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MBA of International Trade Management

These are some brief notes on International Trade Management - 1

Dr.  S.  Maurer,  
MBA Professor

Factors such as topography,  humidity and energy costs can affect thë performance of a product or even define its use in a foreign market.

Hot dusty climates of countries in the Middle East and other emerging markets may force the automakers to adapt the automobiles with different types of filters and clutch systems than those used in North America,  Japan and Europe countries.

The case of PolyGram Group Distribution,  Inc.  v.  Transus,  Inc.,  990 F.Supp.  1454 [N.D.  Ga.  1997] involved a mis-delivery of some 67 cartons of sound recordings intended for a new Media Play store in Gainesville,  Florida.  The shipment was supposed to be sent to a distribution center in Minneapolis.  However,  PolyGram instructed the carrier to deliver to a new store that was still under construction and had not yet opened for business.  The carrier delivered the shipment to the site and apparently obtained the signature of one of the construction workers.  it was later discovered that most of the cartons had disappeared.

Similar to domestic expansion,  moving into international markets requires capital.  You need funds for inventory,  receivables and promotion activities.  In addition,  if you intend to open foreign branch offices,  you'll need cash for facilities and related operating expenses.

Pricing can be one of your most effective competitive weapons,  but it is often the most challenging for new exporters to use effectively.

For consumer products the pack might have various functions: protective,  informative,  merchandising and conforming to legal requirements and buying habits [e.g.  Americans tend to buy less frequently than Europeans,  so the largest size is more popular in the United States].

The decision to adapt a product is based in part on the degree of commitment to the foreign market.

Your bank can also be an excellent resource if you choose one that has an international department and is committed to serving small business.  Such an institution can help you with all aspects of an export transaction and introduce you to the federal and state government export financing programs that actively support small firms.  State governments are another prime source of assistance.

Whatever methods you choose to promote your products,  you'll find that direct exporting offers distinct advantages: lower inventory,  control over your product,  potentially higher profits and a closer relationship to foreign buyers and the marketplace.  However,  these advantages come with a price.

Certain high-technology products are inappropriate in some countries not only because of their cost but also because of their function.  For example,  a computerized industrial washing machine might replace workers in a country where employment is a high priority.  In addition,  these products may need a level of servicing that is unavailable in some countries.

The beneficiary knows that their supplier wants some type of assurance that they will be paid,  but the beneficiary wants to maintain a maximum amount of control over the transaction.  An Assignment of Proceeds might just be the answer.

California has overseas trade offices in five countries and its State Department of Food and Agriculture and California Energy Commission [to name just two agencies] sponsor trade shows and offer financial assistance to prospective exporters.

Many of the same organizations that sponsor trade shows and fairs - such as the SBA,  manufacturer groups and government agencies - also sponsor trade missions to target countries that enable you to hear from local officials and meet prospective buyers.

The level of income,  the level of education,  and the availability of energy are all factors that help predict the acceptance of a product in a foreign market.

Even shampoo and cosmetic product makers have to chemically reformulate their shampoo and cosmetic products to make them more suited for people living in hot humid climates.

These are some brief notes on International Trade Management - 2

Dr.  S.  Maurer,  
MBA Professor

Engineering changes nëeded: Measurement Systems—specifications,  manuals,  instructions,  labels,  dimensions,  and parts may need to be converted to the metric system.

Hot dusty climates of countries in the Middle East and other emerging markets may force the automakers to adapt the automobiles with different types of filters and clutch systems than those used in North America,  Japan and Europe countries.

Industry trade associations are also useful,  as are private consulting firms [such as Terence Barber's BHP Associates] and the business departments located within major universities.

Legal,  economic,  political,  technological,  and climatic requirements of a country market often dictate some level of localization or adaptation.

Cultural considerations and customs may influence branding,  labeling and package considerations.  Certain colors used on labels and packages may be found unattractive or offensive.

