Global trade

International trade fair

Making the Most of International Trade Shows

International trade shows or trade fairs are an absolute must for companies wishing to move ahead in the fiercely competitive global market environment. In this article I will discuss the importance of trade shows or trade fairs for companies large and small who seek to compete effectively in the current market environment.

Introduction

In the dynamic Chinese city of Shanghai, creating news was near revolutionary during the period November 1st to the 5th in 2006. During this time period four major trade shows had been staged simultaneously. Approximately 704 companies from 26 countries flocked in to partake in this revolution. The event was held at the Shanghai New International Expo Center whereby as many as 39,875 visitors from 68 countries passed through the turnstile to participate in this event.

The four events included: ENERGY ASIA, Factory Automation ASIA, INTERKAMA ASIA and Metal Working. These four shows were accompanied by an extensive supporting program featuring multiple forums, lectures and seminars including the Seminar of the Shanghai Association of Automation, the Forum on Power Distribution Intelligence Technology, the China Metal Working Summit, among many others.

The massive turnout of market leaders to meet clients face to face at these events attests to the fact that international trade shows are alive and well and their importance has not diminished even as technology-based means of communication have become more sophisticated and accessible. The success of this event also demonstrates that trade shows or trade fairs are an absolute must for companies wishing to move ahead in the fiercely competitive global market environment.

Strategic Importance of Trade Shows and Trade Fairs

A typical trade show is an event at which manufacturers, distributors and other vendors display their products or describe their services to current and prospective customers, suppliers, other business associates and the press. Often a trade fair is the first communication step in the process of export development for the small and medium-sized company. Because of the strategic audience and the publicity provided by the major trade fairs, firms use them to show off their latest products and services. Many industries, firms and investors are routinely showcasing their products at international trade shows.

Trade shows and exhibitions provide a neutral location for doing business. They bring together managers from different departments in buyer organizations, which increases the probability of meeting the decision makers and those influencing the purchase decision. Participation in these shows especially helps businesses seeking to explore marketing opportunities in another country, to make contact with paramount distributors, to build formidable relationship as well as determine the best way to market products in another country.

Trade fairs can be valuable not only for well established firms for purposes of prestige, public image and introduction of new products, but also for new firms that might not have other readily available ways to expose their products to the right audience. For new product announcements and demonstrations, the trade fair is an ideal forum for display.

International trade fairs offer many advantages and international marketers are well advised to consider them when planning promotional programs. A firm can test sales and determine potential distributor reaction in the market before committing itself. Potential distributors and licensees favor trade fairs for the same reason. They can see a firm’s products and observe the market reaction. In effect trade fairs are used to buy and sell products, to develop and sign contracts, to arrange for international distributorships and agent relationships.

Trade fairs are also used for CI (competitive intelligence); to check on one another’s most recent developments. In most surveys done at exhibitions, 30% to 40% of the respondents cited market research—also known as CI or checking out competitive products—as central to participation and marketing. Attending a trade show enables company representatives to learn a great deal about competitors’ technologies, pricing and the depth of market penetration.

Several thousand international trade fairs occur annually in more than 70 nations. Specialized fairs in individual sectors such as computers, the automotive industry, fashion and home furnishing regularly take place. Several hundred fairs are held in Eastern Europe annually. Some examples of successful International trade shows are provided below:

HANNOVER MESSE

In 2006 HANNOVER MESSE was the umbrella event for 10 international flagship trade fairs including INTERKAMA+, Factory Automation, Energy, Digital Factory, Subcontracting, MicroTechnology, and Research & Technology. New additions include Industrial Building Automation, Pipeline Technology, and Industrial Facility Management & Services.

Out of a total of 5,175 exhibitors, 2,322 foreign companies came from 66 different nations to exhibit in Hannover, Germany in 2006, a turnout which is about five percent greater than in 2004. By attracting around 30 percent of its visitors from abroad, HANNOVER MESSE 2006 reached new heights of international popularity, further extending its unrivaled international appeal.

CeBIT

CeBIT is the Olympics Game Industrial exposition. With more than 4,000,000 square feet of indoor exhibition space and over 6,000 exhibitors, this Hanover-based event is 10 times as large as most trade shows anywhere in the world. It is superbly organized, has its own train station, post office, over 30 restaurants, and 600 permanent staff. The range of exhibitors covers everything available in information technology and communications. In year 2005, more than 474,000 visitors attended the show, including 128,000 from abroad. More than 11,000 journalists from 70 countries cover the event annually.

DRUPA and INTERKAMA

DRUPA is an annual trade exhibition for the graphic arts industry, and Inerkama is an international trade fair for industrial communication, automation, measurement and analytics. Messe Dusseldorf, in Dusseldorf, Germany, specializes in international trade shows for machinery as well as for medical, fashion and service industries.

PARIS AIR SHOW and FOTOKINO

Two of the more famous specialized fairs are the Paris Air Show and the Fotokino or photo products fair in Cologne. The Fotokina is the major international showplace and battleground of German, Japanese, U.S. and other producers of photo products. The Paris Air Show is a giant biennial event running more than a week. About 150 U.S. firms are represented in the USA National Pavilion. This includes small firms as well as aerospace giants. Thousands of visitors from around the world generate thousands of leads as well as off-the-floor sales Columbia has its biannual Bogota International Trade Fair that draws participation from more than 25 nations including countries in western hemisphere, Europe and Asia.

Government Support in Trade Fair Participation

Countries and governments are often involved in ensuring that national and local companies are represented at important fairs. The great appeal of these trade fairs is also embodied in the presence of international pavilions organized by industry associations and trade agencies from Germany, Switzerland, Korea, the Czech Republic, Spain, America, Japan, China, Taiwan and Spain. These international pavilions provide a unique opportunity for visitors to see and compare innovative products and services without having to travel the world.

Usually, the U.S. government shares in the cost of the exhibits by sponsoring a national pavilion at the different fairs. As a part of its international promotion activities, the U.S. Department of Commerce sponsors trade fairs in many cities around the world. The publication of the Department of Commerce, Business America, has a periodic listing of international trade fairs. Additionally there are trade shows sponsored by local governments, in most countries. African countries, for example, host more than 70 industry specific trade shows.

Recommendations

When participating in such a fair, advance preparation is crucial including contact initiation and translation of material into the language of the host country. Planning must begin 12 to 18 months in advance. If the decision is made to attend trade fairs, the first step is to identify those relevant to their products and services.

Select Wisely

Make sure the trade fair you attend is targeting visitors who are likely prospects and potential customers. The firm should include its subsidiaries, distributors and licensees so that maximum value can be obtained by all of the firm’s operations. To take full advantage of your participation in the trade fair, it is important to not just attend the show as an exhibitor but to plan additional events that coincide with exhibiting at the trade show – e.g. a technical seminar or a cocktail party held at the hotel recommended for accommodation of exhibitors by the trade show exhibitors. It is typical to use local distributors, consultants and sales representatives to help with the logistics of bridging local culture.

Make it Easy for Them to Find You

As an exhibitor you have to remember that “time” is very precious, and you have to find ways to expose your offerings to the potential buyers or distributors within a short period. If you use a country-centric pavilion to exhibit your products, it would be a lot easier for buyers to develop relationships between the offerings from a specific country without roaming about in the wilderness. In other words, if the exhibitors from a country are clubbed together, it is a lot easier for visitors to locate any country specific product under one pavilion.

Calculate the Full Cost of Participation

Costs include renting space, dressing the exhibit, putting up customs bond, renting furniture and equipment for the exhibit, hiring of local people to assist and interpret, sending executives to staff the booth, prepare supplemental promotional material, and activities in conjunction with participation to attract visitors to stop at the firm’s exhibits. These include direct mail, advertising, PR activities and contingency plans.

Follow-Up

What happens after the trade show is just as important as what happens at the trade show. Research indicates that more than 80% of leads gathered at trade shows are never followed up. One of the reasons for such a large number of leads falling on the way side is lack of enough information. Many of the leads have no substance. They are either just cold business cards or name of the person written on a yellow pad.

To truly benefit from all the hard work that went into planning the show, exhibitors must prepare a checklist of information that must be collected about the visitors. It is important to maintain detailed record of visitors, such as their business cards, list of products that interest them, and whether or not you promised to call them or send them additional information or samples of products.

Final Words

Trade shows are the most important vehicle for selling products, reaching prospective customers, contacting and evaluating potential agents and distributors, and marketing in most countries. They have resided at the very center of commerce in Europe for centuries. European trade shows attract high-level decision makers who are not attending just to get their latest products out but are in attendance to buy. In difficult economic times and or political circumstances, online trade shows become a useful but obviously less than adequate substitute. An example is the world’s premier mobile telephony event, 3GSM World Congress, which has nearly 1,000 marketers showcasing their latest mobile products, services and solutions.

Finally, while in the U.S. trade shows are manned by the sales representatives and middle managers, at global trade shows customers expect to meet the chief executive officer (CEO) and other senior management. It is vitally important that the CEO and the senior executives are visible at the international trade shows and to gauge the market opportunities and to establish relationships with other vendors, potential customers, alliance partners and distributors.
 
Required Documents in an Export Transaction


This article will discuss documentation that will assist you in getting paid and resources for understanding what documentation your customers might require in order to pay you. Whether the payment is to be made by cash in advance, open account, documentary collection/cash against documents, or letter of credit, the quotation process is the same.

The quotation should follow a standard format that includes the terms of payment, the international trade term under Incoterms 2000, terms and conditions of the transaction, where ownership will transfer, value of the goods, country of origin, expiration date of the quotation, and other details that are specific to your product or transaction. There is a sample quotation at the Minnesota District Export Council website.

The quotation is the offer, and the purchase order is the confirmation of order acceptance. When providing a quote to a customer you will need to consider the customer’s credit history. You will also need to determine what documents are required for Customs clearance in your customer’s country.

It is during this exchange of information, along with your knowledge about a potential customer’s credit history and political and financial risk, that you will determine what documents are required for Customs’ clearance in the buyer’s country.

You will typically be required to provide the following documents in order to clear Customs in your customer’s country:

Commercial invoice,
Packing list,
International bill of lading (air waybill, ocean bill of lading, rail bill of lading or truck bill of lading),
Certificates of origin as needed, and
Other documentation as specified.
You can find out what documents and other information you need to provide from:

The buyer,
The freight forwarder handling the transaction,
The Bureau of National Affairs through a subscription available at their website,
The U.S. Department of Commerce at the U.S. Export Assistance Center offices,
The Journal of Commerce through a subscription at their website,
Courier companies have lists of documentary requirements by country posted at their websites under their "international transaction" portals,
Export software programs, and
The embassy of the buyer’s country.
For example, if you have a customer in Saudi Arabia, there are additional documents that are needed by your customer. The Saudi Embassy posts documentation requirements at it website.

In this example, all commercial documents, e.g. shipment of goods certificates, certificates of origin, invoices, vessel navigation certificates, bills of lading, insurance certificates, and market price certificates, must be authenticated by the U.S.-Saudi Arabian Business Council and then the Consulate Section of the Royal Embassy of Saudi Arabia. Other countries will have different document requirements and procedures.

Regardless of what country you are exporting to, the documentation prepared by the seller for the customer is critical to the buyer’s ability to easily clear Customs when the goods arrive at the agreed delivery point in the buyer’s country.

The table below summarizes commercial and regulatory uses of the documentation that companies prepare to support international commercial transactions. Each document requested by the foreign purchaser of goods is usually needed to meet government or financial institution requests or requirements. If the documentary request or requirement seems unlikely or unusual, qualify the requirement by seeking information from reliable sources, such as the Bureau of National Affairs publications, the U.S. Export Assistance Center, or the Commercial Attaché for the country in question.
 
The Advantages of Arbitration Clauses in International Contracts

Arbitration is a method of dispute resolution that has become very popular in the last 20 years or so for commercial disputes and other areas such as securities, labor, employment and construction. In the international commercial contracts area, arbitration has been a preferred method of dispute resolution for at least 30 years, but most people don’t know why or what advantages there are in using arbitration instead of going to court.

Arbitration is essentially private litigation. In contrast to one party suing the other in a court system in a particular country, arbitration is consensual; that is, the parties must both agree to submit a dispute to arbitration. This agreement to arbitrate can be done up front in the contract by inserting an arbitration clause or even entered into after a dispute begins.

