection” criteria

Fail “must have”, or “key selection”, or

“detailed” criteria

Customers

Prospects

Score >X in Ex. 6.1

Score >X in Ex. 6.1

Fluent employees are readily available

Some detailed criteria

EVALUATING / SELECTING MARKETS

• Evaluation is based on a number of criteria:– market-related characteristics – cost-related aspects– the regulatory framework – tariffs, duties & non-tariff trade barriers

• The entry decision may vary by country– item weights and components

ISSUES AFFECTING THE EVALUATION / SELECTION OF MARKETS

• Strategy and objectives

• Access to target market[s]

• Country infrastructure

• Foreign exchange

• Cost of entry and on-going operation

• Opportunity costs

DEVELOPING CRITERIA

• SELECT AND DEFINE CRITERIA

• Market Potential• Size; growth rate; and … ?

– Market Access and Barriers– Assessing Product Needs and Wants– Appraising Quality – Level of Competition– Product / Service Requirements and Fit– Logistic / Supply Chain Issues

PRODUCT – MARKET PROFILE

– Who purchases / uses the product?• Why that person?

– What are they paying for the current solution?• By product configuration• Any packaging shortfalls or opportunities?

– Where is or should the product purchased?• How strong are the current channels?• Are they the right ones?

– What obvious benefits do we offer?• There must be an overwhelming reason to switch.

VISITING THE POTENTIAL MARKET

• ASSESSMENT– Confirm or contradict assumptions about the

market.

– Gather additional primary data from• Commercial sources• Governmental sources• Private market research• Secondary market research

– Develop a marketing plan in co-operation with the local channels of distribution

SELECTING TARGET MARKETS

3. MARKET

ATTRACTIVENESS

4. TARGET

MARKET

SELECTION

1. MARKET

DEFINITION

5. MARKET

POSITIONING

2. MARKET

SEGMENTATION

MARKET SEGMENTATION- A SIX-STEP PROCESS -

MARKET SEGMENTATION

1-Identify the bases for selection

[Why are you splitting it this way?]

2-Develop detailed market segment profiles

[Clearly identify each segment.]

MARKET TARGETING 3-Select and develop measures of attractiveness

4-Select target markets or market segments

MARKET POSITIONING

5-Develop a market position for every market segment

6-Develop the marketing mix for every market segment

B2C MARKET SEGMENTATION- SELECTING TARGET MARKET SEGMENTS -

• KOTLER’S FIVE TESTS– MEASURABLE

• Can I quantify the size of the market segment?

– ACCESSIBLE• Can I get to the segment with my channels of

distribution?

– SUBSTANTIAL• Is it large enough to be worthwhile?

– DIFFERENTIABLE• Can our products be clearly differentiated?

– ACTIONABLE• Does my company have the necessary desire?

MARKET SEGMENTATION

• Multinational market views– Consumers segment by:

• Geography• Demographics• Psychographics• Behavior• Benefits

– Market segments may exhibit similar buying behavior despite differences in cultural backgrounds.

BUSINESS SEGMENTATION VARIABLES

Organizational Characteristics

-Industry-Size

-Channel-Operating characteristics

Organizational Characteristics

-Industry-Size

-Channel-Operating characteristics

Product[s] or Process[es] or Technology[ies]

-Level of technology-Configuration

-Design

Product[s] or Process[es] or Technology[ies]

-Level of technology-Configuration

-Design

Buying Approach-Centralization

-Functional involvement-Partnering

Buying Approach-Centralization

-Functional involvement-Partnering

Application[s]of Products / Services

-How they are used?-What are they used for?

Application[s]of Products / Services

-How they are used?-What are they used for?

BUSINESS MARKET SEGMENTATION

INDUSTRY / INDUSTRY / INDUSTRY / INDUSTRY /SEGMENT NAME SEGMENT NAME SEGMENT NAME SEGMENT NAME

DESCRIPTION DESCRIPTION DESCRIPTION DESCRIPTIONNAICS NAICS NAICS NAICS

APPLICATION 1 PRODUCT 1 PRODUCT 2

APPLICATION 1 PRODUCT 1

PRODUCT 1 APPLICATION 1 APPLICATION 2 APPLICATION 3

Brief verbal descriptionMARKET (SEGMENT) NAME

B2B TARGET MARKET SEGMENT CRITERIA

1. Measurable– The degree to which you can measure buyer

characteristics

2. Accessible– The ability to focus on target market segments

3. Substantial– The degree to which target market segments

are large enough and potentially profitable enough to pursue

B2B TARGET MARKET SEGMENT CRITERIA

4. Compatible -The extent to which marketing and business

strengths compare to current and expected competitive and technology states

5. Responsive-The extent to which target market segments

respond to elements of the marketing mix

ATTITUDES

• BSB Global Scan - 18 countries• The researchers studied

– Consumer attitudes and values– Media viewership / readership– Buying patterns– Product use

• Five global psychographic segments represent 95% of the adult populations in the countries surveyed.

TARGETING• Standardized Multinational Marketing

– Same mix for a broad base of buyers• “Youthful fun”• Coke

• Concentrated Multinational Marketing– Choose a single segment of the global

marketing• Very narrow market definition

– Restaurant dishwashing machines

• Chanel

TARGETING• Differentiated Multinational Marketing

– Two or more segments with different marketing mixes

• Use different brands • Use different marketing programs• Look at SWATCH and/or Calvin Klein

LEVELS OF MARKET SEGMENTATION

MASS MARKETINGSame product to all segments

Coca Cola Early FordSEGMENT MARKETING

Different products to one or more segmentsProctor & Gamble Current auto manufacturers

NICHE MARKETINGDifferent products to different [sub-]segments

SUV’sstandard to family to luxuryMICROMARKETING

Specialized products for individuals and locations

LOCAL MARKETING[Brands, promotions]

Local chain grocery stores

INDIVIDUAL MARKETING[1:1 Marketing]

Amazon

MARKET SEGMENTATION:FILLING THE GAPS

MARKETS / SEGMENTS

CHANNELS OF DISTRIBUTION

TECHNOLOGIES

PRODUCTS

SERVICES

APPLICATIONS

13

2

2

The volume of the gap is an indicator of its attractiveness.

POSITIONING

• Positioning– The perception of your product in the mind of

the customer.• Expectations of performance and value• How do I select positioning dimensions?

• Standardized Position– Can you create a standard image?– Do you want to create a standard image?– High-tech or high-touch?

SOME AREAS OF DIFFERENTIATION

Form

Features

Performance

Quality

Conformance

Durability

Reliability

Repairability

Style

Design

POSITIONING DIMENSION CANDIDATESAND PERCEPTUAL MAPPING

Selection of the metric and its scale of measurement [preferably subjective] is a very difficult process. Select from the items on the left

or possibly use your two best differentiators for scale elements.

Quality

Application[s]

Occasion[s]

Lifestyle / image

Attributes

Competition

Price

POSITIONING: PERCEPTUAL MAPPING

MoreArtwork

MoreCopy

Fashion Coverage

Club Coverage

A

B

C

U

CCC

C

This portrays the relative position of our product [U] to our competitors [C].

We are not in a good position [U] since we are so close to many competitors.

We need to find a way to move to a new position [U1] much further from any competitor.

U1

C

POSITIONING STRATEGIES

Against CompetitionAgainst Competition Repositiona Competitor

Repositiona Competitor

C C CU

We are positioned very close to a competitor so there is little perceived difference in the products. Consequently, this is little or no price differential.

