4.

6 International Marketing

International Marketing: the marketing of goods and services across national

boundaries

How Businesses Enter International Markets

1. The internet:
- Low costs involved in marketing their products abroad
- Trading over the Internet (e-commerce) has become popular
2. Exporting:
- Direct exporting: commits to marketing its product abroad on its own
behalf → has control over its products and operations abroad
- Indirect exporting: hiring an export intermediary or agent in the home
country to market the domestic firm’s products
3. Direct investment: business sets up production plants abroad
- Business gain access to the local market, making products easily
available to customers
- Gains local market knowledge
4. Joint venture: a business arrangement where two or more parties agree to invest
in a business project → share resources, each responsible for the costs, profits,
and losses
5. International franchising: the franchisor grants the franchisee permission to use
its brand, trademark, concepts, and expertise in return for a franchise fee and a
percentage of the sales revenue as a royalty

Opportunities of Entering and Operating Internationally

1. A large market: introducing products to a new market provides greater reach for
the products
- Increases customer base
- Gain higher sales and profitability
 2. Diversification: provides an opportunity for businesses to spread their risks by
investing in other countries
- Reduces dependence on gaining sales revenue from just the home
market
3. Enhanced brand image: businesses can be perceived as more “successful” than
those only in the domestic market.
- Creates greater brand prestige & drives brand loyalty
4. Gaining economies of scale: can increase sales by selling more products abroad
- Reduce average costs of production
- Make the business more competitive
5. Forming new business relationships: enable businesses to make new contacts
with various stakeholders
- Contacts can provide opportunities for increased efficiency and profitability
for home business

Results of entering and operating internationally:

1. Economic challenges: inequitable distribution of income in many countries can be
a major problem for businesses wanting to market overseas
- Developing countries have low per-capita incomes or purchasing power
→ lack income to buy the products being marketed
2. Political challenges:
- Ex: governments changing regulations, increased threats of global
terrorism, and civil unrest
3. Legal challenges: different countries have different laws that businesses need to
abide by when marketing overseas
4. Social challenges: differences in the demographic or population structures of
different countries should be considered
5. Technological challenges: some developing countries lack access to technology
→ limit infrastructure and poor communication systems → impact how
businesses operate
5.2 Operation Methods
Job Production: production of a special “one off” product made to a specified order (for
one individual customer)
- emphasis on quality, uniqueness, and originality
- can charge premium price
- Production → market-oriented / customer deciding what the product should be
- Requires clear objectives and careful planning
Advantages:
1. Mark-up likely to be high
2. Clients get exactly what they want
3. Production method likely motivate skilled workers focusing on individual projects
4. Flexible
Disadvantages:
1. Production method can be expensive → required skilled workers &
non-standardized materials
2. Time-consuming:
3. May fail due to lack of knowledge of the client
4. Can be labor intensive and reliant on skilled workers

Batch Production: production of a group of identical products

- Emphasis on quality and affordability
- Still market-oriented
- Offered customized products but using a range of standardized options
- Some consultation with customers
Advantages:
1. Achieve economies of scale
2. Offerse more choices than mass production → captures more market share
3. Useful for trialling products
4. Help deal with unexpected orders
Disadvantages:
1. Lose production time → machines recalibrated or retooled
 2. May need to hold large stocks (for unexpected orders)
3. Sizes of batch depend on capacity of the machinery allocated to them
Mass Production: production of a high volume of identical, standardized products
- All about quantity
- Usually unskilled labors
- Production tends to be automated
- Careful planning for all stages of the production process
- Expensive
Advantages:
1. System may only need little maintenance after set up
2. Can cater for large orders → achieve economies of scale
3. Low labor cost
4. Can respond to increase in orders quickly
Disadvantages:
1. High set-up costs
2. Breakdowns are costly (the whole assembly line may have to stop)
3. Dependent on steady demand from a large segment of the market
4. Inflexible system
5. Demotivating for workers → repetitive work

Comparison of the Production Methods:

Changing Production Method:
1. Implications for HR:
- Workers may be retrained or let go
- Refining the roles and responsibilities of employees and managers
2. Implications for Marketing:
- Production can reflect the orientation of the business and the products
being offered → customers’ perception on the business may change
- Distribution channels affected → lead to differing response time
- Change in cost of production = change in price → affect consumers
3. Implications for Finance:
- Change in production method → impact on stock control → affect costs
- Any change will need funding
Appropriate Method of Production for a Given Situation:
Depends
1. The target market
2. The state of existing technology → may limit how flexible production can be
3. Availability of resources → fixed capital, working capital, human capital
4. Government regulations

5.3 Lean Production & Quality Management

Lean Production: an approach to operations management that focuses on cutting all
types of waste in the production process → for greater efficiency