There are several practical reasons for favoring arbitration over going to court. Generally speaking, it takes less time going through arbitration than going to court, although critics (especially litigators) like to point to arbitration cases that have been drawn out and expensive. Of course, the key to keeping the process timely is effective oversight and management of the process.

Arbitration is faster because there is either no up-front legal discovery (the process of document production and witness depositions) or very limited discovery. Most arbitral bodies that provide procedural rules and administration, such as the American Arbitration Association, have rules with expedited time periods for filings and responses, and make it part of their mission to provide timely dispute resolution. In addition, the award is final and binding, so there are no appeals. So, even though you are paying for the arbitrator’s time, the whole process is generally faster and less costly overall.

Arbitration is also favored because it is private—there is no official court record to be made public. If you have a dispute with another party with whom you may need to do business again, this is a major advantage.

The parties can stipulate that the arbitrator or arbitrators—usually one arbitrator for small disputes and a panel of three for large disputes—have expertise in particular areas that would be relevant to their businesses or the type of dispute. Particularly in the international contracts area, arbitration is used to bypass the fear (real or perceived) of not getting a fair hearing in another country’s courts, or fear of corruption in such courts.

One of the most important but little-known reason to use arbitration clauses in your international contracts is enforceability. Court judgments are much more difficult to enforce than arbitral awards because there are relatively few international treaties between or among countries regarding enforcement of foreign court judgments. However, 137 countries have now ratified the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” for short).

The United States is a party to the New York Convention and ratified it in 1970. Any award entered in the U.S. is enforceable in 136 other countries, and vice versa. The U.S. also has a federal law, the United States Arbitration Act, which favors and promotes the use of arbitration by making arbitral awards enforceable within the U.S. and only challengeable for narrow reasons.
 
Beware of Non-Tariff Barriers in Global Markets


The traditional and non-traditional media love to talk about the love-hate relationship between China and the United States of America. Viewed from the eyes of the global automobile industry, China looks like a picture of paradise. Production, sales and profits are rising, and the forecast is that China will continue to demonstrate strong growth in the years to come. However, as sales explode new draft regulations by the Peoples Republic of China are already making the multinational automakers lose their sleep.

A new government policy paper for this industry in China includes plans to restrict the number of ports where foreign-made cars can be imported. Multinational car makers fear that the clause demanding separate sales outlets for imported and Chinese-made cars will make it much more expensive to introduce new brands. As the locals build their distribution networks for China-made cars, foreign companies had hoped that they would also be the backbone for distributing imports. These hopes are beginning to shatter.

This article is not about the automobile industry nor is it about China; it is about non-tariff barriers (NTB) in the world markets. In this article I will identify some of the NTBs that are likely to exist in most countries, even though the nature and extent of such barriers varies from country to country. Some barriers are easy to deal with while others may prove to be insurmountable. It is important for you to be fully aware of these barriers since overcoming these barriers can be cost prohibitive, especially when you are caught off-guard.

Non-Tariff Barriers

Significant progress has been made over the past half century in lowering tariff barriers to international trade. The U.S. and Europe have successfully knocked down tariff barriers while harmonizing business rules between their own markets. According to one EU estimate, the U.S. and Europe currently have tariff levels averaging about 4% of the price of imported industrial goods, compared with an average of 27.5% imposed by developing countries. However, as countries and regions have made efforts to reduce tariffs, the importance of non-tariff barriers in countries around the world has increased. For international businesses these barriers negatively affect market access, profitability and the market position.

For our purpose, I define non-tariff barriers to trade as government laws, regulations, policies or practices that either protect domestic industry or products from foreign competition or artificially stimulate export of particular domestic products. Quantitative restrictions, tariff quotas, voluntary export restraints, orderly marketing arrangements, export subsidies, government procurements, import licensing, antidumping/countervailing duties and technical barriers to trade are some examples of such non-tariff barriers.

Non-tariff barriers also include a wide variety of operating practices ranging from bureaucratic delays in processing request for permits, political squabbles, “buy national” campaigns, infrastructure headaches and unethical business practices. Such measures constitute non-tariff barriers and are often justified from the perspective of public policy, i.e., the need to protect human health and safety, to protect infant (domestic) industries and the environment.

Non-tariff barriers normally include the following:

Import policy barriers
Standards, testing, labeling and certification requirements
Anti-dumping & countervailing measures
Export subsidies and domestic support
Government procurement
Services barriers
Lack of adequate protection to intellectual property rights
Other barriers
These barriers are viewed in the context of multiple roadblocks in international markets and are explored in conjunction with examples of such barriers from across the globe. This discussion includes regulatory roadblocks, as well as strategic and operational roadblocks.

Regulatory Roadblocks

To achieve their respective fiscal and monetary objectives, governments often provide trade consultations and administrative guidance to business. In some countries the government provides guidance, coordination and arbitration acting, in effect, as a caretaker, coordinator and leader for businesses. Tactics used by governments to achieve their national goals include licensing, foreign exchange allocations, quotas, local content requirements, minimum import price limitations and embargos. The protection of local industry is facilitated through government procurement policies, export subsidies, countervailing duties and domestic assistance programs.

Many countries use import licensing schemes to implement a wide variety of regulations relating to national security, protection of health, safety, the environment, morality, religion, intellectual property and compliance with international obligations. The most common justification given for this practice is to enable the country to speed up the development of new industries by the use of protective measures at early stages of development.

For example, Sanitary and Phyto-Sanitary measures are one form of the non-tariff international trade barrier that has been developed to protect the consumer against unsafe products and deceptive marketing practices. Product related requirements include, but are not limited to, detailed labeling requirements with extensive product content description. Such labeling requirements become a hindrance especially when the product is being exported to different countries each with dissimilar regulations.

Strategic and Operational Roadblocks

Lack of access to the latest manufacturing technologies, territorial restrictions to trade, collusion among competing firms, and close ties between transacting partners often conspire to restrict the timely availability of component parts and raw material blocking access to efficient distribution channels. Access to a country’s distribution or commercial infrastructure is, at times, impossible because of the close ties between local manufacturers, wholesalers and retailers. Distributors may refuse to carry foreign products lest they alienate their domestic manufacturers or suppliers.

Customs and Market Entry Practices—Every nation has its customs and entry procedures. In many countries existing border procedures are unnecessarily cumbersome. These procedures become barriers to market entry if their use is arbitrary and left to the judgment of customs officers. Voluminous and complicated document requirements and excessive delays in customs clearance due to human and technical factors serve as non-tariff barriers. For many companies, requirements to provide the same documentation to numerous agencies in one country significantly contribute to the costs.

Technical Barriers—Technical barriers to trade (TBT) refer to technical regulations and voluntary standards that set out specific characteristics of a product, such as its size, shape, design, functions and performance, or the way a product is labelled or packaged before it enters the marketplace. Included in this set of measures are also the technical procedures that confirm that products fulfill the requirements laid down in regulations and standards. Product specifications are often written in such detail that a fair chance of winning a contract might mandate extensive product modification. The product testing process might take several months to several years. Such tactics become market entry barriers especially when they are not required of domestic firms.

Competitive Barriers—Competition among several differentiated brands is a natural barrier in the market since it allows a strong brand name company to charge a premium price and capture a large share of a profitable market segment. If competition from a well known global or local brand is intense, novice international marketers with quality products need to make a heavy investment in marketing communication and brand building.

Financial Infrastructure Barriers—Many countries require prior import deposits or charge prohibitive administrative fees and higher taxes for foreign companies. Multiple exchange rates are also used to encourage trading on some product categories while discouraging import or export of others. Many governments around the globe have developed opaque financial systems where it is hard to know where the state ends and the corporation begins.

Physical Infrastructure Barriers—Local administrative bodies and physical infrastructure built to protect local interests pose difficulties for road transportation, private and commercial trucking, and inter-provincial or interstate purchasing and distribution. Conditions of roads, harbors, airports and telecommunication limit the market potential and results in market barriers. For example, road construction in Thailand has not kept up with traffic growth. In this country, as well as many of its neighboring countries, cars and trucks must compete with bicycles and motorcycles for space in the movement of people and products.

Socio-Cultural and Ethical Norms and Practices—International marketers must be aware of the socio-cultural practices since it adds to the cost of doing business while challenging the ethical values and legal responsibility of the exporter. Smuggling, counterfeiting and bribery are more prevalent in some countries and regions than others. These practices create barriers to market access. You may refer to my article on counterfeit goods for its impact on marketers of genuine products. Bribes take many forms ranging from money, to favors, to trips to other countries.

Examples of Non-Tariff Barriers from Across the Globe

The office of the Unites States Trade Representatives (USTR) publishes the national Trade Estimate Report on global foreign trade barriers (FTB) every year. Most countries around the world, including the United Stated and Europe, have multiple non-tariff barriers according to the USTR report on FTB. Examples provided below are but a sampling of non-tariff barriers:

Angola—Angola is officially open to foreign investment, but its regulatory and legal infrastructure is inadequate to facilitate direct investment and provide sufficient protection

Argentina—Since 2002 Argentina has prohibited the import of beef and beef products from the United States due to concerns about what is commonly referred to as “Mad Cow Disease.” Argentina also banned the import of chicken products from the United States.

Australia—The government of Australia maintains restrictions and prohibitions on some agricultural imports through quarantine and health restrictions. These include restriction on chicken, pork, California table grapes, Florida citrus, stone fruit, apples and corn.

Canada—Canada prohibits import of fresh or processed foods and vegetables in packages exceeding certain standard package sizes unless the Government of Canada grants a ministerial easement or exemption.

China—China's current banking, finance, insurance and taxation structures are bureaucratic and cumbersome. The goal of any supply chain or logistics manager is to create a seamless flow of product going one way and payment going the other way. Regional fragmentation of finance regulation, tax laws and other institutions has the same effect on the payment side of the supply chain as regional protectionism has on the transport and distribution side. For instance, a company with joint ventures in several locations supplied by one supplier may have to make a separate payment from each venture to the supplier.

Egypt—Egypt continues to block imports of U.S. turkey and chicken parts based on reported concerns that the U.S. industry cannot verify it meets Egyptian Halal requirements.

European Union (EU)—The EU has adopted a series of directives that establish essential requirements for a whole variety of equipment including telecommunications equipment. Equipment must be labeled with the CE mark to indicate that it has complied with all relevant directives. Other countries including U.S. and Japan have their own standards for telecommunications and equipment. The purpose of such regulations include electrical safety, electromagnetic compatibility, user safety and quality of communications.

Japan—Access to Japan’s value chain network creates market barriers since there are tight corporate and cultural ties among original Equipment manufacturers (OEM), wholesaler and retailers. Keiretsu are large groups of Japanese companies linked together often through one main affiliated bank.

Malaysia—Malaysia’s import-licensing system, according to critics, inflates the price of imported vehicles and benefits a few privileged license holders. Under the system, licensees are granted so-called Approved Permits (AP), which every car manufactured or assembled outside the country must secure before it can be imported and sold locally. The Ministry of International Trade and Industry issues AP’s to companies controlled by ethnic Malay investors and endorsed by the ministry as qualified importers. No open bidding is involved in the process, and the APs are awarded at no cost to the recipient. Similar systems also prevail in other industries.

Thailand—In Thailand, farmers complain they can't compete with the low-cost Chinese onions and garlic flooding into the country. And Thai exporters grumble that China uses non-tariff barriers such as long delays in customs clearance to keep out perishable Thai tropical fruit such as mangoes and papayas, which rot before they reach their destination due to delays in customs clearance.

United States—Industrial alcohol made in Canada and shipped to the U.S. must be tested at a U.S. facility before it can be sold because the U.S. doesn't recognize Canadian test standards for the product. Without the testing, the exporter would pay an excise tax.

Regulatory Recourse

The World Trade Organization (WTO) Agreement on non-tariff barriers to trade contains rules specifically aimed at preventing these measures from becoming unnecessary barriers. But making a rule is not sufficient to eliminate non-tariff barriers.

In the past decades opening markets was relatively simple. Measuring the tariffs and judging whether or not they were too high allowed negotiating international agreements to reduce them if they were deemed too high. The General Agreement on Trade and Tariffs (GATT), predecessor to WTO, was quite successful at lowering the tariffs on manufactured goods. In the new world order and global market environment, no independent multinational trade organization including WTO is set up to deal with this new form of protectionism we refer to as non-tariff barriers.