You reposition a competitor to a new position so that you can occupy their old position. This is both difficult and risky.


Find a PositionFind a Position Create a PositionCreate a Position

C CC

Un

C CC

CC

UUnn

We introduce a new product [Un] with some meaningful differences from all competitive offerings. There may be some positive price differential and / or market share gain.

We introduce a new product [Un] with very meaningful differences from all competitive offerings. There should be a more positive price differential [than with find a position] and / or market share gain.


Broaden the BaseBroaden the Base

C UC C

CWe introduce a new product with some a little difference from existing competitive offerings. It is difficult to get any positive price differential in the marketplace.

BRAND NAME SELECTION

Strive to achieve at least three of these attributes. Look around, it is very difficult to find a brand name that meets four or more of

these brand name objectives.

There are many objectives for creating a successful brand name. It should be

1. Distinctive;

2. Easy to pronounce, recognize, and remember;

3. Lack poor foreign language meanings;

4. Positive;

5. Suggesting product benefits;

6. Suggesting product quality;

7. Timeless; and/or

8. Versatile.

BRAND ISSUES

Advantagesof

Brand Names

AdvantagesOf

Brand Equity

Advantagesof

Brand Names

AdvantagesOf

Brand Equity Brand LoyaltyBrand Loyalty

AttributesAttributes

Perceived Qualityand Value

Perceived Qualityand ValueConsistencyConsistency

Easy IdentificationEasy Identification

AwarenessAwarenessCredibilityCredibility

Defense AgainstCompetition

Defense AgainstCompetition

BUILD SUSTAINABLE COMPETITIVE ADVANTAGE WITH EVERY THING YOU DO WITH YOUR BRAND!

A COMPETITIVE REPORT

• A comprehensive review of every major competitor.

• At a minimum, it usually contains all of the following items.– Company profile and management structure– Detailed financials including subsidiaries– Market and industry research key items– Significant events

• New product announcements• Price change dates relative to competition

– Trade articles of note

BATTLEFIELD MAP

TYPE OF PRODUCT

MARKET SEGMENT 1

MARKET SEGMENT 2

MARKET SEGMENT 3

PRODUCT A Brand A Brand A

PRODUCT B Brand A

Brand B

Brand B Brand B

PRODUCT C Brand A

Brand C

Brand C

PRODUCT D Brand D

A Battlefield Map helps everyone in the organization understand who they are competing against in every category. This knowledge helps sales people focus on what they should sell and how to sell in that situation.


SECTION 8A

INTERNATIONAL INTELLECTUAL PROPERTY

ALAN L. WHITEBREAD

WORLD TRADE ORGANIZATION (WTO)http://www.wto.org/english/thewto_e/thewto_e.htm

• ORIGINALLY GATT [1948 – for tariffs]

• WTO IS CURRENTLY INVOLVED IN– INTELLECTUAL PROPERTY– DUMPING– SUBSIDIES [three categories from

allowable to unfair] like• JAPAN [100% R&D reimbursement]

– SAFEGUARDS• INDUSTRY PROTECTION [also protectionism]

WORLD TRADE ORGANIZATION (WTO)http://www.wto.org/english/thewto_e/thewto_e.htm

– INFRASTRUCTURE: Member requirements • CHINA:

– ACCOUNTING » 2007 – Selected the International Financial

Reporting Standards [IFRS]» Currently there are multiple sets of books [1] exaggerates for superiors

[2] underreports to save taxes [3] fairly accurate

– PENSIONS– DISPUTE RESOLUTION– See http://www.wto.org/english/tratop_e/region_e/region_e.htm

for a map of risk assessment.

INTELLECTUAL PROPERTY &THE MARKETING MIX

• PRODUCT DECISIONS– May be dependent upon patents for

• Designs• Production processes, …

– The brand is often more important than the product.

• PROMOTION DECISIONS– Slogans, songs, or visual communications

that become part of the product image need to be protected.

INTELLECTUAL PROPERTY

• DISTRIBUTION DECISIONS– Ownership, use, and rights– Who is allowed to do what?

• PRICING DECISIONS– Driven by competition and the market

• IP protection may reduce competition for a limited time.

– Price can be used as a weapon to gain share or open up new market segments. Be careful, this can be very dangerous.

ELEMENTS OF INTELLECTUAL PROPERTY

• COPYRIGHT

• TRADEMARK• SERVICE MARK

• PATENT• TRADE SECRET

• KNOWLEDGE MANAGEMENT


• COPYRIGHT– a guarantee of control of an original work– for the original way the idea is expressed

– any type of• artistic, dramatic, digital, literary or musical work

ELEMENTS OF INTELLECTUAL PROPERTY: WIPO http://www.wipo.org/about-ip/en/trademarks.html

• TRADEMARK– a guarantee of control of a work of some item

used to uniquely identify the product [or service in some countries]

– it could be a• word, logo, package design, slogan, or other

identifying mark

DOMAIN NAMES

• Internet addresses [domain names] are bought and sold – sometimes for large amounts of money.

• If a domain name infringes on a registered trademark, the domain name will be suspended immediately if challenged by the trademark owner.


• SERVICE MARK– some item used to uniquely identify a service

[available only in some countries]

– it could be a• word, logo, package design, slogan, or other

identifying mark

TRADEMARKS & SERVICE MARKS AREAVAILABLE IN APPROXIMATELY 200 of ABOUT 270

POLITICAL ENTITIES

• There are different filing methods and requirements in most countries.

• You have no more than six months to claim copyright protection.

• The safe route is “first use” – Next is “intent to use”– Use the U.S. CASSIS System for searching marks– See the USPTO website for detailed information.

• The level of protection by law and in practice varies by country.

TRADEMARKS & SERVICE MARKSAVAILABLE IN APPROXIMATELY 200 of ABOUT 250

COUNTRIES

• A Service Mark [SM] is not permitted in some countries.

• Using a registered trade mark symbol [®] may have serious implications in a few countries.

• The mark can often be invalidated through 3 to 5 years of non-use.

• The EUROPEAN COMMUNITY TRADE MARK ACT [CTM] for 15 nations has one filing.

TRADEMARK PROTECTION

• EXHAUSTIONor “first sale” determines from when the trademark owner may or may not have rights

-This varies by country

• UNIVERSALITY [or trade identity]states a trademark is not only an identification of the source of a product but remains as a part of the product.

• TERRITORIALITYstates a trademark holder has the right to control the distribution of the trademarked product.


• PATENT– A guarantee of a set of rights to control the

use of an invention– Protects the original idea and the way it is

implemented [in some countries]– Generally 17-20 years protection and can

vary by country and type of patent– Many different types of patents

• What types can you name?

PRIMARY REQUIREMENTS FOR A PATENT

• The new invention must be:– Novel

• not known or used in the country and • not published anywhere

– Non-obvious • cannot be an obvious way to do something, e.g., a simple

extension of a principle

– Useful • must have some application, even if not commercially

practical. See Wacky Patents and similar sites for many examples.

PATENT COOPERATION TREATY [PCT]See http://www.wipo.int/pct/en/texts/articles/atoc.htm for complete text.

• PCT is a procedure for filing patent applications internationally. One filing results in a single search which is accompanied by a written opinion. You can also get a preliminary examination. A full examination required by national law must to done to receive a patent in each application country.

• No “international patent” exists. • Find a map of PCT countries on the web.• Find a list of PCT member nations on the web.


