Incoterms 2010 and International Business - 101
Incoterms 2010 and International Business - Wild - Quick Study - Chapter 12
Incoterms 2010 and International Business - 101
International Business: The Challenges of Globalization, 8th Edition, Wild & Wild
Incoterms 2010 and International Business - Wild - Quick Study - Chapter 12
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Quick Study
Quick Study 1
- Q: What is the first step in the screening process for potential markets and sites?
A: The first step in identifying potential markets is to assess the basic demand for a product. Similarly, the first step in selecting a site for a facility to undertake production, R&D, or some other activity is to explore the availability of the resources required. In other words, the first step in searching for potential markets mean finding out whether there is a basic demand for the company’s product.
- Q: What forces should a company research when assessing a nation’s business environment?
A: Cultural differences in language, attitudes toward business, religious beliefs, traditions, and customs can influence what products are sold and how they are sold. Companies sometimes locate production in the local market when significant changes must be made to a product’s physical features for cultural reasons. Cultural elements such as work ethic, educational attainment, or the level of managerial skills of the local people also affect site-location decisions.
Nations differ in their attitudes toward trade and investment from other countries. Governments can create barriers to investment, for example, by placing restrictions on the percent ownership foreign companies can have in domestic firms or by forcing the formation of joint ventures with local firms. Governments can bar foreign companies from competing in certain sectors of the economy. They can restrict companies from freely removing capital from the host nation. This can force companies to hold cash in the country or invest in new investment projects there. Governments can impose strict environmental regulations that can significantly increase production costs. They can require that companies divulge certain information—such as India’s demand for Coca-Cola’s secret recipe. A clean and smoothly operating bureaucracy can encourage investment whereas an inefficient, cumbersome, or corrupt one can discourage it. Political risk can threaten the activities of any type of international business activity.
Companies must analyze a nation’s economic policies before selecting a new market or site. Poor fiscal and monetary policies can cause high rates of inflation, increasing budget deficits, a depreciating currency, falling productivity levels, and flagging innovation. Such conditions can lessen investor confidence and cause companies to scale back or cancel proposed investment projects. Volatile currency exchange rates can make it difficult to calculate the amount of funds needed for an investment, and increase the uncertainty of how much money can be obtained in liquidation situations.
- Q: Evaluating a product from a certain country as superior to similar products from other countries is an example of what force at work?
A: Country image embodies every facet of a nation’s business environment, it is highly relevant to the selection of sites for production, R&D, or any other activity. Country image affects the location of manufacturing or assembly operations because products must typically be stamped with labels identifying where they were made or assembled such as “Made in China.” Products in relatively more developed countries tend to be evaluated more positively than those from relatively less developed nations. Country image can be good for certain products but unfavorable for others. Country image can also change over time. Although “Made in India” once applied only to textiles and sporting goods, it now has a respectable image for quality software and services.
Quick Study 2
- Q: The sensitivity of demand for a product relative to changes in income is called what?
A: Income elasticity is the sensitivity of demand for a product relative to changes in income and is one way of forecasting market demand. It is calculated by dividing the percent change in the quantity of a product demanded by a percent change in income. A coefficient of greater than 1.0 conveys an income-elastic product: one for which demand increases in a greater proportion to growth in income. The concept helps managers forecast future demand for products under certain economic conditions. It allows them to work up demand figures under several different scenarios of economic conditions. This allows companies to supplement all the current data collected in earlier screening stages with actual forecasts of potential demand for their products.
- Q: What variable is commonly included in a market potential indicator?
A: The main variables commonly included in market-potential analysis are: market size, market growth rate, market intensity, market consumption capacity, commercial infrastructure, economic freedom, market receptivity, and country risk. Its usefulness lies in the fact that hard data on market size (which is readily available in industrialized markets) is often unavailable in emerging markets. The market-potential indicator is one way for companies to rank different markets in terms of their appeal. However, it should be noted that this indicator is only useful for companies considering exporting to markets.
- Q: How important is it for top managers to pay a visit to a market or site before making a final decision?
A: The final step in the screening process represents the most intensive efforts of assessing remaining potential markets and sites—typically less than a dozen, sometimes just one or two. At this stage of the screening process, managers often want to take trips to each remaining site. The trip gives managers an opportunity to experience the culture, observe in action the workforce that they might soon employ, or make personal contact with potential new customers and distributors.
There are also competitive issues managers should analyze in the final step of screening. Some of these are the number of competitors and their market shares, the customer segment of each competitor and the loyalty of their customers, potential new entrants, and competitors’ control over key inputs. Intensely competitive markets typically put downward pressure on the prices that firms can charge their customers. An intensely competitive site can also increase the cost of doing business at that location. Lower prices and higher costs due to competitive forces must be balanced against the potential benefits offered by each market and site under consideration.
Quick Study 3
- Q: Obtaining information that already exists within or outside the company is called what?
A: The process of obtaining information that already exists within the company or that can be obtained from outside sources is called secondary market research.