Here are some practical recommendations for global marketers:

Develop a thorough understanding of the nature and intensity of non-tariff barriers to determine how you can best leverage the market opportunity by knocking down some of the roadblocks.
Form strategic alliances with local businesses to gain access to the distribution channels.
Explore the possibility of forming alliances with the governments in countries where government actively participates in business.
Reexamine the value chain and determine if some of the integrated activities in your value chain must be broken down and outsourced to the local businesses.
Price your products strategically and base the same on customers’ ability and willingness to pay.
Help develop the legal and physical infrastructure; become a change agent by acting as a good corporate citizen in every society in which you do business.
Final Words

It is important to strategically develop a continuous environment monitoring the process to assess market opportunities around the world. This process must include assessment of social, economic, ecological, technological and political; legal and regulatory (STEEP) factors. This monitoring process must include a detailed analysis of the non-tariff barriers discussed in this article.
 
International Pricing Dilemma: To Dump or Not to Dump!

In 1998, in the wake of the global financial crisis, U.S. steel producers realized that their industry was being hurt by the low price of imported steel. In a desperate move to save their companies, 12 U.S.-based steel producers filed anti-dumping charges against the producers of hot-rolled steel in Japan, Russia and Brazil.

If you study the state of the global steel industry closely you would also find that the U.S. steel industry was highly inefficient. The cost of production was significantly higher than that of steel produced globally, especially in countries like Japan, Russia and Brazil where the manufacturers had established highly efficient state-of-the-art micro steel mills.

Did global steel manufactures from these countries act illegally by pricing their products at competitively low price? I will let you be the judge.

As many of you are well aware, establishing, coordinating and managing prices across country markets is an extremely complex process. The complexity is enhanced for the international marketer primarily due to the interplay of multiple uncontrollable factors that affect pricing decisions. These include but are not limited to: costs, competition, product life cycle stage (PLC), economic environment and buyer purchasing power, government policies and exchange-rate fluctuations, price controls, issues of counter-trade, gray marketing, dumping, and transfer pricing.

You have already read my articles on Gray Marketing and Countertrade. In this article, I will address the issue of dumping as it is applicable to pricing in international markets. I will also highlight the anti-dumping legislation that cautions companies about the ill-effects of setting prices below costs in international markets.

Cost-Based Pricing

One of the standard pricing procedures for exporting a product or product line involves a “cost-plus” pricing method. A firm using this method arrives at an export price by adding up the various costs involved in producing and shipping the product and then affixing a reasonable mark-up.

When calculating prices using this method, companies may include the manufacturing cost, administrative cost, allocated research and development (R&D) cost, selling cost and transport charges, custom duties, and required fees for various facilitating agencies such as advertising agencies and distribution companies. Depending on corporate and pricing objectives and the competitive environment, firms may use full cost or only variable costs while calculating the price.

Business logic dictates that if the home country market for a product category is saturated and thus unable to absorb the output that your firm is producing or is capable of producing, exporting is a viable option. If the firm does not incur any incremental fixed cost when marketing a product in additional country markets due to economies of scale, it may opt to adopt a penetration pricing strategy whereby the pricing objective is to capture a large market share overseas.

The price charged under this strategy is normally low and sometimes lower than the full cost of production or the price you charge in your home country market. This strategy is economically viable but could actually hurt you in the long term, especially if it is construed as dumping.

One basic limitation of calculating price on a cost-plus basis is that the price calculated on this basis may be too high or too low compared to the value the product delivers in specific market segments or target customer groups. Many factors that can affect pricing in a country market include: competitive environment, state of the economy, value placed by customer to a particular product or brand, customer buyer purchasing power, marketer’s unutilized production capacity, experience curve effects, image and reputation of brand.

Your pricing objectives, positioning and differentiation strategy and country specific pricing regulation also influence your selling price. Hence, it is extremely shortsighted to develop pricing based on cost alone. In view of the constraints stated above, managers must continually grapple with the issue of determining an optimal price that will allow them to achieve their pricing and overall marketing objectives without violating country specific pricing regulations.

Now the question: “What does pricing have to do with dumping?

Dumping and Pricing

Dumping is often equated with cheap or below-cost imports; in reality the issue is often much more complicated. If left unchallenged, dumping gives the country exporter an unfair competitive advantage with considerable negative consequences for a particular industry in the host country market.

Since there is no single way of defining “dumping” I have provided a few definitions:

Classically, dumping is considered a subset of predatory pricing and is defined as the act of selling a product at a loss price initially in order to drive competitors out of business. Once competitors have been driven out of a market, a company can then raise their prices to recoup the investment. In many countries, including the United States, predatory pricing is considered an anti-competitive practice and is illegal under antitrust legislation.
In international trade law, dumping is defined as the act of a manufacturer in one country exporting its product to another country at an export price below the domestic price in the manufacturer's own country.
As a business strategy, dumping is a way of setting differential prices to achieve certain market objectives. If the strategy is used internationally to destroy the domestic industry, it becomes a matter of concern for the host country and its national interests.
The U.S. Congress has defined dumping as an unfair trade practice that results in “injury, destruction, or prevention of the establishment of American Industry.” Under this definition, dumping occurs when imports sold in the U.S. market are priced either at the level that represents less than cost of production plus an eight percent profit margin or at levels below those prevailing in the producing country or both.
Of course in lay person terms, dumping means the illegal disposal of trash. This article is definitely not about illegal trash disposal.
Simply stated, dumping occurs when foreign exporters sell their goods in international markets at prices lower than the price in their home market or at prices below the full cost of production. Many governments have enacted anti-dumping legislation to protect against these practices. Anti-dumping suits, along with safeguards and countervailing measures, are tools used by governments around the world for protecting domestic industries from surges of cheap foreign imports.

Global Anti-Dumping (AD) Legislation

Anti-dumping actions are allowed under the provisions of the World Trade Organization (WTO). The WTO states: If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be dumping the product.

In fact the WTO believes that dumping is known to occur as long as two criteria are met: “Sales are made at less than fair value” and there is evidence of “material injury” to a domestic industry. The WTO AD Agreement allows countries to impose anti-dumping duties to protect their producers from injury caused by imports of dumped goods.

Prior to the adoption of the WTO Agreements in 1995, the use of anti-dumping measures was primarily made by a few, largely developed countries including the United States, Canada, the European Union (EU), Mexico and Australia. Since the implementation of the WTO Agreements in 1995, the number of countries with anti-dumping laws has increased dramatically.

Although the most common argument in favor of strong and effective anti-dumping measures is that it relieves the competitive tension of free trade, many nations uphold that the measures to protect the safety of their citizens. For example, the EU has had to raise import duties on certain foods that it must inspect for certain antibiotics and hormones it has banned for food safety reasons.

Today there are 64 countries with anti-dumping regimes in place and many more likely to enact such legislation in near future.

Enforcement Mechanism—In an anti-dumping suit or investigation, a nation retaliates against specific trading partners who are exporting goods at prices lower than those dominant in the domestic market. Each country establishes its own anti-dumping enforcement mechanism. The cases are filed by domestic companies as well as by labor unions and trade associations to their respective government enforcement agencies.

In the United States the U.S. Commerce Department is responsible for determining whether products are being sold at or below market prices. The International Trade Commission (ITC) determines whether the dumping has resulted in injury to US firms. The litigation, however, is time consuming and expensive, especially for small U.S. companies.

Burdon of Proof—To prove that dumping has occurred there must be proof of dumped imports as well as material injury to a domestic industry, and a causal link between the two. The usual penalty for manufacturers whose products are found in violation of the antidumping laws is “countervailing duty.” Countervailing duty is an assessment levied on the foreign producer or producers to bring the prices back up over production costs and to impose a fine on producers from various countries found guilty of dumping.

In February 2006, for example, Turkish authorities imposed anti-dumping duties on 14 Asian PET resin producers based in India, Thailand, Taiwan, Malaysia, China and South Korea. According to government documents, levies imposed by Turkish authorities ranged from between 6.5% for producers of PET in Indonesia to 26.57% for those in Thailand.

Trends in Anti-Dumping Initiatives

Over the past decade the worldwide use of anti-dumping recourses has become very widespread. During 1995-2003, 41 WTO-member countries initiated antidumping cases. U.S. exporters were subjected to 139 antidumping cases during this period by enforcement agencies representing 20 countries.

Some of the global trends in anti-dumping activities are highlighted below:

Initiators of AD Investigations in 2005—Looking at all categories of merchandise exports, WTO members launched 191 anti-dumping cases in 2005, down from 213 in 2004. India initiated the most cases with 25, followed by China and the EU with 24 each. The WTO report said that the total number of anti-dumping measures imposed in year 2005 was 131, down from 151 in 2004. The 25-member European Union imposed more measures than any other WTO member with 21, followed by the U.S. with 18, India with 17 and China with 16.

Most measures in 2005 were imposed on exports of Chinese goods. Beijing has also been increasingly willing to use its own anti-dumping action to help local companies and has accounted for 16 of the investigations recorded by the WTO. Investigations frequently involve multiple countries involved in dumping activities in a specific industry.

Target Countries for AD Investigations—East Asian countries have long been the main targets of AD actions, accounting for about one-third of all AD actions during the 1980s, more than 40% of all AD actions during the 1990s, and almost 50% of all AD actions in recent years. After controlling for factors that might influence filings such as the exchange rate and trade volume, it is estimated that East Asian countries are subject to about twice as many cases as either North American or Western European countries.

A WTO report released on May 9, 2006, highlights that China is tops in the world for its anti-dumping cases. For the 11th time, in 2005, one-third of the cases implementing anti-dumping sanction involved China. In 2005 alone 57 anti-dumping initiations were launched against China by their global trading partners.

Even though the total number of anti-dumping cases declined globally in 2005, the case volume involving China did not decline at all. Of the roughly 2,500 anti-dumping cases brought between the establishment of the WTO in 1995 and June 2004, 386 were against China, with measures imposed in 272 cases.

Target Industries for AD Investigations—According to the anti-dumping investigation reports of the EU, America, India and other countries, chemical products like polystyrene, nitrite and citric acid have suffered serious anti-dumping sanctions closely followed by bicycles, shoes and silk products. Foods like garlic, honey and crayfish as well as textiles were also involved.

In China the 15 categories of products under investigation include products like coke, sugar, alcohol and pure magnesium powder, even some electronic and machinery products, automobile parts and steel products. The countries involved in these AD cases include the EU, Canada, the U.S., South Korea and India, all of which are major exporting markets for China. In 2005, chemical and industrial products have become the prey of the anti-dumping legislation.

It is expected that the scale of the products involved in anti-dumping cases will continue to increase and will move from light industry, textile and the electromechanical industry to the steel and white goods industries. While the trend in AD case filings against East Asian countries is increasing, these countries are also initiating AD filings against other countries in Asia as well as Europe and North America.

Final Words

If you price your products at a lower level in the host country than you do in the home country market, or if you establish prices below the cost of production, an antidumping investigation could be initiated against your firm. No international marketer can hide behind the penetration pricing strategy in a country to gain market share.

Antidumping legislation has been adopted by more than 64 countries around the world, and the number is likely to grow. As WTO reports indicate there are no safe havens since any industry or country is prone to anti-dumping investigations.

Since it is extremely costly to defend your position in anti-dumping cases and the penalties for violation are high, it is wiser to be patently responsive to the consequences of establishing prices that have a potential of hurting the domestic industry in your target country markets.
 
Counterfeit Products: Why Should You Care?

During the wintry month of November 2005, officers and import specialists employed by U.S. Customs and Border Protection (CBP) are busy as usual securing America’s borders at and between the official ports of entry while enforcing hundreds of U.S. laws. Since it was a month before the Christmas season, it was no surprise that these officers came across more than $9.2 million worth of counterfeit handbags bearing the trademark of Louis Vuitton, Coach Burberry and Fendi that month alone.

In addition, these officers seized more than $2.2 billion worth of items such as men’s T-shirts, men’s polo shirts, knit pants and counterfeit shoes bearing the Nike trade mark. In fact, in the year 2005, more than $31 million worth of wearing apparel and handbags, wallets and backpacks were seized accounting for 33% of all seized goods for intellectual property violations, according to U.S. Customs and Border Protection Agency.