• UTILITY PATENT– Covers processes, machines, manufacture or

composition of matter, plus new and useful improvements

• DESIGN PATENT– Covers the appearance or ornamental design

of an article


• NEW HORIZONS [the U.S. is leading the way]

– Software– Sounds

• Examples?

– Colors • Examples?

– Smell • France, L’Oreal granted in 2006 – the first one is

the world for a fragrance.

PATENT VARIETY AROUND THE WORLD

• EXAMINATION– All patent applications are examined prior to award, – OR some patent applications are examined prior to award.– If there is no examination for novelty, the applicant may be able to request the

patent to office undertake such a search.

• OPPOSITION– An opposition procedure for all patent applications, – OR no opposition procedure.– Pre-grant adversarial procedures can be initiated by patent office officials to

resolve disputes, – OR no opposition procedure; – Patent applications are published prior to award, – OR there may be an opposition procure for some patent applications.

• RESTRICTIONS– Food and pharmaceutical applications only.– Food applications only. – Military applications only.– Time measurement and textile patents only.

TRADE SECRETS

• The Trade Secret Office, Inc. in Naperville, Il estimates that trade secret information worth $40,000,000,000 per year is stolen from U.S. companies.

• Trade secret information is protected by the– Uniform Trade Secrets Act of 1979, and the– Economic Espionage Act of 1996.

TRADE SECRET GUIDELINES

• COMMON SOURCES OF DISCLOSURE:– Inadvertent 3rd-party disclosure [especially

somewhere in the supply chain]– A disgruntled or ex-employee– Corporate espionage

• TRADE SECRETS– Process[es] [recipes]– Controls [Escorts, documents, NDA’s, …]– Documentation– Security– Employee knowledge and awareness of the process– Stiff penalties

KNOWLEDGE MANAGEMENT

• A newly emerging business field of all aspects of knowledge within a firm.

– Information– Combined with experience– Context of use– Interpretation– And its place in the context of the firm

KNOWLEDGE MANAGEMENT

• Intellectual property

• Knowledge within the firm– Processes– Systems– Methods– Market knowledge

• Customer / prospect lists• Databases


SECTION 8B

QUALITY SYSTEMS, STARNDARDS, AND SPECIFICATIONS

ALAN L. WHITEBREAD

QUALITY SYSTEMS

• Although the ISO-9000 series is often referred to as a quality system, it is really a measure of consistency. In particular, it says if you produce 950 good and 50 bad parts in a day, you will most likely produce 950 good and 50 bad parts on any day of manufacture.

• A quality system would generally go beyond this and tell you about the quality level of the parts produced that day.

QUALITY SYSTEMS

• ISO-9000 Series for Manufacturers– This is the roadmap for all standards included in the series though ISO-

9004.

• ISO-9001– The most comprehensive set of standards including design,

development, installation, production, and servicing.

• ISO-9002– A smaller set of standards including installation, production, and

servicing.

• ISO-9003– Standards for quality assurance for firms involved in the final testing of

products [in place of their customers doing for themselves].

• ISO-9004– Standards for executive management to develop and implement an

effective quality management system.

• ISO-14000 Series Environmental managementstandards family

• QS9000 (ISO / TS-16949) Automotive

• ISO-17779 Information Security

• SIX SIGMA Motorola, GE, …

• Malcom Baldridge Cadillac

QUALITY APPROACHES & SYSTEMS

ISOhttp://www.iso.org/iso/en/ISOOnline.frontpage

• 146 countries working in partnership with – International standards organizations– Government entities and standards – Industry associations

• including national standards organizations

– Business and consumer representatives– Find the list of ISO members.

SIX SIGMA

• Applies to operations, technical areas, customer services, marketing, finance, services, engineering, …

• It is a measurement of total quality allowing a company to quantify its effectiveness in eliminating defects [improved quality] and variations [consistency of a quality level] from their processes.

• A Six Sigma company will operate at a maximum 3.4 defects per million opportunities. Another way of saying this is 99.9997% defect free. – Motorola, General Electric, and TI are some of the

leaders in Six Sigma implementation

STANDARDS

• International– Metric not imperial– Numerous electrical systems

• US – Commercial– Government– Numerous industry standards groups

COMMERCIAL STANDARDS

• ASTM– http://www.astm.org/cgi-bin/SoftCart.exe/BOOKSTORE/BOS/index.html?

L+mystore+znwr3647+1116868729

• UL– http://ulstandardsinfonet.ul.com/catalog/stdscatframe.html

• ANSI– http://webstore.ansi.org/ansidocstore/default.asp

• many other industry and other level standards

US GOVERNMENT STANDARDS

• Federal Standards– http://apps.fss.gsa.gov/pub/fedspecs/fedspecs.cfm?

sort=8&firstTime=Y&RequestTimeout=500

• FIPS – Federal Information Processing Standards

• MilSpec – Federal military procurement– http://www.dscc.dla.mil/Programs/MilSpec/

• DOD – Department of Defense– http://ulstandardsinfonet.ul.com/catalog/stdscatframe.html

• NIST – National Institute of Standards & Testing– http://ts.nist.gov/ts/htdocs/210/ssd.htm

• Review these websites in some depth to see the breadth of U.S. government standards.

NATIONAL INSTITUTE OF STANDARDS [NIST] http://www.nist.gov/public_affairs/standards.htm

• Measurement standards– Provide measurement traceability, at necessary levels of accuracy, to

national standards

• Documentary standards– Specify characteristics of products, processes, services, or systems.

See standards information, (which includes Export Alert! an e-mail notification service), standards coordination and participation in standards activities, and training

• Conformity assessment/accreditation– Procedures for demonstrating compliance with standards and

regulations, including NIST guides to EU directives

• Information technology standards

PACKAGES AND TESTING

• Fiberboard Boxes• Plastic & Metal Drums and Pails• Plastic & Glass Bottles and Jars• Paper, Plastic, and Fabric Bags• Infectious Substance Shippers• Radioactive Materials Shippers• Pallet & Bulk Load Systems• Metal, Plastic, and Fiberboard

Intermediate Bulk Containers

PRODUCT RELIABILITY TESTING

• How is the product likely to be used?

• What can happen to the product?

• How should we protect the product …– In shipment?– In use?

PRODUCT SPECIFICATIONS

• Model number• Description• Features and benefits• Pictures and/or drawings• Specifications• Serial number & location• Lot or batch number and location• Pick any technical product you use and find

its technical specifications on the web.

SHOULD I STANDARDIZE PRODUCTS?

ADVANTAGES DISADVANTAGES

Cost reduction through economies of scale

Product does not match market segment need closely enough

More consistent quality Must meet all the packaging requirements with a limited number of packages

Improved operations due to less variety

Explosion in number of products to be made and inventoried

Improved inventory control Standard products must compete against strong local competitors

GLOBAL BUSINESS PROFESSIONALOnline/Distance Learning Course

SECTION 9A

FOREIGN MARKET ENTRY ALTERNATIVES

ALAN L. WHITEBREAD

POTENTIAL TRADE BENEFITS FOR THE FIRM

• Incremental profitability• Acquire / increase economies of scale• Take advantage of differential growth rates

in [country] markets• Take advantage of product / market

differences• Extend product life cycles

– Remember, the more technologically advanced products are generally introduced over time from the most to least advanced economies.