An example: While the issue centered on whether a claim was timely filed,  the court discussed the issue of the carrier’s liability,  and noted that there would have been no delivery so long as anything remained to be done by the carrier,  such as unloading.  However,  the court granted summary judgment for the carrier due to the claimant’s failure to file a claim within nine months from the date delivery should have been made.

* Similarities in business culture,  practices and the law.  * Language and other possible communication barriers.  * Spending habits.  * National traditions.  * Religious beliefs.  * The stability of the market's economic and political environment.  * Direct and indirect barriers to initial market entry.  * Product standards in the quality,  safety and technical areas.  * Current market size and growth potential.  * Existing domestic and foreign competition.

Doing business in foreign markets can be very different from doing business here at home,  so don't be afraid to ask for help.

If an exporter can find a virgin market that is devoid of current and potential competition,  there may be no need to adapt or localize the product since the potential buyers have no choice.  But it is very hard to find a country in the current market environment where there is no competition.

Market-driven thinking is sweeping the globe.  People don't talk of countries anymore, notes Dr.  N.E.  Okeke,  former president of the Nigerian Chamber of Commerce and manufacturer.  They talk of markets.

You should also research existing treaties and any currently under development,  such as GATT and the North American free trade Agreement [NAFTA].  [These trade agreements are still evolving,  so be sure to monitor them closely.]

Your bank can also be an excellent resource if you choose one that has an international department and is committed to serving small business.  Such an institution can help you with all aspects of an export transaction and introduce you to the federal and state government export financing programs that actively support small firms.  State governments are another prime source of assistance.

In a survey of 328 of the U.S.'s fastest growing enterprises,  globally focused enterprises anticipated 1992 growth rates of 26.4 percent compared to 22.5 percent for firms that aren't involved in selling internationally.

The decision to market your product directly or indirectly should be based on several important factors: the size of your firm,  the nature of your product,  previous export experience,  and business conditions in your selected overseas market.

The cost of petroleum products along with a country's infrastructure,  for example,  may mandate the need to develop products with a greater level of energy efficiency.

These are some brief notes on International Trade Management - 3

Dr.  S.  Maurer,  
MBA Professor

If you choose to export directly,  you must bë willing to devote more time,  money,  personnel and other enterprise resources.

In view of this phenomenon,  the decision to be made by the exporter should not rest on whether or not it should adapt.  The decision,  more appropriately,  should track,  “What aspects of product offering should we adapt and what aspects should we standardize.”

What flies off the shelves in Chicago may not necessarily be a great seller in Munich.  Cultural differences and varying product standards can present serious barriers if you aren't willing to adapt your commodity to your new target market.

If the bank doesn’t hear from the beneficiary during the stipulated timeframe,  it will automatically assume the beneficiary has agreed to the amendment.  From the issuing bank’s perspective,  this arrangement is nice and tidy,  as they can adjust their customer’s liability for the LC at the end of the timeframe without having to do any follow up if they haven’t heard from the beneficiary.

Motivating Factors for Product Adaptation Marketers often find the need for some changes to be obvious while other changes may require in-depth analysis of societal customs and cultures,  the local economy,  technological sophistication of people living in the country,  customers’ purchasing power and purchase behavior.

The greater the cultural differences between the two target markets the greater the need for adaptation.

Hot dusty climates of countries in the Middle East and other emerging markets may force the automakers to adapt the automobiles with different types of filters and clutch systems than those used in North America,  Japan and Europe countries.

The packaging design should be based on the customer needs.  In industrial products the pack should be considered for its usage and for its amenability to storing,  pouring,  re-use,  etc.

When establishing your export price,  begin by taking into account your customers' perception of value,  what differentiates your product from that of your competitors and the role price will play in sales volume and profit.

Doing business in foreign markets can be very different from doing business here at home,  so don't be afraid to ask for help.

If an exporter can find a virgin market that is devoid of current and potential competition,  there may be no need to adapt or localize the product since the potential buyers have no choice.  But it is very hard to find a country in the current market environment where there is no competition.