Welcome to the brave new world where counterfeit products look as genuine as the real ones and customers everywhere are happy to pay bargain prices for branded products. In this article I will address the issues relating to counterfeit products and the driving forces that result in increased competition from knock-offs or counterfeit products. I will also offer recommendations to reduce the impact of counterfeit products on your brand image and intellectual property.

Introduction

A counterfeit, in simple terms, is something that is forged, copied or imitated without the consent of the intellectual property right holder for the avowed purpose of deceiving or defrauding. A counterfeit product under trademark law is a product bearing a mark that is identical with or substantially indistinguishable from a genuine trademark registered on the principle register of the U.S. Patent and Trademark office.

So much of a product's worth is now tied up in its brand and intellectual property rather than its material constituents. That makes easy prey for counterfeiters who can exploit consumer expectations of quality and service without the cost of having to fulfill them. If you are running a legitimate business you lose sales because of competition from both genuine goods manufacturers as well as counterfeiters. If you have invested in building your brand, counterfeiters pose a significant long term threat to your profitability.

Counterfeiting—Not Just About Rolex Watches Anymore

If you think counterfeiting does not impact you because you sell your product in other or ‘safe’ parts of the world or because you do not sell the products mentioned above, think again. Pick any product from any well-known brand—whether it is Kiwi shoe polish, Intel computer chips or Bosch power drills—chances are there is a fake version of it out there, in your neighborhood and in emerging and mature markets around the world.

I invite you to walk through any shopping area or complex in any country of the world and you will find indistinguishable counterfeit copies of well-known brands. Counterfeit goods are making their way from cheap, low and easily discernible imitations of luxury goods sold on the streets to meticulously designed reproductions that are sold as originals with high profits to often unsuspecting consumers.

Counterfeiting of global and successful brands is a global phenomenon that afflicts every industry sector and businesses of all sizes. Counterfeiters produce every thing from fake ZARA clothing and LEGO play bricks to CARTIER watches and BMW spare parts. From watches and handbags to apparel and books, from tennis shoes to oil filters and pharmaceuticals, even entire vehicles are being counterfeited.

Contrary to common misconceptions counterfeiting is not limited to afflicting the luxury brands alone. Let’s look at a few examples:

In October 2005, Brazilian police get a tip off about bogus Hewlett-Packard Company inkjet cartridges and seize more than $1 million worth of goods.
In 2005, Chinese police conduct raids confiscating goods varying from Buick windshields to phony Viagra.
In July 2005, the secret service in Guam uncovers a network selling bogus North Korean made pharmaceuticals and cigarettes.
In June 2005, French Customs seizes more than 11,000 fake packs for Nokia Corporation’s cell phones, batteries, covers and other products.
In September 2001, GM raided a facility that was producing several branded glass windshields. The windshields were being exported all over the world and did not contain shatter proof safety elements that protect passengers in the event of an accident. General Motors came across brake linings made of wood chips and cardboard which could burst into flames with heavy use. It also found coolant capable of eating through a car’s radiator in 48 hours.
Tiffany found out that 70% of jewelry sold on eBay under the Tiffany name was phony.
Proctor and Gamble reckons that 10% to 15% of its revenues in China are lost each year to counterfeit products. Unilever Group says knockoffs of its shampoos, soaps and teas are growing by 30% annually.
The World Health Organization (WHO) estimates that up to 10% of medicines worldwide are counterfeited and are costing the pharmaceutical industry $46 billion a year.
Most Fortune 500 companies say they spend between $2 million and $4 million per year to combat counterfeiting, according to the International Anti-Counterfeiting Coalition in Washington, D.C.
According to the World Customs Organization (WCO), pirated and counterfeit goods account for roughly 7% to 9% of global trade. By one estimate the value of counterfeit trade exceeds $540 billion. Products from China, Taiwan, and Hong Kong made up 78% of the fakes seized by U.S. Customs last year. Cheap skilled labor and weak enforcement of trademark and copyright laws create the ideal climate for counterfeiters in these countries. Other hot spots include the Philippines, Vietnam, Russia, Ukraine, Brazil, Pakistan and Paraguay.

Brand names have been counterfeited for decades; now the problem is further exaggerated by Internet sales and distribution, robbing the brand owners of revenues and compromising their brand’s reputation. Multiple driving forces discussed below feed and will continue to nurture the frenzied creation and marketing of counterfeit products to compete with genuine branded products in reputable distribution outlets.

Driving Forces

The dramatic increase in commercial piracy is directly linked to the great surge of foreign direct investment (FDI). Companies are setting up joint ventures and subsidiaries overseas, as well as investing great resources in technology and research transfer. In other words, globalization and the increase in FDI have given people unprecedented access to something they would not have gotten their hands on generally.

The astonishing expansion of manufacturing capabilities in lesser developed countries has raised incomes and boosted trade around the world. But the same production and distribution has also created a frightening phenomenon: an ever increasing flood of counterfeits and fakes in the world market. With factories located in remote countries, counterfeiters can divert the technology and supplies needed to produce knockoffs.

As the economies in developing countries grow and develop, they are able to acquire high-tech machinery to facilitate counterfeiting. Advances in new technologies allow almost exact reproductions of original products and the internationalization of economies and worldwide demand for certain products and brands also result in globalization of counterfeit products.

The Internet puts all the product information a counterfeiter could hope for at his fingertips, and other communication technologies make it possible for counterfeiters to introduce products and convincingly fake packaging. Modern communications technologies such as scanners, high speed CD and DVD burners, and digital machineries have made some counterfeit products virtually indistinguishable from the real thing.

Many counterfeit outfits now have mass production capabilities and have developed relationships with legitimate distribution channels to market their products. Popularity of online auction and retail sites on the Internet has made it easier for counterfeiters to sell their products to an unsuspecting, as well as, uninformed public.

Recommendations

Develop a Multi-Prong Strategy—Security of a brand requires a multi-pronged strategy, including areas such as material sourcing, manufacturing, packaging, logistics as well as distribution channels. It is important to start with a strategic assessment and planning your strategy to protect your brand. You must map out all elements of manufacturing and distribution operations, from purchasing of raw material through the distribution cycle, to waste scrap and product management including warranty and claims analysis to stay ahead of the game. Conducting brand integrity audits to evaluate new product competition and to assess the level of counterfeit activities in a market where your products are sold must be an integral part of this strategy.

Register Your Trademark—It is important that you register your trademark in all the countries where you do business or plan to do business. In the United States, you must record your registered trademarks with U.S. Customs and Border Protection. This will protect your brand at the port of entry.

Keep Customer Interest Center Stage—Watch out for fluctuating sales or angry customers complaining about product quality while reviewing your returned products for source and origin of the products. Customers who complain may actually have a counterfeit product in their possession. In other words, create a mechanism for consumers to alert you about counterfeit products. Changing people’s perception of counterfeits serves to help them understand that a counterfeit is not a harmless amusement, cheap souvenir or genuine savings, rather it can actually pose serious risk to their health and safety.

Train Your Intermediaries and Your Employees—Train the distribution and other intermediaries to notice differences in packaging, product colors, weight and other characteristics. Develop a process that allows these intermediaries to report any discrepancies they may notice. Train your key personnel—from executives to technical and sales personnel—to recognize if your brand is being compromised due to counterfeit activities.

Use New Technologies—Use covert features primarily to help trace products through the supply chain and to distinguish genuine articles from fakes. Molecular tags (such as DNA) are increasingly being used in products or on packaging to mark them in such a way that special assays can distinguish the real thing. More discrete identifiers dubbed DNA markings can be used to identify products in ways that the counterfeiters cannot duplicate.

Discourage Promotion of Counterfeit Products—Discourage country-specific tour companies from visiting markets that sell counterfeits, as is being done in some places in China. Warn against buying counterfeits in travel advisories issued by governments to its citizens

Final Words

The international protection of intellectual property rights has made significant strides in recent years, yet legislative and law enforcement efforts lag behind. Recommendations made in this paper will not stop counterfeiters from competing with your brands in the global landscape but will keep you and your value chain participants keenly aware of the problem and help moderate its impact in timely manner.
 
Is Global Branding Right For You?

The year was 1997. The management at MasterCard (a credit card company) came to the rude awakening that their branding and positioning strategies left much to be desired. Their brand did not stand for any one thing nationally or globally. Over the years MasterCard had run through five different advertising campaigns without much marketing success.

The management team, in partnership with a global advertising agency, decided to develop an advertising campaign that would differentiate the brand in the national marketplace. The campaign with the unique selling proposition of “Priceless” was indeed successful. The positioning created by “Priceless” allowed MasterCard to integrate all of its campaigns and marketing practices within the U.S.

At that time, every country where MasterCard was marketed was using a different agency, a different campaign, and a different strategy. As the “Priceless” branding campaign succeeded in the U.S., it served as a platform that helped MasterCard persuade other countries to adopt a single approach. Over time, MasterCard’s “Priceless” became a consistent global positioning statement.

The “Priceless” campaign was adopted by 96 countries and was translated into 45 languages, and it now forms the framework for all of MasterCard’s total brand communications. The concept that started as an advertising strategy became a marketing platform on its way to becoming a successful global brand platform.

Welcome to the new world where global branding and positioning is being increasingly adopted in a world that Thomas Freidman considers to be “Flat.” Building local, regional or global brands with a clearly defined and understood target audience is a challenge of global proportions. In this article I will discuss the challenges of global branding and why it may not be the only branding strategy for success in the global market environment.

Power of Global Branding

As you move toward enhancing or solidifying your international presence, you will be faced with a tough decision: is global branding right for you? Before you make this decision, let’s first explore what it means to develop a global brand. Quite simply, a global brand can be defined as the worldwide use of a name, symbol, design or any combination of these elements to identify an organization or firm and to differentiate it from its competitors.

Global branding requires achieving a high degree of consistency in visual, verbal and tactical identity across multiple geographies. Global branding delivers a consistent customer experience worldwide and is often supported by a comprehensive and integrated global marketing effort.

McDonald’s is a brand that has returned to its roots by shedding distracting acquisitions, simplifying their core offering, and adhering to a shared message globally. At the same time, McDonald’s appropriately modifies its approaches for greater regional relevance. Restaurants in France are more café-like in appearance, and the menu is tailored to the local culture. Espresso is in quick supply, and the chairs are neither molded plastic nor bolted to the floor.

Over the past five decades there has been a remarkable change in determining a firm’s value. Fifty years ago, nearly 80% of a typical firm’s value was made up of tangible assets—for example, its plant, equipment, inventory, land and work in progress.

Today, nearly 50% of a firm’s value is determined by intangible assets; items that generally don’t appear directly on the books and are harder to measure. A successful brand is considered the most valuable resource or asset of a company or organization, and brand equity is an intangible asset that does not yet appear directly on the books.

According to the 2004 Business Week/Inter brand survey, Coca-Cola tops the list of the 10 most valuable global brands ($67.4 billion), followed by Microsoft ($65 billion), IBM ($53.8 billion), General Electric ($44.1 billion), Intel ($33.5 billion), Disney ($27.1 billion), McDonald's ($25 billion), Nokia ($24 billion), Toyota ($22.7 billion) and Marlboro ($22.1 billion). These brands have a consistent name that is easy to pronounce; corporate sales that are globally balanced with no dominant market; a brand essence and position that is the same the world over; products that address the same customer needs, or the same target segment, in every market; and a marketing mix that executes similarly across cultures.

Pre-Requisites to Global Branding

A global brand is one that is available in many nations. Though it may differ from country to country, the local versions of that brand have common values and a similar identity. The brand’s positioning, advertising strategy, personality, look and feel are, in most respects, the same but allow for regional customization.

For a global brand to be a true global brand, it must also be consistent, not just in name, but in position and what it offers. Truly global brands are able to express a unique position to all internal and external audiences. The brand developers effectively use all elements in the communications mix to position within and across international markets:

Heavy Investment—Like any other asset, global branding and positioning requires heavy investment in establishing and communicating the brand name. For instance, in May 2005, Royal Philips Electronics kicked off the second wave of its global branding effort. The media plan included spending $100 million worldwide and $25 million in the U.S. on this phase of the campaign. In addition to being interactive, the company employed network and cable television, magazine and newspaper print ads, and airport ads in certain cities. The centerpiece micro-site, www.simplicity.philips.com, was designed to get the "Sense and Simplicity" brand message across to Philips' target audience.