MARKET ENTRY FACTORS-CHALLENGES-

• GOVERNMENT and BORDER STABILITY

• FOREIGN EXCHANGE

• INTELLECTUAL PROPERTY RIGHTS

• RESTRICTIONS / QUOTAS

• SHIPPING RISK AND PIRACY

• MANAGEMENT COMMITMENT

SELECTING FOREIGN MARKETS

• DETERMINE MARKET ATTRACTIVENESS– ECONOMIC GEOGRAPHY– DRIVING FACTORS– MARKET RESEARCH

• EVALUATE AND MANAGE RISKS

• EVALUATE THE COMPETITIVE POSITION– LEONTIF INPUT-OUTPUT DATA– COMPETITOR INFORMATION– HOW IS INFORMATION TREATED?

MARKET EXPANSION STRATEGIES

• NARROW FOCUS– concentrated markets / countries

• COUNTRY FOCUS– country-by-country

• COUNTRY DIVERSIFICATION– concentrated markets in multiple countries

• GLOBAL DIVERSIFICATION– diverse markets in multiple countries

FOREIGN MARKET ENTRY ALTERNATIVES

DIRECT

EXPORTING

FRANCHISING

INDIRECT

EXPORTING

DIRECT

INVESTMENT

CONTRACTUAL

LICENSING

COMMITMENT, RISK, CONTROL, PROFIT POTENTIAL

COPYRIGHT A. WHITEBREAD, 2001-2007

ENTERING FOREIGN MARKETS

ManufacturerAgents / Distributors

[Not in destination country- Usually in home country]


INDIRECT EXPORTING• RISKS

– LIABILITY, CONTROL

– VERY ERRATIC DEMAND

– FIT WITH OPERATIONS

• REWARDS– VERY LITTLE SALES EFFORT

– INCREMENTAL VOLUME AND PROFIT



DIRECT EXPORTING• RISK

– CONTROL OF INDEPENDENT RESELLERS

• REWARD• DIRECT CONTACT WITH LOCAL MARKET

ManufacturerSales

Subsidiary

Resellers[Usually not inhome country]

IndividualAccounts

OEM’s


LICENSING & FRANCHISING• RISK

– CONTROL OF RESELLERS

• REWARDS– MINIMIZE ENTRY RISK

– PROFIT STREAM

ManufacturerLicensees

orFranchisees

Resellers

IndividualAccounts



DIRECT INVESTMENT [ACQUISITION, GREENFIELD, BROWNFIELD]

• RISKS– START-UP OPPORTUNITY COST; INVESTMENT; WC

– COUNTRY STABILITY; CURRENCY EXCHANGE

• REWARDS– DIRECT MARKET CONTACT

– PROFIT STREAM


ManufacturerSubsidiary

(Manufacturing)

Resellers

IndividualAccountsOEMs


CONTRACTUAL[JOINT VENTURE, STRATEGIC ALLIANCE, CONTRACT MANUFACTURING]

• RISKS– AUDIT & CONTROL

– START-UP INVESTMENT; WC

• REWARDS– MINIMIZE ENTRY RISK

– PROFIT STREAM

ManufacturerContract

Manufacturing

Resellers

IndividualAccounts


LIKELY ENTRY ALTERNATIVES

SITUATION OPTION[S]

A small firm wants to export only. Indirect or direct exporting

A specialized machinery manufacturer wants to increase their presence in key country markets.

Add and develop key resellers

A firm is having difficulty supplying enough goods to a regional market.

Contract manufacturing, DFI, or JV

A firm wants to aggressively increase its sales in a region

DFI or JV

ENTITY OPTIONS

• Sole Proprietorship

• Corporation – C or S in the U.S.

• Partnership – General – Limited Liability Partnership [LLP]

• Limited Liability Company [LLC]

INVESTMENT INCENTIVES

• LOCAL AND STATE– Driven by job creation– Frequently number of jobs is more important than

quality of jobs or total payroll– Major tax relief– Free infrastructure improvements– Significant cash reimbursement

• Relocation• Facilities• Capital / Equipment

– Significant training allocation

INVESTMENT INCENTIVES

• NATIONAL– Duty exemptions [materials and equipment]– Expediting paperwork & eliminating fees– Additional tax exemptions– Potential reduced tax rates

• Ireland 10% for certain manufacturers vs. 38% for the other manufacturers

– Potential duty free imports– Potential full or partial VAT exemption

FOREIGN /FREE TRADE ZONE [FTZ]

• FTZs are secure areas are usually located in or near a customs or border patrol area.

• An FTZ is a port of entry but it is legally considered to be outside the customs territory for the purpose of product entry procedures and tariff laws.

• FTZs are part of a duty deferral program.

FTZ BENEFITS

• Duties and taxes are deferred until they are transferred to a territory for consumption.

• There generally is no time limit on merchandise in the FTZ.

• Materials in the FTZ can be transformed into something else.

• There are reduced or no duties on damaged goods.

• Customs clearance and duty drawback delays are virtually eliminated.

FOREIGN / FREE TRADE ZONE [FTZ]

• Merchandise can pass through without paying duty until it leaves the FTZ for the country in which the zone is located or, if reexported, no duty is due in the FTZ country.

• Many forms of FTZs– Warehousing– Assembly– Manufacture

FREE PORT ZONE

• A port with relaxed jurisdiction with respect to the country of location. Most commonly this means being free of customs or being a special customs zone with favorable customs regulations

• Country listing at http://en.wikipedia.org/wiki/Free_port


SECTION 9B

CONSUMER AND BUSINESS BUYER BEHAVIOR

ALAN L. WHITEBREAD

CULTURE AND THE CONSUMER

• THREE MAJOR GROUPS– Culture – Society influence– Subculture – Group life experiences– Social Class – Social divisions

• SOCIAL FACTORS– Family, reference group, role, status

• THESE MAY BE VASTLY DIFFERENT AS YOU GO FROM COUNTRY-TO-COUNTRY OR EVEN WITHIN A COUNTRY..

CULTURE AND INDIVIDUALS

• Why study individuals?

– Individuals have meaningful lives through experiences in the world.

– Individuals are shaped by their culture.

– Consumption [buyer behavior] patterns can best be understood in a cultural context.

RELATING CONCEPTS TO MARKETING

• An individual is a socio-cultural locus.– Individuals interpret motivation.

– Individuals pay attention to cues.

– A cultural context provides implicit and explicit messages.

• Aggressive behavior is O.K. in certain sports [fighting in hockey vs. basketball], but not otherwise


• What is the link with marketing?– Products relate to cultural ideas and

practices.

– Value systems are important.• MATERIALISM: The importance a consumer

attaches to worldly possessions – Compare the U.S. to your experience in other

countries.


• What is the link with marketing?– Products relate to cultural ideas and practices.

– Value systems are important.• MATERIALISM: The importance a consumer attaches

to worldly possessions – Compare the U.S. to your experience in other

countries.

FOUR TYPES OF BUYING DECISIONS

ComplexBuying

Behavior

Dissonance-Reducing Buying

Behavior

Variety-SeekingBehavior

HabitualBuying

Behavior

Significantdifferences

betweenbrands

Fewdifferences

betweenbrands

HIGH INVOLVEMENT[Quality – Service – Facts]

Use personal sales

LOW INVOLVEMENT[Obvious differences]Use advertising, POP

DURABLE GOODS[Furniture, appliances, long-lasting items…]Use subjective appeals, advertising

NON-DURABLE GOODS[Grocery items, frequent purchases, …]Use sales promotion, price

CONSUMER BUYER DECISION PROCESSHow is this done from afar?