- Q: What are possible sources of secondary research data?
A: The main sources of secondary research data include international organizations, government agencies, industry and trade associations, service organizations, and the Internet and World Wide Web.
- Q: What are potential problems that can arise with the use of secondary research data?
A: Availability of data: In the most industrialized markets, much secondary data already exists on various product markets. However, in many emerging and developing countries, previously gathered information of high quality can be difficult to obtain. Even when market data is available, its reliability can be questionable. Government-collected information in emerging markets is often stated in the most favorable light—and therefore somewhat suspect. However, large international research agencies are entering these markets, thereby providing a source of higher-quality information.
Comparability of data: Data obtained from other countries must be interpreted with great caution. Terms such as poverty, consumption, and literacy can differ greatly from one country to another. The different ways governments measure data also affects comparability among nations. Misinterpreting data because one does not know how it was compiled can sabotage even the best marketing plans and production strategies.
Cultural differences: Marketers conducting research in unfamiliar markets must pay attention to the ways that cultural variables influence information. Perhaps the most important variable is language. For example, even the use of interpreters can complicate matters as they may unintentionally place more or less emphasis on a certain point they are translating by the words they choose or their voice inflections. High illiteracy rates can force researchers to conduct time-consuming verbal surveys with potential customers. Hiring local research agencies (or international ones with local affiliations) is a good avenue when a company runs into cultural obstacles to research.
Quick Study 4
- Q: Collecting and analyzing original data and applying the results to current research needs is called what?
A: Primary market research is the process of collecting and analyzing original data and applying the results to current research needs. It helps complete the broad picture supplied by secondary data. Primary research differs from secondary research in that a company (or an outside agency on behalf of the company) gathers it for the first time.
- Q: A trade show is the same thing as what?
A: A trade show is an exhibition at which members of an industry or group of industries showcase their latest products, see what rivals are doing, and learn about recent trends and opportunities.
- Q: A firm researching a very unfamiliar but potentially very profitable market might be best to do what?
A: Companies that have little experience in an unfamiliar market often hire local agencies to perform some or all of their market research.
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Ethical Challenge |
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You are executive director of Qualitative Research Consultants Association (QRCA), an organization designed to assist market research practitioners. As part of their membership agreement, QRCA members agree to abide by a nine-point code of ethics that forbids practices such as discriminating in respondent recruitment and offering kickbacks or other favors in exchange for business. The code also calls for research to be conducted for legitimate research purposes, and not as a front for product promotion.
12-5 Why do you think the QRCA and other market research organizations create such codes?
12-6 Do you believe they are helpful in reducing unethical research practices?
12-7 As QRCA director, what other areas of marketing research do you believe should be covered by ethical codes of conduct?
A: Clearly, such codes are designed to provide researchers with ethical guidelines of conduct. The question of whether they help reduce unethical behavior is a tricky one. Many students will likely respond that the code at least becomes part of the subconscious and therefore will guide researchers toward ethical conduct. However, researchers can just easily recall the code, make an evaluation, disregard the code, and go ahead with the opportunistic behavior. As far as new areas for inclusion in the code, certainly there are many online research techniques that must be incorporated into a newly updated code. Data privacy issues, such as medical and financial scenarios, have been brought before the U.S. Congress and laws passed that deal with online snooping and “cookies.”
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Teaming Up |
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As a team, select an emerging market that interests you. Start by compiling fundamental country data and then do additional research following the steps in this chapter. Flesh out the nature of the market opportunity offered by this country or its suitability as a manufacturing site. Next, select a company that is pursuing opportunities in the country. Determine whether the company’s activities are consistent with the market or site potential as your team researched it.
A: This may be a good time to get students working on their Market Entry Strategy Project. This exercise gets students to learn more about a country, and to generate interest in countries other than their own. The project focuses on important aspects of each country and the process can begin to develop teamwork in the course.
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Practicing International Management Case |
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Vietnam’s Emerging Market Potential
12-10 Q: What do you think western countries can do to help improve the political climate in Vietnam?
A: Governments in the West can probably best help improve the business climate in Vietnam by developing closer ties with the government. They can provide aid for infrastructure improvements and help the government to streamline the bureaucracy. However, beyond this, Vietnam itself and its people must want to become more open to investment from Western companies. Without a change in the mindset of the nation’s government and its people, Vietnam is not likely to experience rapid progress.
12-11 Q: What problems might a company encounter while conducting market research in Vietnam?
A: Students should review the problems covered in this chapter and consult the business press for stories about the cultural, political, legal, economic, and financial obstacles companies face when researching the market of Vietnam.
12-12 Q: Reflecting on your perception of products labeled, “Made in Vietnam.” Does the type of product affect your perception? Explain.
A: As discussed in this chapter, certain low-cost products will be unlikely to have any negative connotation if labeled “Made in Vietnam.” However, high-priced luxury or technical products would likely suffer from such a label. However, as Vietnam develops economically over time, any negativity of such a label on sophisticated goods would be expected to decline.
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