Uniform Brand Associations—Global brands are developed with years of advertising, good will, beneficial attributes, customer experience and product quality improvement. Well-performing global brands enjoy strong awareness among consumers and opinion leaders, and, in many instances, lead an industry or multiple industries.

BMW has come to symbolize high performance in engineering and design for customers worldwide. It is also viewed as a status symbol for global customers who feel a sense of accomplishment at a personal and professional level as proud owners of this ultimate driving machine. The BMW brand’s association with prestige and quality are truly global.

By the same token Hyundai (a Korean automaker), sells two-thirds of its cars outside of Korea, has a multinational product portfolio, a worldwide slogan, and fairly consistent advertising. Despite all this, it is not a truly global brand because the Hyundai name carries very different associations and images in each of its country markets.

Targeting and Positioning—To have a global brand, it is necessary not only to use the same name in all markets, but also to have the same target and positioning strategies. Uniformity in targeting, branding and positioning is not always achievable given differences in competition. For example, Wal-Mart is renowned in North America as the prime low-price provider of branded goods and for always carrying fresh produce. However, in China it is difficult for Wal-Mart to position itself as the “guaranteed low-price” provider or even the supplier of the freshest produce, given the local farmers and vendors with whom it competes. The company’s position in the two markets is different.

Global Brands Demand Localization—Global brands should not claim to be American brands, European brands or Asian brands. They must respect local needs, wants and tastes and must adapt to the local marketplace while fulfilling a global mission. In other words, key to success in global market environment can be summed up in one word “Glocalization”

Is Global Branding Right For You?

Global adoption of a branding and positioning strategy that has worked well in your home country market does not guarantee that it will be successful in other countries as well. One must grant the local marketers sufficient flexibility to create a brand image that has resonance, while maintaining the core brand positioning.

Your product category may not be conducive to global branding.

There are certain product categories that do not lend themselves to global branding. Food is one such category where differences in tastes from culture to culture compel global companies to adapt to local conditions. At the other end of the globalization spectrum is a computer chip maker Intel, whose products and markets make it easier for executives to establish a truly global brand with a memorable catch-phrase: "Intel inside."

Businesses in the global semiconductor industry are more likely to adopt a global branding strategy than those in the food processing industry. Intel and its competitors, for example, market to original equipment manufacturers (OEM), which are using computer chips for the same purposes. Intel is a global brand that does not require much local adaptation and so is Disney, which stands for family entertainment in all cultures.

It is possible to have global, regional and local branding strategies at the same time.

Multiple brands marketed by multinationals with different brands for different market segments could result in different branding strategies for different country markets. The Nestle Company has a stable name of global and country specific national brands. Even though Nestle promotes its brand name globally, the brand extension strategy includes both national and global brands. Unilever also follows a similar strategy.

Final Words

In the final analysis global branding is a continuum along which you must decide how global you wish your brands to be. You may decide along one single global brand at one end of the spectrum and an assortment of nothing but local brands at the other.

Your branding strategy must be based on extensive consumer research and insights. Success will depend on the extent to which you take the insight you gain in your home country to a level where it actually cuts across every culture and country. Corporate self assessment is a prerequisite to a strategy development initiative. In developing the branding strategy for a global market such analysis will determine whether or not your firm has the culture, organization, processes and willingness to allocate the requisite financial and managerial resources to developing a truly global brand.
 
Cross-Cultural Communications: Paralanguage and Body Language
After taking your best shot at accurate communications in cross-cultural negotiations and after everyone assumes that everyone was discussing the same thing, you sometimes discover that this understanding was all an illusion and that serious misunderstandings exist. Unfortunately, you generally don’t discover these misunderstandings until later when it may be too late or too costly to readdress everyone’s understanding.

Whether you are implementing a foreign training program or trying to raise the productivity of an overseas plant, your ability to communicate clearly as well as your ability to understand others will be a key factor in achieving results at the lowest cost.

What are the costs of miscommunication?

Frustration and resentment spent clearing up misunderstandings.
Backtracking when you discover everyone did not, in fact, “agree” to the same decision.
Potential loss of profitable deals.
Lessened ability to sell, negotiate, persuade, implement, give directions and motivate.
Decisions based on misinformation.
There are numerous examples of participants on both sides of a cross-cultural negotiation who thought they understood, but this turned out to be an illusion. They did not realize that there were critical differences in how they and their partners understood key issues.

Being able to recognize the symptoms of cultural misunderstanding when they do appear is an incredibly useful intercultural skill.

Signs for recognizing when you encounter cultural misunderstandings:

Blank stares,
Unnatural stopping points in conversation,
Embarrassment in the other person,
Non-sequiturs, and
Feelings of “not connecting.”
Before things get too out of hand, stop and do a reality check. Try to figure out why you are not connecting.

If a point seems important, invite someone to interpret. There will be times when even after watching for verbal and nonverbal cues there are still miscommunications. If the point does not seem immediately critical or if you do not want to interrupt the conversation, make a note of the occurrence and ask someone about it later.


To begin, we need to understand that there are certain basic tools that can facilitate the communication process when working in a multicultural context. They include conversing tools, language training, and working with translators. Although the latter two tools can be quite helpful when conducting business negotiations in a multi-cultural scenario, in this article we will focus on conversing tools that aid in effective cross-cultural communications.

The following are some of the things that cross-cultural communicators and negotiators need to consider as they strive to conduct effective, high-quality cross-cultural communications:

Cross-check important points by rewording the message in different ways to help identify any misunderstandings. (Open-ended questions, repetition and paraphrasing are particularly advisable in situations where there is a high risk of misunderstanding. Meetings in which several languages are being spoken are prime examples of “high-risk” situations.)


Use visual aids and numbers whenever possible to convey key points. (Remember what Confucius said about one picture.)


Check the buzz words that are repeated often in the conversation to see if they are being used in the same way by your partner. Avoid the use of idiomatic expressions and slang. Evaluate the meaning and cultural connotations of the key labels to be used in training, plant management or product identification.


Ascertain (preferably before your conversation) the real meaning of nods and verbal assents. They do not always mean agreement. (In Japan, hai [yes] means “Yes, I hear what you’re saying.” It does not mean “Yes, I agree with what you’re saying.”)


Stop and do a reality check. Try to figure out why you are not connecting.


If the point seems important, invite someone to interpret. (There will be times when even after watching for verbal and nonverbal cues there is still miscommunication.)


If the point does not seem immediately critical or if you do not want to interrupt the conversation, make a note of the occurrence and ask someone about it later.


Hold off deciding what the other person is saying until you get the whole message or at least a larger chunk of it. Once you have heard what the other person has said you can ask questions to check your understanding.


Keep good notes.


Follow-up after you have begun to implement an agreement to confirm the understanding.
As mentioned at the beginning of this article, there are certain basic tools that can facilitate the communication process when working in a multicultural context. Although we focused on conversing tools in this article, it is also very important to consider the benefits that language training and working with translators can have with more positive outcomes in cross-cultural communications and business negotiations.

It is important to remember that the ultimate goal in cross-cultural comminications is to convert communicative illusion into reality.
It is said that it is easy to lie with words, more difficult to lie with the face, and even more difficult to do so with the body. If the spoken words relay only part of the message, a good part of the message is expressed through various other sounds and the entire body. A good synchronization of speech and movement, used properly in the cultural context, will give any speaker enhanced credibility.

Paralanguage refers to the sound, noise, pause, speech rate, pitch of voice, volume, tone, inflection, modulation, accent and accentuation, as well as silence, suspense and pause a person may use to enhance and direct his communication. The simple expression, “Oh, yes,” for example, may be uttered to express a whole array of attitudes. Paralanguage can add a great deal of feelings and credibility to the otherwise dry verbal expression.

Body language refers to facial expressions, gestures, position, and movement and their relation to communication. They differ greatly from culture to culture and there is no dictionary to translate them.

American society is rather “horizontal.” People are presumed equal and are treated democratically. They are taught from childhood to stand up for their beliefs, to look others in the eyes, to have the courage to defend their positions, and to say yes or no. Most of the countries of the world are “vertically” stratified. An indiscriminate American could easily be construed as rude and may block communication.

Facial expressions such as smiles, frowns, winking and yawns can have enormous consequences. Eye contact alone can carry and miscarry a lot if information and is more typical of the Western World. Staring at strangers is impolite. Extended eye contact is rude. Avoiding eye contact can be a sign of insecurity. Shifty eyes could diminish the credibility of one’s words or could be interpreted as hiding something.

In many countries such as Japan, for example, younger people do not stare at an older person. If they do so, they must be the first to lower their eyes. While attending a lecture, it is all right for the students to follow the teacher, but it is not acceptable for a lecturer to look fixedly at the same person throughout the presentation.

Facial expressions also vary with the culture. Americans smile more often than the more cynical Europeans. After all, what’s there to smile about after two devastating wars? Buddhist people, trained to resign earthy pleasures, smile even less than the Europeans. The Japanese, who are trained to be stoic and to hide their anguish, might even smile in situations in which an American will cry.

When visting another culture, one of the important elements of culture shock is inability of ”reading” the new faces. People appear to smile permanently in a phony way or to wear an unexplainable straight face. Under such conditions, a simple eyebrow flash or an innocent but prolonged stare may send an unintended message. On other occasions, some Americans, conditioned by the superior U.S. technology and high standard of living, may have a patronizing look or a condescending smile, which will be equally rejected. Diffusing the tension caused by any one of these expressions will not be easy.
 
Last edited:
Should You Care About Country of Origin Impact?

Imagine for a moment that the $95 dress shirt you are wearing today was actually produced for a large upscale retailer in the United States by a mega company based in Hong Kong (China). On further research you find that the shirt was actually manufactured in Singapore with fabric from Pakistan and buttons from Japan. Better still, it could have been manufactured in any of 25 countries where this Hong Kong based company has branches. This is a truly global shirt that has probably traveled farther than many of us international marketers have.

This scenario sheds light on the fact that in the current state of globally integrated supply chains, knowledge about the country of origin or country of manufacture is not as transparent. The logical question that follows is: Does the country of origin still have an impact on product quality, on perception and acceptance?

In this article I will address the issue of Country of Origin (COO) and how it influences the buyer decision making process.

Understanding the Country of Origin Effect

Country of origin is defined as the country with which a particular product or service is associated. The country could be the country of manufacture (COM), in the case of products, or the country where the headquarters are located, in the case of both products and services. Country of origin effect (COE) can be defined as any influence that the country of manufacture, assembly or design has on a consumer’s positive or negative perception of a product. However, the concept of country of origin is increasingly complex.

For products manufactured using components made in various countries and assembled in yet other countries, determining the true country of origin of the product is becoming increasingly difficult. For example, BMW cars targeted for the U.S. market are manufactured in South Carolina rather than in Bavaria; Michelin tires are also manufactured in South Carolina; and many software products used by U.S. businesses are developed in India.

As a result of the expansion of multinational firms, companies sell the same products under identical brand names in different countries throughout the world. These products actually have widely differing national origins, not necessarily that of the COO of the parent company. Sony products, for example, can just as easily be “made in Japan,” “made in France,” or “made in Italy.”

The question remains: Does COO still matter?

Country of Origin Effect Still Matters

Country of origin information constitutes a product trait that is external to the product itself. It serves as a surrogate for product quality, performance, reliability, prestige and other product characteristics that cannot be directly evaluated.

Research has demonstrated that consumers tend to regard products that are made in a given country with consistently positive or negative attitudes. These origin biases seem to exist for products in general as well as for specific products, and for both end-users and industrial buyers alike. The nature and strength of origin effects depend on such factors as the product category, the product stimulus employed in the research, respondent demographics, consumer prior knowledge and experience with the product category, and consumer information processing style.

Country image and perceptions that influence consumer evaluation of product quality, risk, likelihood of purchase, and other mediating variables are formed through a myriad of experiences and information acquired by consumers. Familiarity with a country's products, shopping behavior, demographics and psychographics all affect the buyer perceptions. These perceptions have been shown to depend on the type of manufacturing process (product design versus product assembly) as well as the level of technological complexity (complex versus simple product).