Consumer defines the need or problem.Consumer defines the need or problem.

Consumer searches for a solution.Consumer searches for a solution.

Consumer evaluates reasonable alternatives.Consumer evaluates reasonable alternatives.

Consumer makes a purchase decision.Consumer makes a purchase decision.

Consumer makes a postpurchase evaluationSATISFIED or DISSATISFIED

Consumer makes a postpurchase evaluationSATISFIED or DISSATISFIED

G

E

T

G

O

O

D

F

E

E

D

BA

C

K

UNDERSTANDING CONSUMERS

• The market– What is / are the consumer’s

• Ability to pay?– Examine GNP and GNI per capita, disposable income

per capita

• Needs?• Buying motives?

– Be especially sensitive in collective societies.

• Actual buying process?• Consumption patterns?

BUSINESS & CONSUMER MARKET DIFFERENCES

• PRODUCTS – specification and performance

• PURCHASE VOLUMES• PRICING STRATEGY AND TACTICS• PROMOTION METHODS• DISTRIBUTION CHANNELS• CUSTOMER RELATIONS• DECISION-MAKING PROCESSES• NEGOTIATIONS

B2B MARKETING

• B2B marketing consists of selling to businesses for the following three applications.

1. Internal consumption for use in their business.– Staples for the office.

2. As a component part that will be put with other parts to product a finished product.– The box the finished product goes into to be put on the

shelf.

3. As a finished product that will be sold to other businesses.– An accessory like an additional game controller.

BUSINESS PRODUCTS CLASSIFICATIONFor an Auto Plant

INSTALLATIONS Factories, support buildings, large machines, large material handling equipment

RAW MATERIALS Rolled steel, rubber, plastic resins

COMPONENTS Spark plugs, radiators, steering wheels

ACCESSORY

EQUIPMENT

Drill presses, assembly lines, small material handling equipment

MRO SUPPLIES

Maintenance, Repair, Operation

Cleaning supplies, office supplies, toilet tissue,

BUSINESS SERVICES Grounds maintenance, cleaning service, office equipment servicing

WHAT IS SCM TODAY?

It is the seamless end-to-end management of a complex set of decisions requiring the exchange and flow of information, products, services, and money.

-Institute for Supply Management

Simply put,

SCM involves everything from taking materials out of the ground to the satisfied customer.

FIRMS USING SUPPLY CHAIN MANAGEMENT

The Aromatics (Thailand) Public Co. Ltd.

plus every other company, governmental agency, and organization.

[ASU video i2 video]

SUPPLY CHAIN MANAGEMENT

MARKETSConsumers:CustomersProspectsSuspects

SUPPLIER’SSUPPLIERS

FOCAL FIRM

CUSTOMERS

FOCAL FIRMNEW PRODUCT DEVELOPMENT

CUSTOMER’SCUSTOMERS

SUPPLIERS

Mining companies – Manufacturers – Suppliers – Assemblers – Services

Your entity is always the FOCAL FIRM.

Resellers of all kinds or final purchasers

Final purchasers of resellers

SUPPLY CHAINS ARE INTERDEPENDENT

MARKETConsumers:CustomersProspectsSuspects

FOCAL FIRM

CUSTOMERS

CUSTOMERS’CUSTOMERS

SUPPLIERS

SUPPLIERS’SUPPLIERS

If you change one thing in a supply chain, you know that one or more other things will be affected. So you must make decisions for the good of the entire supply chain, not for a specific area.

For instance, the system losses in all other areas may greatly exceed the benefit to the one area. This causes the supply chain to lose efficiency.

THE SUPPLY CHAIN AT WORK:A product flow view – the auto industry

DOWNSTREAMUPSTREAM

STEEL

COMPANY

3RD TIER

STEEL

UPSTREAM

SUPPLIER

2ND TIER

FASTENERS

DIRECT

SUPPLIER

1ST TIERManage all other tiers.

RADIATORS

FORD, GM

CHRYSLER

FOCAL FIRM

OEM

VEHICLES

DEALERS

RENTAL

AGENCIESFLEETS

SPECIAL

VEHICLES

CONSUMERS

Raw materials, semi-finished, and component products

Finished products and components

BUSINESSES

CONSUMERS

CREATING CUSTOMER VALUE: DEMAND PULLS ALL PRODUCT!

Suppliers

Manufacturers

Warehouses or Distribution Centers

ResellersB2B or B2C Consumers

B2C

B2B

Planning and forecasting accuracy are critical as any delay in the system has a ripple effect!

INFORMATION, PRODUCTS AND SERVICES, MONEY

BASIC ECONOMICS

P

R

I

C

E

QUANTITY

DEMANDED

[PER PERIOD]

EQUILIBRIUM

INELASTIC

DEMAND

ELASTIC

DEMAND

Small Q

LARGE P

Small P

LARGE Q

BASIC ECONOMICS

P

R

I

C

E

QUANTITY

DEMANDED

DEMAND FOR A

NECESSITY:

SALT

DEMAND FOR A

SUBSTITUTE:

PEANUTS

DEMAND FOR A

SUBSTITUTE:

COTTON

INDUSTRY

OVERSUPPLY

PRODUCT

SUBSTITUTION

?

BUSINESS DEMAND

• Inelastic demand

• Fluctuating demand

• Derived demand

• Joint demand

BUSINESS DEMAND

DERIVED DEMAND

Situations were demand for products and services is derived from the demand for their customers’ products and services

EXAMPLE: PC’s drive computer chips

JOINT DEMAND

Situations where two products are used together and demanded together

EXAMPLE: Coke + iron ore to make pig iron

BUSINESS CLASSIFICATION

• NORTH AMERICAN INDUSTRIAL CLASSFICATION SYSTEM [NAICS]– SUPPLY-ORIENTED SYSTEM– 20 SECTORS: 1,174 INDUSTRIES [and growing]– NAFTA: 5 DIGITS + 6TH FOR COUNTRY CODE– COMPATIBLE WITH ISIC Rev. 3 [UN] [SITC]– CONTINUALLY UPDATED

• Services is now the major development project.

THE ECONOMY AND NAICS

PublicAdministration

92

Finance52

Information51

Transportation48-49

Retail44-45

Wholesale42

Manufacturing31-33

Construction23

Utilities22

Mining21

Agriculture11

AdministrationWaste Mgt.

56

Educational71

ManagementCompanies

55

ProfessionalServices

54

Real Estate53

Accommodation72

Health62

Arts / Enter.61

Other Services81

Services51-89

UNDERSTANDING NAICS CODEShttp://www.census.gov/epcd/naics02/naicod02.htm

DIGIT

NAICS

Number

First 2 32 ECONOMIC SECTOR

3rd 326 ECONOMIC SUB-SECTORPlastics and Rubber Products Manufacturing

4th 3261 INDUSTRY GROUPPlastics Product Manufacturing

5th 32612 DETAILED INDUSTRY GROUPPlastics Pipe, Pipe Fitting, and Unlaminated Profile Shape Manufacturing

6th 326122 U.S. INDUSTRY - SPECIALIZEDPlastics Pipe and Pipe Fitting Manufacturing

BUSINESS BUYER CLASSIFICATION

PRODUCERS Purchase products for producing other goods and services

RESELLERS Purchase finished goods for resale, rental, or leasing for a profit

GOVERNMENTS Federal, state, and local governments [all different buyer behaviors]

NPOs Purchase finished goods and services for resale, rental, or leasing for a profit