Elimination of waste is a key goal of lean production, the wastes include:

1. Time (Ex: waiting for the next stage of production)
2. Transportation (Ex: some movement within the factory may not add anything to
the production process itself)
3. Products (Ex: defective products needed to be reworked)
4. Space (Ex: too much stock stored, “overproduction”)
5. Stock (Ex: too many raw materials purchased and stored instead of being used)
 6. Energy (Ex: under-utilizing some machines)
7. Talents (Ex: not optimally using workers)
→ cutting wastes = greater efficiency

Methods of Lean Production:

1. Kaizen: a method of lean production based on continuous improvement
- May involve suggestion boxes or competitions to find suitable areas for
improvements
- Requires:
→ all levels of the hierarchy must be inclusive, not just one group of
managers or employees
→ No blame should be placed on any problems raised (or else employees
may be hesitant to make suggestions in the future)
→ System thinking needed to consider the whole production process
→ focuses on the process instead of the end product
Problem: difficult to maintain the necessary momentum over a long period of time
→ requires high levels of commitment and loyalty among employees

2. Just-in-Time (JIT): a method of stock control that means avoiding holding stock
by getting supplied only when necessary and producing only when ordered
- Controlling stock levels is very important for a business, stock control is
based on:
→ Just-in-Case (JIC): holding reserves of both raw materials and finished
products in case of a sudden increase in demand or a problem in the
production
→ Just-in-Time (JIT): avoiding holding stock by getting supplies only when
needed for orders
- JIT contributes less storage waste and greater efficiency

Cradle-to-cradle design and manufacturing: a recent approach to design and

manufacturing based on principles of sustainable development (especially recycling)
 - Products should be entirely recycled to create new products that are either the
same or different after being used
- Cradle-to-cradle (C2C) certification requirements:
1. Reutilization of the material
2. Amount of energy necessary for the recycling process (best: renewable
energy)
3. Amount of water needed for the recycling process
4. Corporate social responsibility of the company

Quality Control & Quality Assurance:

- Quality can lead to increased sales, repeat customers (brand loyalty), reduced
costs, and premium pricing
- Quality of product = reliable, safe, durable, innovative, value of money
- Quality Assurance: a system of continuous improvement in quality that requires
the participation of every member of the organization.
Methods of Managing Quality:
1. Quality Circles: a formal group of employees who meet regularly to discuss and
suggest easy of improving quality in their organization
- May choose any topic to discuss or work on specific issues
- Present a range of perspectives
2. Benchmarking: a tool for businesses to compare themselves to their competitors
in order to identify how they can improve their own operations and practices
- Compare practices and standards with those of their competitors →
usually looking at the market leaders
- Ways of benchmarking:
→ use existing benchmarks in their industry
→ study another company identified as the model they want to follow for a
specific quality issue
→ done collaboratively with competing businesses acting together to keep
up to date
3. Total Quality Management: An approach to quality management that involves the
participation of every member of the organization
Impact of Lean Production and TQM on an Organization:
1. Create closer working relationships with all stakeholders
2. Motivate the workforce
3. Reduce costs
4. Improve design and production of quality products
5. Enhance the reputation of the company
Disadvantages:
1. Costly
2. Staff may need significant training
3. Take time to change corporate culture
4. Create stress on formal relationships in the business
5. Difficult to maintain over a long period of time

5.4 Location
Factors in Locating a Business:
1. Costs:
- Depending on:
 → Land: large manufacturers need large areas while small home-based
offices only require spare room
→ Labor: skilled labor cost
→ Transport: high transport costs if the business produces large quantities
of physical product: bulk increasing (buying in many components and
building something bigger) → set up close to the market or bulk
decreasing (buying large quantities of raw materials and turning them into
smaller end products) → set up near the source of raw materials
2. Competition:
- Balance is needed between finding a gap in the market and setting up not
far from the direct competitors
- Cannibalistic marketing: setting up more than one branch in a location
→ eventually may have so many outlets that there’s no more possible
extra trade to be generated
3. Type of Land:
- Different types of land = different costs → Suitability for a given business
will vary
4. Markets:
- Many businesses set up near their customers
5. Familiarity with the Area:
- New businesses usually set up in the place the owners are familiar with
- Advantage: owners may have knowledge of local networks (possible
suppliers and customers..etc)
- Disadvantage: may overlook a more appropriate venue in another area
6. Labor pool:
- Take into account the type of workers available locally and balance this
with the skills and qualifications needed for all business operations
- Level of unemployment in the area → indicator of possible savings on
salaries
- Increase in teleworking
7. Infrastructure:
 - The existing transport networks for people and products + electronic
networks
8. Suppliers:
- availability of reliable local suppliers may be important
9. Government:
- Local authorities may offer financial support → significant savings
→ Laws: labor laws, health and safety regulations, advertising rules…etc
- Taxes: Businesses are taxed higher in some countries
→ impact on the amount of business that company can conduct & how
much profit can be retained and reinvested
10. National, Regional, or International ambition:
- Locating or relocating must now think beyond their locality