Country of origin biases have been found for both developed countries and less developed ones. Generally speaking, products from lesser developed countries are perceived to be riskier and of lower quality than products made in more developed countries. In general, products manufactured in highly industrialized countries are perceived as being of higher quality and having greater prestige than those manufactured in developing countries.

Consumers from highly developed countries tend, in general, to evaluate their own country’s products more favorably than products from other countries. The opposite is true for consumers in developing countries and newly industrialized countries who rate their own country’s products as inferior to products from developed countries.

Once customers are aware of COO, their familiarity with the brand, level of involvement in the purchasing decision, and existing preference with domestic products becomes relevant, as do product and market level influences such as type of product and brand image.

Product categories in which COO is generally given greater importance include perfumes, wines, cars, high-fashion clothes, consumer electronics and software. For all these products, country specific stereotypes exist. COO effects are less pronounced in products in which technology is widely diffused across the globe. These products adopt a quality standard that is uniform across the globe, hence country of origin does not have a significant impact.

Stereotypes Abound

Throughout the COO research studies one finds a relatively small number of stereotypical images that are fairly consistent across nationalities: the image of the robustness of German products, the image of France being associated with luxury products, and the image of Korean products as being cheap. Positive image stereotypes are also held in the world for Iranian pistachios and rugs, Polish vegetables, Israeli oranges, Columbian coffee, English tea, Swiss chocolate and Russian Caviar, French perfume, Chinese silk, Italian leather, Japanese Electronics and Jamaican Rum.

All are stereotypical perceptions based on experience, hearsay or myth. Some research studies also indicate that consumers in different countries respond differently to country-of-origin cues. Here are some examples:

Japanese goods are rated favorably by consumers in all countries.
Canadian goods, although often thought comparable to American goods on performance characteristics, are considered technologically imitative.
In China, if it is western it is in demand, even at prices three or four times higher than domestic products.
Korean consumer electronic and automobile brands are much more appreciated in Asia but have not yet translated into a strong positive country of origin effect for the rest of the world where its products are marketed.
For Russians, country of origin is more important than the brand name as an indicator of quality. Goods produced in Malaysia, Hong Kong or Thailand, are still suspect in Russia.
People from Australia might like French perfume but not French cameras or even French wine since Australia produces heavier wines.
In the absence of other product information, the country of origin of a product or service affects consumers’ evaluation of that product or service. Along with other extrinsic cues such as brand name and warranty, COO information is used by consumers to reduce the inherent uncertainty associated with the purchase of products. As they acquire additional information the country-of-origin impact is reduced.

Dealing with Country of Origin Stereotypes

Marketing managers must understand COO perceptions as they relate to the product category in target-country markets. They must deal with the stereotypical myths by providing information and developing marketing strategies appropriate to achieve corporate goals. COO and COM effects have implications for standardization of marketing programs, for positioning the products, selecting the image in advertising, and even plant location decisions.

Here are some recommendations for dealing with COO-related stereotypes:

Know What to Stress in Your Marketing Communications. In the event that country of origin has negative connotation for their products, multinationals often decide to de-emphasize manufacturing origin and emphasize country of brand. When Volkswagen first started building its Rabbit model in Pennsylvania in 1970s, consumers rushed to buy the last imports of the model from Germany. Following its global transplants, the company has avoided emphasizing where the product is actually made. For example, Daimler-Benz emphasizes its corporate home rather than country of origin while promoting its products.

In the Untied States, Colombian coffee is touted as a certification of quality. Toblerone chocolate stresses its European origins despite the fact that it is a Philip Morris (Kraft Jacobs Suchard) brand. Haagen-Dazs chocolate-dipped ice cream is really a product produced locally in the United States although its name suggests an association with Europe, which affirms the quality association with European chocolate.

Promote National Pride. Feelings of national pride—the “buy American’ effect, for example—can influence attitudes toward foreign products. Honda, which manufactures one of its models entirely in the United States, recognizes the phenomenon and continues to point out how many component parts are made in America in some of its advertisements.

Emphasize Product Quality or Value Rather Than Price. Marketers have a tendency to reduce prices to counter the negative COO. This strategy always backfires because it reinforces the existing negative prejudices that the product is cheap and of lower quality. It is better to invest in developing a better product at a reasonable price rather than a better product at a lower price to overcome negative country of origin effect. Developing relationships with reputable dealers and/or intermediaries also reduce the impact of negative COO or COM effect.

Experience shows that it is possible to change the consumer mind-sets and perceptions over time. For example, Japanese marketers over the last 35 years have substituted an image of high quality for the cheap image that was generally held in the 1950s and 1960s. The image of Korean electronics improved substantially in the United States once the market gained positive experience with Korean brands. Strong global corporate brands like Sony, General Electric and Levi’s developed via effective positioning. Integrated marketing has done wonders for both marketers and customers in reducing the impact of mythical country of origin stereotyping.

Final Words

The country, the type of product, the image of the company, and company’s brand all have an effect on whether the country of origin will engender a positive or negative reaction. It is important to remember that even though negative COO effects do not disappear overnight, country perceptions do change over time. The key is to develop market strategies to reinforce the positive COO impact and de-emphasize the negatives. Develop quality products, building solid relationships with quality distributors, and promote the corporate brand image.
 
Negotiating Ocean Marine Contracts

Negotiating ocean marine contracts requires a great deal of expertise and differs greatly from negotiating with other modes of carriage. However, there are a few issues and techniques that should be addressed during negotiations as these issues often result in disputes with carriers and substantial losses to cargo owners.

Start with negotiating the rate and minimum volume commitment.


After the rates are agreed upon, request that the carrier’s liability be increased to the Hague-Visby maximum limitation of 667 SDR’s per kilo, which is approximately double the Carriage of Goods by See Act’s (COGSA) maximum of $500 per package, or if not shipped in packages, $500 per customary freight unit.

An alternative request is that your cargo be subject to the highest liability limit of any cargo carried on the same vessel as your goods. (As a result of different liability terms in treaties applying between different origin and destination nations, there usually are three or four different liability limits on cargo traveling in the same ship.)


Request that whatever liability limits apply on your cargo while on the high seas, they not be extended to inland carriers. (This issue recently cost an Australian shipper over $1 million when dealing with an NVOCC)

Request a greater time within which to report loss or damage if your inspection procedures cannot be completed within three days, as required by ocean carriers’ bills of lading.


Request the deletion of the clause that relieves the ocean carrier of liability for loss or damage if it results from the carrier’s negligent navigation or mismanagement of the ship. This is one of 17 defenses that ocean carriers have under their bills of lading. It is the most unconscionable defense in the law.


Request that the ocean carrier’s responsibility for your goods continue for the entire period that it has custody of them rather than “tackle-to-tackle” as provided in COGSA.
The carrier’s willingness to make these changes in your contract will reveal how the carrier regards your business. Most ocean carriers utilize contracts of adhesion. In essence, this means take-it-or-leave-it. But if your business is important to the carrier and its balance of trade, it should make some of these concessions.
 
Gray Marketing: Taming the Beast!

John Deere (Deere & Company) is the world's leading manufacturer of agricultural and forestry equipment; a leading supplier of equipment used in lawn, grounds and turf care; and a major manufacturer of construction equipment. Since its inception in 1837, the company has established a heritage of quality products and services for its customers worldwide.

Company management recently realized that some of their third-party representatives have been selling self-propelled forage harvesters and tele-handlers originally designed for the European market to U.S. dealers, independent retailers, and end-users. The company suddenly realized it is a victim of “gray marketing” or “parallel importation.”

The issue of gray marketing affects multiple industries around the globe. This article addresses the harmful effects of gray marketing on original equipment manufacturers (OEMs) and their authorized distributors as well as on their customers. I will also illustrate the driving forces leading to gray marketing and strategic recommendations for proactively dealing with this problem.

Understanding Gray Marketing

Welcome to the global world where gray marketing is not only alive and well, it is flourishing. In the international context, gray marketing or parallel importation refers to the diversion of branded products from authorized distribution channels within a country or importation of such products into another country for sale by independent distributors or brokers without the knowledge of the manufacturers.

Unlike the black market, where contraband and other prohibited goods are traded illegally, in the gray market legal goods are marketed by unauthorized distributor networks normally at prices that are lower than those charged by authorized distributors. Stated differently, gray marketing is a legal, multi-billion dollar industry in which independent distributors purchase branded products from manufacturers or authorized distributors in countries where prices, taxes and the trade margins are lower and sell them in countries where prices and markups are higher.

Brokers who buy goods around the world from manufacturers or authorized dealers to sell them in gray markets typically sell them for 25% to 40% less than imports handled through authorized distribution channels. Gray goods are shipped globally and usually move through multiple tiers before reaching an end user, often supported by worldwide broker networks.

If you have global dreams or if you currently market your products in the international arena, you must realize that the impact of gray marketing is of great strategic importance for you. Your own branded goods may emerge as gray goods where unauthorized distributors will begin to compete for sales with your authorized dealers.

If you are a small-scale manufacturer with a handful of close-knit distributors, gray marketing may not be a particularly worrisome issue. However, as your volume increases and the number of dealers or distributors grows from a few to many, gray marketers could present a formidable challenge for your firm and your authorized distributors.

Driving Forces Supporting Gray Marketing

Opportunities for gray marketing occur when manufacturers use different pricing strategies for branded products in different countries or regional markets. If the price differential is significant, independent distributors or brokers are motivated to acquire the goods in one market and divert them to markets where prices are higher. Many of the successful global brokers use extremely sophisticated databases to develop detailed inventory tracking mechanisms to divert products in global markets with absolute precision.

To implement their positioning strategies for upscale and premium priced products, manufactures often adopt exclusive or selective distribution strategies. The channel members selected for carrying the products in specific country markets enjoy high profit margins and are offered reseller support activities at each level of distribution. If the distributors’ margins are disproportionately large relative to the marketing tasks they perform, gray markets will emerge.

In the high-fashion apparel market, for example, an authorized retailer is motivated to acquire excess inventory with every intention of moving the excess to unauthorized dealers and still make a profit because the margins are significantly high.

Unscrupulous distributors and brokers also create gray markets by breaking distribution agreements or misrepresenting discount programs for products. In other words, it isn't just rogue brokers partaking in this activity; some authorized and reputable distributors also participate in the gray market, sometimes to satisfy a market need by selling off excess inventory or products at the end of their life rather than returning them to the OEMs.

OEMs themselves also contribute to the gray marketing problem as sales mangers struggle to meet quotas or year-end sales goals by selling significantly larger quantity of products to authorized dealers than the market can bear and looking the other way when the authorized dealers unload the excess units to discounters or brokers. In addition, the Internet makes it easier for firms operating in gray territory to reach a wide range of customers.

Gray markets also emerge when manufacturers and distributors are unable to synchronize demand and supply in various country markets. In some markets, the quantities sold are creating glut while in others they create shortages. In the event of product shortages in a market, the business-to-business buyers—especially the OEMs—turn to gray marketers for their needs.

Research indicates that many authorized distributors also use the gray market to acquire goods that are in short supply in specific market areas especially when the manufactures is unable to deliver the quantity desired on a just-in-time basis.

Manufacturers suddenly realize that their positioning, pricing and distribution strategies are not generating results because their products begin to appear in the most unlikely and undesirable channels of distribution at deeply discounted prices. In other words, they have lost control over their positioning, pricing and distribution strategies to gray marketers.

Harmful Effects of Gray Marketing

Most countries and regions of the words are influenced by gray marketing activities. The phenomenon is flourishing in Europe, Russia, Poland, the Czech Republic, South Africa, Turkey and Zaire. The markets in the African sub-continent, Asia, Pacific Rim, North and South America, and Europe are all involved.

According to a recent research study conducted by KPMG LLP in cooperation with The Anti-Gray Market Alliance (a group of Information Technology companies based in the United States), the gray market drains about U.S. $40 billion of revenue and $5 million in profit from information technology (IT) treasuries worldwide. Small and medium businesses nationwide are also losing billions in profits annually due to the sale of gray market products, according to the Information Technology Solution Providers Alliance (ITSPA).