California has overseas trade offices in five countries and its State Department of Food and Agriculture and California Energy Commission [to name just two agencies] sponsor trade shows and offer financial assistance to prospective exporters.

* Similarities in business culture,  practices and the law.  * Language and other possible communication barriers.  * Spending habits.  * National traditions.  * Religious beliefs.  * The stability of the market's economic and political environment.  * Direct and indirect barriers to initial market entry.  * Product standards in the quality,  safety and technical areas.  * Current market size and growth potential.  * Existing domestic and foreign competition.

The level of income,  the level of education,  and the availability of energy are all factors that help predict the acceptance of a product in a foreign market.

Perhaps you think you've tapped out your market in the U.S.  and believe exporting could breathe some life back into your product.  Before you start pouring in time and other resources,  step back and candidly assess your potential for success.  This assessment should include a look at manufacturer trends,  your firm's domestic position in the manufacturer,  the effect exporting will have on your present operations,  the status of your resources and the anticipated demand for your commodity.

These are some brief notes on International Trade Management - 4

Dr.  S.  Maurer,  
MBA Professor

Engineering changes nëeded: Knowledge of legal and operating requirements will help the exporter to determine whether that ‘special’ that is selling well in the home country needs to be substituted or should an arrangement be made to offer a different drive ratio to achieve the desired operating revolutions per minute.

One area in which you should definitely seek assistance is market research.  You can get up-to-date information from the U.S.  Commerce Department's trade information Center and the SBA.  The SBA and its volunteer offshoot,  the Service Corps of Retired Executives [SCORE],  can also help you with marketing or distributing your commodity.

There's another side to the owner-distributor relationship that causes many exporters to urge caution.  Distributors frequently demand exclusive market rights to your product while reserving the right to service your competitors, warns an article in World trade magazine.  Don't expect commitment.

According to NFIB statistics,  almost every international market is growing faster than the U.S.  For example,  Latin America is experiencing annual growth of five percent; the Middle East,  nearly that.  The Four Tigers - Hong Kong,  Singapore,  South Korea and Taiwan - and their neighbors Thailand,  Malaysia and Indonesia,  are averaging six percent growth annually - and that's when they're having an unremarkable year.

You may want to test your product's appeal by advertising in the U.S.  Department of Commerce's catalog-magazine,  Commercial News USA.  A manufacturer of emergency oxygen packs did just that and received inquiries from every continent.  Today,  40 percent of the enterprise's products go to foreign markets.

Working with distributors or representatives can offer distinct advantages.  These individuals can often provide the initial contacts you need in a foreign country.  They have already established relationships with buyers of related items and know the local market,  which is important in any sales effort.

A country's standard of living and the target market’s purchasing power can also determine whether a enterprise needs to modify a product.

Instruction or maintenance manual,  for example,  should be made available in centimeters,  weights in grams or kilos,  and temperatures in degrees Celsius.

A thorough corporate self analysis or self audit is needed to understand to what extent the exporter is willing to gather information and invest in adaptation of the product for customers in a specific country market or region of the world.

The case of Indemnity Insurance Co.  of North America v.  Hanjin Shipping,  348 F.3d 628 [7th Cir.  2003] involved a shipment of tools from Shenzhen,  China,  to a Lowe’s facility in North Vernon,  Indiana,  moving under a through multimodal ocean bill of lading.

The packaging design should be based on the customer needs.  In industrial products the pack should be considered for its usage and for its amenability to storing,  pouring,  re-use,  etc.

With the Assignment in place,  once the supplier turns over the merchandise to the broker/middleman,  the supplier does lose control of the transaction.

Scope of Product Adaptation Product adaptation deals with a whole range of issues,  ranging from quality and appearance of products,  to materials,  processing,  production equipment,  packaging,  style and modeling.

The question of how you will sell,  deliver and service your product abroad is far more important than you may realize.  In answering this question,  the first decision you will want to address is method of distribution.

An important component in making your export commitment is figuring out whether you have anything an international market would want to buy.