Impact of Globalization on Location:

Pull Factors: make it attractive for businesses to set up or relocate abroad
1. Improved communications: Easier to transport products globally and
communicate with stakeholders
2. Dismantling of trade barriers
3. Deregulation of the world’s financial markets
→ made the transfer of vast sums of money easy (facilitated quicker start-ups)
4. Increasing size of multinational companies (easy to persuade countries to allow
them to set up new operations)
→ influence and power of mnc can create momentum for other businesses in the
same field
Push Factors: push companies to operate overseas, they may be able to:
1. Reduce costs
- moving closer to the raw materials & cheaper labor
→ achieve economies of scale
2. Increasing market share:
- Hopes to tap into new markets
- High reward if first to enter a large market
 Risks & Disadvantages:
● Language barriers
● Different cultural practices
● Historical tensions between countries
● Lack of knowledge of local or regional networks
● Local law or politics
● Time differences
● Challenges in finding new partners
3. Using extension strategies:
- Businesses may have reached the saturation point for their products &
may be looking to extend their product’s life cycle
4. Using defensive strategies:
- Some businesses move overseas not because they need to but because
they don’t want their competitors to do it first

Ways of Reorganizing Production:

1. Outsourcing (Subcontracting): the practice of employing another business to
perform some peripheral activities
- Enable the organization to focus on its core activity
- Peripheral service providers can achieve economies of scale because
they are specialized in that particular service
Advantages:
- Reduce costs
- Allow the business to focus on core activities
- Lead to improved capacity utilization
- Reduced delivery time
- Lead to transfer of expertise
Disadvantages:
- Can become dependent on suppliers
- Less control of the final product
 - Dilution of the brand (ex: consumers realizing the product was not made
by the company itself)
2. Offshoring: the practice of subcontracting overseas
- A business outsources something to an external provider in a location
outside of the home country
All advantages & disadvantages of outsourcing apply to offshoring, but the
international aspect of offshoring intensifies:
- Cultural differences between companies
- Communication difficulties
- Issues of quality and ethics
3. Insourcing: the practice of performing peripheral activities internally, within the
company (opposite of outsourcing)
- Businesses may decide to stop outsourcing to regain full control or reduce
the costs of taxes, labor, and transportation
4. Reshoring: the practice of bringing back business functions (jobs and operations)
to the home country (opposite of offshoring)
- In order to focus on the quality end of the market
- The business may still use external providers → only located in the home
country

5.5 Break-even Analysis

Contribution: shows how much a product contributes to the fixed costs of a business
- Contribution per unit: the difference between selling price per unit and variable
cost per unit
→ contribution per unit = price per unit - variable cost per unit
- Total contribution: the difference between total sales revenue and total variable
costs
→ total contribution = total sales revenue - total variable costs
→ total contribution = contribution per unit x number of units sold
- Contribution and profit:
→ profit = total contribution - total fixed costs
Breaking Even:
Break-even chart: a graphical method that measures the value of a firm’s costs and
revenues against a given level of output
- Fixed costs: paid whatever the level of output is → constant
- Variable costs: higher units produced = higher variable costs
- Total cost: begins at the line of fixed costs
- Break-even point: where TC line intersects the TR line
Break-even quantity: a measure of output where total revenue equals total costs

Margin of Safety: the output amount that exceeds the break-even quantity
- Margin of safety = current output - break-even output
- Current output < break-even output → loss
Calculating break-even quantity:
1. “Contribution per unit” method
- Break-even quantity = fixed costs / contribution per unit
2. “Total costs = total revenue” method
- Total revenue = price per unit x quantity sold
- Total costs = total fixed costs + total variable costs
- Total Costs = Total Revenue
Profit or loss:
 1. Profit = total contribution -total fixed costs
2. Profit = total revenue - total costs

Target Profit: the level of output that is needed to earn a specified amount of profit
- Target-profit output = (fixed costs + target profit) / contribution per unit
→ Calculate target profit & target price with the same formula
Break-even revenue
- Break-even revenue = (fixed costs / contribution per unit) x price per unit

Effects of Changes in Price or Costs:

- Changes in price

→ shift of the total revenue line from TR1 to TR2

→ sales revenue increased at all levels of output
→ break even at a lower level of output
→ increase margin of safety
- Changes in Costs:
● Increase in fixed costs:
 → Upward parallel shift of the total cost line from TC1 to TC2
→ Increase in total costs by the same amount at every level of output
→ break-even quantity increase = profit decreases at all levels of output
● Increase in variable costs