B2B CHANNELS – TYPES OF DISTRIBUTORS [see NAICS codes]

• General Line• Material handling / Material handling supplies• Plastic• MRO• Electrical• HVAC• Plumbing• Power distribution• Medical instruments / Medical supplies• Chemical • …many more

RELATIONSHIP MARKETING

QUALITY

MARKETING

CUSTOMER

SERVICE

TRUST – BONDING – EMPATHY – RECIPROCITY

GOVERNMENT PURCHASING:The US system is not typical

Public review

• Open bids

• Freedom of Information Act [federal]

Varying amount of paperwork depending on the total value of the purchase

Drive for cost minimization

but exclusives are possible

Domestic suppliers have a strong advantage

• Base price • Tooling

Common additional international price factors

• Changes to packaging • Escalation of prices• Transportation from x • Customs duties• Additional insurance • Payment terms &costs• Document fees • Port storage / handling• Port handling charges • Customs brokers• Taxes [all kinds] • Communications• Possibly travel • Inventory costs

ELEMENTS OF TOTAL COST FOR INTERNATIONAL SOURCING

FINDING LEADS

• How do I find potential buyers?– Methods

• Explore numerous online sources on your own

• Search for your industry conferences, organizations, press releases, publications, …

– U.S. Department of Commerce• GLOBUS (Global Business Opportunities) offers daily trade

leads from the Trade Opportunities Program (TOPS), as well as the Department of Agriculture.

• GLOBUS also offers daily procurement activity from the Defense Logistics Agency, the United Nations, and the Commerce Business Daily leads.

• http://www.stat-usa.gov/tradtest.nsf


SECTION 10A

CHANNELS OF DISTRIBUTION

ALAN L. WHITEBREAD

CHANNEL POWER and DIFFERENTIAL ADVANTAGE

• POWER– Obtained through differential advantage

• DIFFERENTIAL ADVANTAGE or SUSTAINABLE COMPETITVE ADVANTAGE CAN BE ANY OF THE FOLLOWING.– Physical / experiential– Psychological [communication / perception]– Purchase environment– Total cost including price and terms of sale– Post-purchase satisfaction [cognitive dissonance]

WHY ARE CHANNELS IMPORTANT?

• One of the least developed areas of business, they present an opportunity to rapidly expand sales and profitability– ALTOIDS [Kraft Foods, Altria] went from <$10M to >$100M by changing

from a niche to a mass distribution strategy including supermarkets, drug chains, and mass merchandisers. There was no change to the other 3 P’s.

• Companies have prospered and declined primarily based on their evolving [or not] channel strategies.– Stanley [tools] / Office products firms / Dell and Compaq

• What have you noticed Dell doing differently with its channels in the last few years?

• The emergence of multi-channel shopping provides firms the opportunity to provide products through multiple channels.– You buy toilet paper at a retail store for your home but you purchase it

in large quantities for your factory from a paper products distributor.

PRODUCTS &

SERVICES

APPLICA-TIONS

CHANNELS

MARKET[S]

SEGMENT[S]

Channels of distribution tie markets, segments, products, services, and applications together.

INTERNATIONAL DISTRIBUTION

• Channel Structures

• Distribution Patterns

• Types of Resellers

• Channel Selection

• Channel Relationships

CHANNEL STRUCTURES

PRODUCERS

AND

PROVIDERS

CONSUMERS

CHANNELS PROVIDE UTILITY OF PLACE, TIME, POSSESSION, & INFORMATION

CHANNEL STRUCTURE

• What are the types of channel members?

• What is the channel intensity for the– Firm– Market

• How many channels should be used?

CHANNEL MEMBERS

• Manufacturers, importers, or primary providers are the original source of the product / service.

MANUFACTURER

CHANNEL MEMBERS

• Manufacturers or importers or primary providers

• Large resellers generally servicing smaller resellers– DISTRIBUTOR to DEALER for B2B– WHOLESALER to RETAILER for B2C

• Can also be dealer direct, club, mail order / catalog, …

MANUFACTURER

DISTRIBUTORor

WHOLESALER

CHANNEL MEMBERS


• Significant purchasing power for multiple retail brands / stores– Department store, mass merchandiser,

specialty store, category killer, convenience store, off-price retailer, supermarket, …

– Potentially club, mail order / catalog, co-op, licensees, …

MANUFACTURER

NATIONALor REGIONALRETAIL CHAIN

CHANNEL MEMBERS


• Large resellers generally servicing smaller resellers

• Generally smaller resellers– Smaller retailers, franchisees, VARs, …– Rack jobbers– Potentially licensees– Beware of the DEALER label – it can mean the

same as DISTRIBUTOR in some channels.

MANUFACTURER

DISTRIBUTORor

WHOLESALER

DEALERor

RETAILER

CHANNEL MEMBERS



• Generally smaller resellers although there are very large retailers

• Consumers of various types

MANUFACTURER

DISTRIBUTORWHOLESALER

DEALERor

RETAILER

[BUSINESS]CONSUMER

CHANNEL MEMBERS



• Generally smaller resellers although there are very large retailers

• Business consumers of various types generally purchasing for

1. Consumption2. As a component of a finished product3. As a final product

MANUFACTURER

DISTRIBUTORWHOLESALER

DEALERor

RETAILER

BUSINESSCONSUMER

DEFINING CHANNEL STRATEGY AND OBJECTIVES

• Market share / volume• Market coverage [density of distribution]• Distribution strategy• Channel roles, expectations, and controls• Others

– Presence and continuity– Channel alignment, control, length, and leadership– Distribution and channel logistics– Profitability

CHANNEL STRATEGIES

• Use the market segments to determine which sets of channels of distribution may be the optimum one.– One often finds that channel sets are not

optimized.– This requires significant discussion with existing

channel members.

• Build a new channel of distribution– Risky and expensive– Consider an acquisition

INTERNATIONAL CHANNELS

• They may be longer and thus require a larger number of intermediaries.– Wholesalers, distributors, retailers, and many other

types exist.– In some countries like Japan, laws prevent you from

shortening the channel.

• They are more complex to manage due to the idiosyncrasies of intermediaries and their environments.

• They are more difficult to effectively and economically control.

TYPES OF VERTICAL MARKETING SYSTEMS [VMS]

Greater

Lesser

Degreeof

DirectControl

Degreeof

DirectControl

CORPORATECommon Ownership at Different Channel Levels

CONTRACTURALContractual Agreements Among Channel Members

ADMINISTEREDLeadership is Assumed by One or a Few Dominant Members; Contracts are not common

TYPES OF CHANNELS

Corporate

Subsidiaryor JV

Corporate

Subsidiaryor JV

Contractual

Resellers Licensees [Franchisees]

Contractual

Resellers Licensees [Franchisees]

Administered

No agreement

Administered

No agreement

International Vertical Marketing Systems [VMS]

Degree ofDirect

Control

Degree ofDirect

ControlMore Less

International channels of distribution may use any possible combination of the above systems. There is frequently significant region-to-region variation and sometimes major country-to-country differences. Each

business must build the best combination for their needs.

DISTRIBUTION STRATEGY: INTENSITY

INTENSIVEFrito-Lay:

we need to have potato chips available everywhere.

EXCLUSIVEJaguar:

we need a single strong dealer in every territory.

SELECTIVEPanasonic:

we need to select technically competent resellers.

CHANNEL MAPS: Understanding the channel flow

• A channel map provides a picture of the flow of goods and/or services through the various functional channel members.