Gray marketing affects, but is not limited to, many premium priced goods such as autos, tires and construction equipment, watches, cameras, furs, jewels, liquor, prescription drugs, baby food, upscale clothing and perfumes. Highly technical products such as disc drives, computers and computer chips are also affected by gray market activities.

Many well known brands such as IBM personal computers; Seiko watches; Nikon, Minolta and Olympus cameras; Duracell batteries; Mercedes Benz and BMW; and even Opium, the world's best selling perfume, are affected by gray marketing activities.

Now the question arises, “Who’s really hurt by gray marketing?” Customers, channel members and OEMs all feel the harmful affects of gray marketing.

Products and Customers: Products that travel through the gray market may be sold to unwitting consumers who find out only after they have made the purchase that the product is obsolete, includes invalid warranties, was designed for use in countries other than where it was sold, or worse, still contain counterfeit parts. Consumers are denied warranty support and service as well as replacement parts from authorized dealers. If the product bearing a brand name fails to meet customer expectations, customer satisfaction and loyalty suffer leading to an erosion of brand loyalty.


Channel Relationships: The biggest cost of the gray market is its impact on relationship between the members of distribution networks. The authorized distribution networks set up to provide back up, spare parts, repairs and promotional support to customers in their market territories are increasingly under pressure to provide the support to customers even if the products are purchased via gray sources. International consulting firm KPMG estimates that up to 24% of profits in the channel are diverted to gray market brokers.


Corporate Image and Reputation: When premium priced products begin to emerge in gray markets at discounted prices, it distorts the image of brands and the reputation of corporations, which have invested millions of dollars in building brand image. Gray market goods can severely distort local country marketing plans, erode long-term brand images, and eat up costly promotion dollars. The unexpected expansion of gray market imports disrupts forecasting accuracy, pricing strategies, merchandising plans, the positioning statement, and other marketing efforts.
In short, the brokering of branded products by unauthorized channels represents a competitive drain on both the manufacturer and the authorized distribution network. This practice threatens to undermine the integrity of the legitimate sales channels, violates the contractual agreements between manufacturers and their distribution partners, and leads to customer dissatisfaction.

Strategies for Managing Gray Marketing

Obviously, there is no easy solution to the problems associated with gray marketing. Globalization of markets, free-market initiatives and advances in information and communications technologies have opened enormous opportunities for marketers to sell their products around the world. These very factors have also created opportunities for gray marketers.

While it is not possible to stop or ban gray marketing activities, global marketers can adopt strategies to reduce the negative impact of such activities. Provided below are some of the marketing strategies that will help tame the beast.

Product Differentiation: Developing different versions of a product to suit different local tastes, national health and safety rules, packaging requirements, technical standards and income levels for different markets would largely curb the gray market activities. Minolta Camera Company, for example, markets an identical camera in the United States and Japan but it gives it different names and warranties. Porsche makes its cars for the U.S. market more powerful and better equipped in order to reflect the higher price. Of course, this strategy negatively affects the economies of scale and increases the production, inventory and marketing costs, factors that companies must weigh against the opportunity costs associated with gray market activities.


Strategic Pricing: While standardized pricing strategies may not be advisable in the global market for all product categories, manufacturers should be able to reduce the impact of gray marketing activities by reevaluating their pricing and trade discount structure. Narrowing the pricing and discount structure will reduce the incentives for authorized distributors to order excessive inventory with the intent to divert the extra inventory to unauthorized distributors.


Supply Chain Relationships Management: OEMs must conduct due diligence when establishing relationships with distributors. A good starting point is developing a qualification process that spells out the criteria for evaluation of prospective distributors and that defines the distributor's authorized territory as well as expressly denying gray market participation. To discourage participation in the gray market, the OEM must develop close working relationships with authorized distributors and implement viable and transparent supply chain management. Public and not-for-profit companies combating the gray market should not hesitate to flag the review of distributor compliance as a priority issue that demands the full attention of the board's audit committee. Training internal auditors for uncovering gray market activities must be high priority. Instituting formal training programs to educate employees about the perils of the gray market would also be beneficial.


Marketing Communications to Educate the Customers: Marketers must develop appropriate marketing communications program to educate the business-to-business, reseller and end-user customers about the limitations of gray marketers and gray goods. The message communicated must include the warnings that products purchased via the gray market could be obsolete or worn out models with ineffective warranties or be models not designed to meet requirements for use in a specific country.


Environmental Scanning: Some of the indicators for gray market opportunities are price differences between countries, growing inventories, sharp changes in exchange rates, and slowing foreign economies. Manufacturers must monitor these indicators to gauge the impact of gray marketing. At the micro level, keeping track of serial numbers and barcode systems for products would enable manufacturers to track the products from production to delivery. Opportunity costs of gray marketing must be assessed accurately and regularly to make strategic decisions.
Final Words

These are a few simple yet effective ways to combat or manage gray market activities. This article has primarily concentrated on the negative effects of gray marketing. Moreover, no business issue is simply black or white, and gray marketing is no exception.

Many well-informed marketers have realized that gray marketing activities have helped them identify untapped market opportunities, develop and tap new market segments and gather valuable market intelligence. Identifying and monitoring both the negative and positive impact of gray marketing on corporate brands and deciding when to curb such activities and when to leave them alone will keep you ahead of the game.
 
Countertrade and International Marketing: Take a Proactive Approach!

In setting prices for products marketed globally or overseas, an exporting company faces a dilemma: In what currency should price be quoted? Three choices are possible: the price may be quoted in the seller's currency, the buyer's currency or the currency of a third country.



For a number of reasons, both parties prefer that their own currency be used. There are, however, options other than currencies.



As markets become more global, companies are realizing that selling a widget does not necessarily bring in a currency of choice. It may bring in a case of vodka, a voucher for a Caribbean tour package, or advertising space. Provided below are a few examples:



· A multinational marketer in the soft drink industry such as Coca‑Cola, Pepsi or Schweppes might agree to operate a tomato factory in one country, market the host country's beer in its home country, and find a market for vodka in yet another country. In order to make a sale, the soft drink company may agree to accept fruit and vegetables, greeting cards, carpet backings or pig skins.

· Under foreign direct investment schemes, an automobile manufacturer may build an auto plant in a foreign country and agree to purchase the finished product back. They would then agree to market the product in its home country or in other countries of the world. In other instances, it may sign an agreement to purchase sheepskin, potatoes, toilet seats, cranes, coffee or any other product that the host government or the prospective buyer might wish to dispose of.

· An aircraft manufacturer might accept responsibility for finding markets for a variety of consumer goods produced in a host country in return for the sale of its aircraft. In order to sell its products in a particular country, a steel manufacturer might be required to take back products ranging from palm oil to coffee to timber.



These are all examples of countertrades—transactions that link, legally or otherwise, exports and imports of goods or services in addition to, or in place of, financial settlements.



New World Order



Welcome to the global economy of the 21st Century, where countertrade is being increasingly viewed by firms and nations as an excellent mechanism to gain entry into new markets. Studies by the U.S. government, United Nations and other independent organizations estimate that countertrade represents somewhere between 10% and 20% of all world trade.



Many countries of the world lack a fully elastic currency capable of expanding with the growth of production to meet the demands of product and service markets. The money supply in these countries is often controlled by monetary authorities targeting specific economic objects like curbing inflation, ensuring full employment, and protecting the value of its currency in foreign exchange markets. Countertrade and financing terms in these country markets are becoming as important as the quality and availability of desirable product.



Countertrade as Marketing Tool



To the uninitiated, countertrade is a generic term for parallel business transactions that link a sales contract with an agreement to purchase goods or services as a means of reducing the flow of convertible currency. For marketers suffering from "marketing myopia," it is a last ditch sales strategy.



For proactive marketers, it is viewed as a respectable, almost essential global strategy tool. Countertrade is a resourceful way to arrange for the sale of a product from an exporter to a company in a country that does not have the resources to pay for it in hard currency.



The main reason that American firms engage in countertrade is to meet requirements set forth by foreign governments or customers. Countertrade, however, can be an effective and excellent mechanism to gain entry into new markets. The party receiving the goods as a mode of full or partial payment of exported goods or services may be instrumental in opening up new international marketing channels and ultimately expanding the market for mutual benefit of both exporter and importer. Yet, countertrade remains essentially a reactionary trade practice for many companies.



Forms of Countertrade



All countertrade transactions explicitly link import and export transactions between two traders, but they can differ from each other in terms of whether they involve foreign exchange in the transaction, whether the two trade flows are temporarily separated, and where the trade flows stand in technical relation to each other.



The American Countertrade Association (ACTA) identifies five categories of countertrade based on the degree of complexity of the trading arrangement. These include (1) barter/swap, (2) counter purchase, (3) compensation/buy‑back, (4) clearing arrangements/switch trading, and (5) offsets. Counter-purchase is the most frequently used form of countertrade, followed by offsets, buy-back/compensation, barter/swaps, and switch trading.



During the 1980s, countertrade transactions were mainly a vehicle for financing trade turnovers with developing countries. In the 1990s, the practice emerged as a vehicle for financing capital projects and production-sharing ventures for repatriation of profits. Increasingly, multinationals are being forced to pursue countertrade as an alternative mode of payment for products and services exported or marketed. Companies that utilize countertrade enjoy increased sales and increased utilization of plant capacity. Purchasing benefits include a means of supply assurance and the development of world knowledge in the purchasing function.



Challenges of Countertrade



One of the unique challenges of countertrade transactions is that companies often find themselves handling products with which they are not familiar. In addition, they may receive products that vary in quality from shipment to shipment. Since many countertrade transactions are longer-term contracts, the price of a countertrade product may vary substantially on the world market over the term of the contract. If a company has a fixed price for a product in a countertrade, they may end up with substantial losses or an inability to sell the product.



Marketers accepting goods in countertrade must also be concerned with many of the following issues:



Quality and consistency of products accepted as part of the agreement, and unavailability of preferred items offered on a compensation account "shopping list."
Determining the value and potential demand for the goods offered in countertrade.
Unavailability of a ready market for goods bartered.
Extended and complex negotiation processes and increased transaction costs.
Lack of time to conduct a market analysis; it is not unusual to have sales negotiations almost completed before countertrade is introduced as a requirement for the transaction.
Added overall complexity and time commitment due to the risks associated with the political, legal, cultural and economic environment in the importing country.
Developing a Proactive Strategy



It is important that global marketers develop appropriate market entry and countertrade strategies to take advantage of new opportunities. These strategies involve decisions in areas including, but not limited to: which markets to enter, which products to accept, and when to walk away from a countertrade offer.



Exporters generally have three options for disposing of countertraded goods: They may (1) use the products in‑house as part of their own production process, (2) use in-house marketing resources to find a market for the goods, or (3) hire intermediaries/barter houses to find markets for the countertraded goods.



Retaining a reliable trading company or barter house familiar with either the country or the product reduces strategic risks involved in counter-trade agreements. Large commodity traders, barter houses, export trading companies, banks and independent agents are well trained and experienced in arranging countertrade transactions for global marketers. The American Countertrade Association located in St. Louis, Missouri, is also there to help with countertrade related issues.



Other useful websites include:

American Commerce Exchange
Global Offset and Countertrade Association
is-Trade: International Trading Service
Final Words



Global marketers must include in their market pricing toolkit some appreciation and understanding of countertrade. Companies that decline to participate run the risk of losing market share worldwide to more accommodating competitors.



In the final analysis, currency convertibility will not diminish the growth of countertrade since convertibility does not necessarily mean the availability of the hard currencies. Country advantages, bank credit crunch, growing demand for consumer goods, and convertibility will push the demand for countertrade to new heights.
 
Coping with Culture Clash


Culture clash happens when people from two different cultures come into contact. Sometimes the clash begins before anyone has a chance to properly introduce themselves.

Culture clash can lead to serious fatigue or even clinical shock or depression. Many of the adjustments to life in the cultural fast lane must be made early on, or the traveler or expatriate may produce symptoms of anxiety and stress, preventing a successful overseas experience. Anyone who spends much time with people from another culture can suffer from culture clash.

As an international traveler or expatriate, perhaps as a manager or a consultant, you find yourself in a strange land, overwhelmed by a culture and a country that is foreign to you. You may have expected some difficulties and even prepared yourself to work in a new environment. However, your success depends not only on working but also on living harmoniously within the community.