• It is a great tool for explaining your system, or system changes and why they are needed. It is especially good for explaining changes or new channels to your sales organizations.

B2B [INDUSTRIAL] CHANNEL MAP[Simple direct distribution]

Manufacturer’ssales branch

Manufacturer’srepresentative

Manufacturer

B2B CONSUMERS

Manufacturer’sInternet site

B2B [INDUSTRIAL] CHANNEL MAP[Simple indirect distribution]

Manufacturer’ssales branch

Manufacturer’srepresentative

Manufacturer

B2B CONSUMERS

Manufacturer’sInternet site

Many Types of Industrial Distributors [See NAICS]

May Resell to Many Types of Industrial Dealers

CONSUMER CHANNEL MAP[Simple distribution]

Manufacturer’sInternet Site

Wholesaler

Manufacturer

CONSUMERS

MassMerchandiser’s

Internet Site

Retail Store

Indirect distributionDirect distribution

DIRECT DISTRIBUTION

Pros• Close to customers• Active market

development• Greater control over

strategies• More uniform

implementation of policies• Increased market

knowledge

Cons• Difficult to manage if not

familiar with new market• Time consuming• Expensive• Costly to maintain without

sufficient volume

INDIRECT DISTRIBUTION

Pros• Simple• Inexpensive• Small start-up costs• Intermediaries usually

represent several clients

Cons• Lose marketing control in

target market• Depend on performance of

intermediary• Potential reseller conflict of

interest• Intermediary may have

significant bargaining power

THINKING ABOUT CHANNELS OF DISTRIBUTION

• To build good channels of distribution one needs to understand the buying choices and preferences of every channel level.– For example, what choices do you have for

where to purchase a digital camera?• Camera specialty store• Discount merchandiser• Warehouse club• Drug store• Online• Where else?

TYPES OF RESELLERS: WHOLESALING INTERMEDIARIES

Distributors - WholesalersDealers - RetailersExporterExport Trading Company [possibly state controlled]

AgentBrokerExport BrokerExport Management CompanyManufacturer’s Rep.Freelance Sales Person

Representatives-Independently owned

-Never take Title to Goods-Help negotiate business

arrangements-Be careful of payments !

Merchant Wholesalers-Take Title to Goods

-Independently owned-Distributors / Dealers

-Fairly standard arrangements

EXPORT MANAGEMENT COMPANY AND EXPORT TRADING COMPANY

EMC ETCHandles all export operations

Yes Yes plus imports – mostly exempt from

antitrust [U.S.]

Under contract Usually yes Can be from no to a joint venture

Handles promotions Yes Yes

Communicates / arranges logistics

Yes Yes

Compensation Usually a commission or fee arrangement

As negotiated

For details of an ETC, see the Export Trading Company Act of 1982. ETCs work much like a Japanese sogoshosha.

WHOLESALER PROBLEMS

• Problems of fragmentation• If the number of wholesalers is high, transaction costs are

high drive consumer prices up.• Smaller firms carry smaller lines, less variety, smaller

assortment; have limited market coverage and service

• Dealing with fragmentation– Increase company role

• Increase direct investment into building channels• Use master wholesalers to reach smaller ones

– Use pull strategy [large consumer firms only]• Heavy consumer advertising to build demand

RESELLERS ADD VALUEBY PERFORMING FUNCTIONS

• FOR THE SUPPLIER

• -Market coverage• -Sales contact• -Inventory• -Order processing• -Information• -Customer support

• FOR THE CUSTOMER

• -Information• -Credit• -Customer service• -Technical support• -Allocating / expediting

• -How can you be sure your representative is doing this?

CUSTOMER-CHANNEL MEMBER INTERACTION AND THE NATURE OF

THE EXCHANGE TRANSACTIONAL EXCHANGE RELATIONAL EXCHANGE

Short-term oriented Past, present, and future considered

Sharp-in, sharp-out Reciprocity

Self-interest only Relationships

No concern for the future Long-term focus

One shot deals Win-Win

How will this impact [1] the traits of the sales people you hire, [2] requirements for the manufacturer’s sales organization training, and [3] sales compensation?

NEW DISTRIBUTION SYSTEMS

HORIZONTAL MARKETING

SYSTEM

Two or More Companies at One Channel Level Join Together to Follow a New Opportunity.

Nontraditional - Banks in Grocery

Stores

HYBRED MARKETING

SYSTEM

A Firm Sets Up Multiple Marketing Channels to Reach

One or More Customer Segments.

Use three - Retailers, Catalogs, and Sales

Force

UNDERSTANDING CHANNELS

• Some preliminary information can be gathered on the Internet from large research houses.– Retail see http://www.atkearney.com/main.taf?p=5,3,1,110,1

– Search for other data using “global retail opportunity ranking”.

• This must be supplemented with additional materials before key entry or expansion decisions are made.

SOURCES OF INTERNATIONAL RESELLER INFORMATION

• Competitor’s resellers• Consultants• Directories [country or industry]• Industry Associations [and directories]• Trade shows• U.S. Department of Commerce

– International Partner Service– Export Marketing Service– Other programs

BUSINESS CLASSIFICATIONhttp://www.census.gov/epcd/www/naicstab.htm

• NORTH AMERICAN INDUSTRIAL CLASSIFICATION SYSTEM (NAICS)– Focuses on new and emerging industries, industries using

new technologies, and service industries– Provides for comparability with Canada and Mexico– Adds U.S. industries to provide more detail

• NORTH AMERICAN PRODUCT CLASSIFICATION SYSTEM (NAPCS)– An initiative of the statistical agencies of Canada, Mexico,

and the United States to develop a comprehensive demand-oriented product classification system.

THE ECONOMY AND NAICS

PublicAdministration

92

Finance52

Information51

Transportation48-49

Retail44-45

Wholesale42

Manufacturing31-33

Construction23

Utilities22

Mining21

Agriculture11

AdministrationWaste Mgt.

56

Educational71

ManagementCompanies

55

ProfessionalServices

54

Real Estate53

Accommodation72

Health62

Arts / Enter.61

Other Services81

Services51-89

UNDERSTANDING NAICS CODEShttp://www.census.gov/epcd/naics02/naicod02.htm

DIGIT

NAICS

Number

First 2 32 ECONOMIC SECTOR

3rd 326 ECONOMIC SUB-SECTORPlastics and Rubber Products Manufacturing

4th 3261 INDUSTRY GROUPPlastics Product Manufacturing

5th 32612 DETAILED INDUSTRY GROUPPlastics Pipe, Pipe Fitting, and Unlaminated Profile Shape Manufacturing

6th 326122 U.S. INDUSTRY - SPECIALIZEDPlastics Pipe and Pipe Fitting Manufacturing

B2B CHANNELS – TYPES OF DISTRIBUTORS [see NAICS codes]

• General Line• Material handling / Material handling supplies• Plastic• MRO• Electrical• HVAC• Plumbing• Power distribution• Medical instruments / Medical supplies• Chemical • …many more

LARGE ACCOUNT MANAGEMENT PERSONNEL CHARACTERISTICS

• OEM / NATIONAL ACCOUNTS MANAGERS– Manage multiple projects

– Extensive contacts throughout the client firm

– Politically astute

– Equally comfortable on the factory floor and in the boardroom

– Highly respected by their organization

– Extensive product knowledge

– Very self-sufficient

• RFP, RFQ, organizing and managing resources


• B2B RESELLER MANAGERS– Good product knowledge– Sound sales skills through sales training– Provider of information and training– Well-liked motivator– Provide various types of assistance

• Customer issues• Problem resolution• Delivery schedules


• B2C RESELLER MANAGERS– Good knowledge of products, planograms, and

retailing– Sound sales skills through sales training– Provider of information and training– Well-liked motivator that is really good with

consumers– Provide various types of assistance

• Customer issues• Problem resolution• Delivery schedules

SELECTING CHANNEL MEMBERS

• A key to solid long-term growth is selecting resellers that fit a defined profile. Some key profile items include …

– Have they successfully sold similar products?– How may their competitive lines impact our sales?– Can they adequately cover the territory [number of

sales people, locations, …]?– Will they fit with our corporate culture and philosophy?