In addition to dealing with another culture at work, and before and after work, you need to be able function in another culture. You are faced with coping and communicating 24 hours a day, seven days a week, and this can be extremely fatiguing.

The symptoms of culture shock may include preoccupation with personal cleanliness and disease and dirt, a sense of being cheated, irritability with little provocation, hypersensitivity to perceived criticisms, and depression.

Travelers suffer from cross-culturally induced fatigue for a number of reasons. The fatigue is occasioned by energies spent in an exaggerated concern for hygiene, by having to work harder to do simple things such as use the telephone or catch a bus, or the constant irritation of dealing with people who do not know how to get things done. All those who venture abroad for any lengthy stay contract it.

People of one cultural experience have the difficulty observing the same reality as natives of another culture. Each of us experiences difficulties as we attempt to function effectively in another culture.

Some of the many areas that are associated with the strains of cross-cultural adjustment include:

Dealing with anxiety that has vague origins.
Learning new culturally appropriate behaviors once free of the constraints and social sanctions of your native culture.
Putting memorable events into proper perspective. Emotionally charged personal experiences, especially if they are negative, can take on a significance that misrepresents the host culture.
Exercising the level of social skills needed to belong to host country social networks at a time when you are cut off from your support networks back home.
Having to make decisions based on less information than you may be accustomed to.
Adjusting to different beliefs about how the workplace should be organized.
Recognizing how time is broken down in the host culture.
Understanding that there will be a great deal of ambiguity in any cross-cultural experience, and knowing that this is quite normal.
Learning to feel comfortable with the greater or lesser physical distance that is observed between people in the host culture.
Recognizing new cues and roles and how one is expected to interface within a new role.
Adjusting to gender roles that go against one’s own principles.
These are some of the stresses and strains that cross-cultural travelers and expatriates are personally subject to as they go about their business.

All this learning of new ways to act takes a while to acquire. Whether we were raised to be multicultural and have had the task of mastering behaviors from multicultural roots since the beginning, or whether we became multicultural later in our lives, it takes years to develop this adeptness.

This does not mean that you have to wait years to enjoy life in a culturally strange setting. You can have the fun and be effective right from the start, but just as you check out what inoculations you may need before you travel abroad to a new land, do yourself a favor by checking out the potential pitfalls of culture clash before you embark on your journey.

The rewards of multicultural travel and living are mysterious and adventurous. They enrich our lives with drama, stimulating memories, wonderful friends, and deepened perspectives. The rewards far outweigh the possible negatives. After all, the adventure of international travel and relations is why we got into international business in the first place.
 
Business Travel Abroad

When conducting business on an international basis, most executives find that it is a necessity to properly plan travel abroad to meet with potential and present customers. This allows you to locate and find new customers as well as improve relationships with your present foreign representatives. International business dealings should take place via face-to-face meetings with a client or customer, as this is the best form of business contact.

As you plan any future overseas trip, you need to be cognizant of various business customs, travel conditions, entrance requirements, cultural norms, and services for American citizens in the country of destination.

It is important to have a well-planned itinerary when traveling abroad. This enables the traveler to make the best possible use of time while overseas.

Before beginning your trip, it is important to know who your possible contacts will be and to arrange as many appointments as possible. Then you should check transportation schedules and, if beneficial, reserve or book travel and hotel accommodations. Many times the host in your destination country will be happy to assist with hotel reservations and may also offer to help you with transfers to and from your port of entry. Additionally, you should confirm all meetings and other travel arrangements before leaving the U.S. so there are no unexpected problems once you depart on your trip.

It is also important to keep your schedule and itinerary flexible to allow for both unexpected problems like transportation delays and unexpected opportunities. For example, a flexible schedule might allow you to accept an unscheduled invitation from a prospective client while you are already traveling abroad. You also need to be prepared for a meeting that only becomes confirmed while you are already overseas, since would not make sense to make a second trip the next time around if you can fit the meeting in during the present trip.

Make sure to check on the normal workdays in your countries of travel. This should include a look at a host country calendar for foreign holidays. Bear in mind that business hours in the countries you are planning to visit may also be quite different from the typical 9:00 to 5:00 day that we are use to in the U.S.

The typical workweek may also differ from the usual Monday through Friday. For instance, in many Middle Eastern Arab countries the work week typically runs from Saturday to Thursday. In Israel, however, the work week runs from Sunday to Thursday. In many Latin American countries, lengthy lunches, or siestas, are quite normal, and dinner in these countries does not typically start until 9:00 p.m. at the earliest.

It is also important to know if the people with whom you are meeting overseas are comfortable with the English language. If not, you should arrange to have an interpreter at your meeting since business language can be more technical than conversational speech and misunderstandings are not unusual.

You should have business cards printed up in English as well as in the language of the country being visited. Exchanging business cards during a first meeting with someone is a basic part of proper business etiquette in most countries.

When you receive business cards from contacts overseas make sure not to treat the card as you would in the U.S. and just stick it in your pocket or write on it. This is frowned upon in most other cultures. It is important to accept the card politely (with both hands in Asian countries) and study it carefully before putting the card on the table in front of you during the meeting. Titles such as Doctor or Engineer are also important in many countries, so whenever possible make sure to address your business counterparts with the correct title.

Of course when traveling abroad you should do your best to study the history, culture and customs of the countries you will be visiting. Business methods and manners differ from country to country. A large part of cultural differences in other countries come from religious customs and dietary practices, so be careful to not accidentally show disrespect for another culture’s beliefs as this may result in your overseas partner not wanting to do business with you.

Humor and acceptable dress all vary greatly from country to country, so do your homework before you leave home and remember to follow the old adage, “When in Rome do as the Romans.” Although your overseas hosts will not expect you to follow the business procedures of the countries you visit, it is still important to maintain flexibility and cultural sensitivity when traveling abroad and conducting international business.

You should also be aware that sometimes your travel from one country to another might be restricted. For example, a passport containing an Israeli stamp or visa may prevent visits to certain other countries in the Middle East. Therefore, make sure that Israeli Customs does not stamp your passport or, better yet, you may legally obtain a second passport from the U.S. Passport Service, which is only for use with Israeli customs.

Make sure to obtain any necessary travel documents or visas at least one month before departure since many visa approvals can take some time. There are expedited travel visa service agencies that can help with this process, and they may be able to obtain visas for you on an expedited basis. Of course, the more quickly you need to obtain such documents the more you will pay for this type of service.

It is also important when traveling abroad to consider seasonal weather conditions and climates in your countries of travel. Likewise there are differences in electrical currents from country to country, and plug adapters may be required to recharge cell phones or use laptops, etc. You should also investigate currency exchange rates, tipping standards (who is tipped and how much, or when not too tip or not to tip too much), and various health care issues during the planning of your trip.

You should think about what is and is not okay to eat or drink while traveling. A good rule of thumb is not to buy food from street vendors and to drink only bottled water. You should ask your doctor about any vaccinations that he or she would recommend, and travelers should be prepared by bringing a sufficient supply of prescription and other medicines with them from home. Be aware that similar over-the-counter medicine may not be available overseas or may not be at the same dosage as what you may be used to at home.

All in all, the key to a successful trip abroad is to make careful preparations and do your homework well in advance of departure. This will ensure that you will be able to best accomplish your business goals abroad. You will also learn a great deal about other cultures and create memorable lifetime experiences and friends through the constant learning experiences of travel abroad.
 
Business Travel Abroad

When conducting business on an international basis, most executives find that it is a necessity to properly plan travel abroad to meet with potential and present customers. This allows you to locate and find new customers as well as improve relationships with your present foreign representatives. International business dealings should take place via face-to-face meetings with a client or customer, as this is the best form of business contact.

As you plan any future overseas trip, you need to be cognizant of various business customs, travel conditions, entrance requirements, cultural norms, and services for American citizens in the country of destination.

It is important to have a well-planned itinerary when traveling abroad. This enables the traveler to make the best possible use of time while overseas.

Before beginning your trip, it is important to know who your possible contacts will be and to arrange as many appointments as possible. Then you should check transportation schedules and, if beneficial, reserve or book travel and hotel accommodations. Many times the host in your destination country will be happy to assist with hotel reservations and may also offer to help you with transfers to and from your port of entry. Additionally, you should confirm all meetings and other travel arrangements before leaving the U.S. so there are no unexpected problems once you depart on your trip.

It is also important to keep your schedule and itinerary flexible to allow for both unexpected problems like transportation delays and unexpected opportunities. For example, a flexible schedule might allow you to accept an unscheduled invitation from a prospective client while you are already traveling abroad. You also need to be prepared for a meeting that only becomes confirmed while you are already overseas, since would not make sense to make a second trip the next time around if you can fit the meeting in during the present trip.

Make sure to check on the normal workdays in your countries of travel. This should include a look at a host country calendar for foreign holidays. Bear in mind that business hours in the countries you are planning to visit may also be quite different from the typical 9:00 to 5:00 day that we are use to in the U.S.

The typical workweek may also differ from the usual Monday through Friday. For instance, in many Middle Eastern Arab countries the work week typically runs from Saturday to Thursday. In Israel, however, the work week runs from Sunday to Thursday. In many Latin American countries, lengthy lunches, or siestas, are quite normal, and dinner in these countries does not typically start until 9:00 p.m. at the earliest.

It is also important to know if the people with whom you are meeting overseas are comfortable with the English language. If not, you should arrange to have an interpreter at your meeting since business language can be more technical than conversational speech and misunderstandings are not unusual.

You should have business cards printed up in English as well as in the language of the country being visited. Exchanging business cards during a first meeting with someone is a basic part of proper business etiquette in most countries.

When you receive business cards from contacts overseas make sure not to treat the card as you would in the U.S. and just stick it in your pocket or write on it. This is frowned upon in most other cultures. It is important to accept the card politely (with both hands in Asian countries) and study it carefully before putting the card on the table in front of you during the meeting. Titles such as Doctor or Engineer are also important in many countries, so whenever possible make sure to address your business counterparts with the correct title.

Of course when traveling abroad you should do your best to study the history, culture and customs of the countries you will be visiting. Business methods and manners differ from country to country. A large part of cultural differences in other countries come from religious customs and dietary practices, so be careful to not accidentally show disrespect for another culture’s beliefs as this may result in your overseas partner not wanting to do business with you.

Humor and acceptable dress all vary greatly from country to country, so do your homework before you leave home and remember to follow the old adage, “When in Rome do as the Romans.” Although your overseas hosts will not expect you to follow the business procedures of the countries you visit, it is still important to maintain flexibility and cultural sensitivity when traveling abroad and conducting international business.

You should also be aware that sometimes your travel from one country to another might be restricted. For example, a passport containing an Israeli stamp or visa may prevent visits to certain other countries in the Middle East. Therefore, make sure that Israeli Customs does not stamp your passport or, better yet, you may legally obtain a second passport from the U.S. Passport Service, which is only for use with Israeli customs.

Make sure to obtain any necessary travel documents or visas at least one month before departure since many visa approvals can take some time. There are expedited travel visa service agencies that can help with this process, and they may be able to obtain visas for you on an expedited basis. Of course, the more quickly you need to obtain such documents the more you will pay for this type of service.

It is also important when traveling abroad to consider seasonal weather conditions and climates in your countries of travel. Likewise there are differences in electrical currents from country to country, and plug adapters may be required to recharge cell phones or use laptops, etc. You should also investigate currency exchange rates, tipping standards (who is tipped and how much, or when not too tip or not to tip too much), and various health care issues during the planning of your trip.

You should think about what is and is not okay to eat or drink while traveling. A good rule of thumb is not to buy food from street vendors and to drink only bottled water. You should ask your doctor about any vaccinations that he or she would recommend, and travelers should be prepared by bringing a sufficient supply of prescription and other medicines with them from home. Be aware that similar over-the-counter medicine may not be available overseas or may not be at the same dosage as what you may be used to at home.

All in all, the key to a successful trip abroad is to make careful preparations and do your homework well in advance of departure. This will ensure that you will be able to best accomplish your business goals abroad. You will also learn a great deal about other cultures and create memorable lifetime experiences and friends through the constant learning experiences of travel abroad.
 
You must log in or register to reply here.
Back
Top