• SCREENING AND SELECTING CHANNEL MEMBERS: CRITERIA

– Must fit the customer profile [characteristics] – Meet minimum qualifications – Use and acceptable sales style– Possess product and market segment knowledge– Possess industry experience – The product[s] will fit with existing product lines– They are willing and able to perform all specified

channel role[s]


• SCREENING AND SELECTING CHANNEL MEMBERS: CRITERIA [continued] – Must be a team player– Sales strategy: existing and potential fit– Make some sales calls with their people to verify sales

skills• as a trainee / prospective employee

– Administrative / management fit– Management orientation [long vs. short] and chemistry– Risk assessment– Check references [industry, suppliers]

STRUCTURING CHANNELS WITH TERMS & CONDITIONS OF SALE

ACCOUNT TYPE PAYMENT TERMS DELIVERY TERMS SPECIAL TERMS PROMOTION AND INCENTIVES

Regional Distributor

Choose from:Net _ daysPrompt pay discount…

Choose from:FOB [Ex works]TimeSpecial chargesShipping feesDrop ship…

Choose from:Inventory

adjustmentMinimum order size…

Choose from:Co-op advertisingSales promotions…

Distributor

Dealer

B2B Consumer LeastFavorable

Terms

MostFavorable

Terms

PROACTIVE CHANNEL STRATEGIES

• Product differentiation– Exclusive features for appeal to target

markets

• Strategic pricing– Larger price differentials, more exploitation

• Intermediary development– Give intermediaries less incentive to cheat

• Marketing information systems– Better unit tracking to identify sources of leaks

TYPES OF CHANNEL PROMOTIONS

• OFF INVOICE - temporary price reduction• BILL-BACK - retailer bills manufacturer at the end of

the promo• BONUS - extra cash payment for sales• FREE GOODS• CONSIGNMENT - manufacturer financing of reseller

inventory• CONTESTS - for reseller and sometimes their sales

people• COOPERATIVE ADVERTISING ALLOWANCES• RESELLER LISTING - reseller listed in

manufacturer’s ad[s]• INVENTORY ADJUSTMENT

STRATEGY FOR NEW MARKET ENTRY

• ENTRY OPTIONS– Use established channels [competitive]– Build your own channels [risky and expensive]– Abandon the market

• You must provide incentive to channel members to accept a new product / vendor.

• Direct distribution is often the most effective alternative.

SUMMARY

• Channel decisions are difficult to manage globally.

• A global marketer must – tailor the marketing program to different types of

channels– and / or introduce new retail / merchandising concepts

• Effective channel management is dependent on control—from the selection process through the implementation of roles, expectations, and controls.


SECTION 10B

USPPI, CISG, RESELLER AGREEMENTS AND CHECKLISTS

ALAN L. WHITEBREAD

U.S. PRINCIPLE PARTY IN INTEREST[USPPI] RESPONSIBILITIES

• For products purchased and shipped direct to U.S, resellers are considered domestic sales, even if ultimately destined for export.

• The U.S. Reseller is responsible as the USPPI when forwarding product to any foreign destination.

• This applies to shipments to any– Domestic location, or– Subsidiary [regardless of location], or– Foreign trade zone, or– Drop shipped to a customer requested location– See http://www.aesdirect.gov/support/usppi_overview.html for details.

UN CONVENTION FOR THE INTERNATIONAL SALE OF GOODS - CISG

• Effective January 1, 1988 CISG replaced the United Nations Commission on International Trade Law [UNCITRAL]

• It– Involves places of business in different

nations– Is based on French Civil Code– Is approved by ~62 member nations, ~ 8

organizations


• Is not concerned with the

– Validity of contracts, or

– Competency of parties, or

– Rights of third parties.


• Does not apply to– Sales of consumer goods, or– Items with special regulations

• securities, ships, aircraft, and electricity, or

– Labor services, or– The supply of goods for manufacture IF the

buyer supplies a large portion of the finished product content.

CHANNEL CONTRACTS

• There are many types of channel of distribution contracts including– Distributor / Dealer

– Wholesaler / Retailer

– Manufacturer’s representative

– Try not to use “agent” or “agency”.

• Tying [franchises: full line purchases]

CONTRACT ISSUESThe Territory

• A detailed description of the “territory” [geographic, product line, channel, account(s) or other] to which the agreement applies. This should include any logical extensions like new products or new programs. It may also address expansion and/or contraction of the territory.

• Is this for a[n] “exclusive”, “non-exclusive”, “restricted”, or “general” reseller?

• What are the rights of the exporter to add resellers of other types in the defined territory?

CONTRACT ISSUESStatus of the Reseller

• Is the reseller “independent” or “associated” in some manner?

• Beware of the reseller being an “agent”—this is very sensitive on a country-by-country basis—most are not. In general, the only right to bind your company should be with your express written approval.

CONTRACT ISSUESDuties of the Reseller

• What marketing activities should the reseller perform?

• Are there performance targets? If so, clearly explain and quantify each one.

• What level of respect should the reseller have for patent and property rights?

• There should be a provision in the contract that the reseller and its employees know about and will comply with all requirements of the Foreign Corrupt Practices Act [FCPA] and other applicable U.S. laws.

• The reseller and its employees will comply with the laws of all countries where they will conduct business on behalf of your company. Why?

CONTRACT ISSUESDuties of the Reseller - continued

• Are there any reporting obligations? Be specific and show examples.

• There should be a provision in the contract that the reseller and its employees know about and will comply with all requirements of the Foreign Corrupt Practices Act [FCPA] and other applicable U.S. laws.

• The reseller and its employees will comply with the laws of all countries where they will conduct business on behalf of your company. Why?

CONTRACT ISSUESDuration, Terms, and Conditions of Sale

• What is the initial duration of the contract and how can it be extended in time?

• What are the method and terms of payment, and conditions of sale? Be very specific!

• If there are any payments, commissions, or other financial amounts due the reseller enclose specific details. Note: some countries prohibit payment to foreign bank accounts or other indirect methods.

CONTRACT ISSUESGeneral Items

• Include all restrictions that apply to the contract—export controls, U.S. and foreign government laws or policies—be complete!

• Generally, the reseller shall not sell, distribute, or represent competitive products and/or services if you provide a full line of products.– What will you allow if you can not supply a full

line of products?

CONTRACT ISSUESGeneral Items

• What is the governing law of the contract and relevant arbitration [if chosen]?

• The contract should be the sole agreement to govern the business relationship.

• What languages is [are] to be used for the agreement?

• How can the agreement be modified?

CONTRACT ISSUESTermination

• What are the grounds for each party to terminate the agreement?

• What is the length of notice required for termination?

• What are the consequences of termination for each party?

• This is an especially sensitive area. Make sure to retain highly qualified international contract law expertise!

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