→ Increase gradient of the total cost line Shift from TC1 to TC2
→ Rise in break-even quantity & reduces margin of safety

Benefits & Limitations of Break-even Analysis:

Benefits:
 1. Help visualize a firm’s profit or loss at various levels of sales
2. Managers can determine the margin of safety, break-even quantity, and
break-even revenue or cost
3. Formula and calculations can be used to check results
4. Can be used as a strategic decision-making tool to decide key investment
projects
Limitations:
1. Assumes all units produced are sold, with not stocks built up or held
2. Assumes all costs and revenue are linear
3. Fixed costs may change at different levels of activity
4. Semi-variable costs not represented (ex: some workers receive variable
commissions on top of their regular wages)

5.6 Production Planning

The Supply Chain Process: the system of connected organizations, information,
resources, and activities that a business needs to produce goods or provide services to
its customers
- Involves two types of flows that must be managed:
1. The flow from raw materials to finished product that eventually reaches the
end customer
2. The flow of information
- Supply chain has two dimensions:
1. Logistics: “hardware” of supply chain (ex: trucks transporting fruits)
2. Information and communication: “software” (ex: databases and
spreadsheets)
- Supply chains can be local or global:
● Local supply chain: characterized by the short distance between
producers and consumers
Advantages:
→ less transport & less pollution, more sustainable
 → fewer transactions
→ benefit the local community more
● Global supply chain: involves international trade
→ less sustainable than local supply chains
Advantages:
→ more profitable to trade internationally

Just-in-Time (JIT) & Just-in-Case (JIC):

- Just-in-Case: the traditional method of stock control. Which involves holding
reserves of both raw materials and finished products in case of a sudden
increase in demand
- Just-in-Time: a modern method of stock control, which involves avoiding holding
stock by being able to get supplies only when necessary and to produce just
when ordered
- Differences between JIT & JIC:
● JIT:
→ stock bought only when required (aim to hold zero stock)
→ Beneficial for the working capital, can use the money for day-to-day
activities
 → reduces costs (storage and waste)
→ reduce chance of holding stock that cannot be sold
→ less chance of damaged stock
→ more space for alternative projects
● JIC:
→ stock bought and stored (buffer stock: the minimum amount of stock
that should be held)
→ reduces pressure on cash flow
→ reduces costs by bulk buying to achieve economies of scale
→ possible to meet sudden changes in demand
→ provides spare parts
→ stock is stored ready to use = less delivery issue and no waiting time

Stock Control:
Issues of cost holding stock:
1. Holding too much stock is costly
2. Not holding enough stock is also costly (emergency delivery, customers can go
elsewhere = lost orders)
Elements of stock control:
1. The initial order: the first amount of stock delivered
2. The usage pattern: how much stock is used over a given time period
3. Maximum stock level: the amount of stock held at any one time
4. Minimum stock level; the amount of stock that is kept back as a reserve (also
called buffers stock) → should never go lower than this level or else production of
finished goods may not be possible
5. Reorder level: the level at which stock has to be reordered as a type of trigger
6. Reorder quantity: the amount of stock that is ordered
7. Lead time: the amount of time it takes between ordering new stock and receiving
it
Optimal Stock Levels:
To calculate the optimal stock level, need to take factors into account:
1. The market: is it growing or are there new competitors or is it going to shrink…
2. The final product: type of product, does the production rely on many suppliers…
3. The stock: is it perishable or out of date, the storage space…
4. The infrastructure: is it reliable, could the weather or other factors influence the
ability of suppliers to meet demand
5. Finance: does business have enough money at the right time, could there be
significant savings from bulk buying
6. Human resources: workforce planning if the business decides to hold more or
less stock

Capacity Utilization Rate:

- Capacity Utilization Rate = (actual output / productive capacity) x 100
- Sectors with low profit margins: businesses should aim for high capacity
utilization rate
→ cannot afford to lose any opportunity to sell their products
→ mostly high capacity utilization rate = better

Defect Rate:
 - The percentage of output that fail to meet set quality standards
- Defect rate = (number of defective units / total output) x 100

Productivity Rate:
- Measure of the efficiency of production
- Productivity rate = (total output / total input) x 100
- productivity rate < industry average = manager should tke action to solve
→ can adopt lean strategy to cut down waste and increase efficiency
- Productivity rate > industry average = manager pleased with the efficiency of the
company’s operations

Labor Productivity:
- Measures the efficiency of a worker
- Can compare efficiency of different workers and identify if one is
under-performing
- Labor Productivity = total output / total hours worked

Capital Productivity:
- Measures efficiency of the company’s capital (especially working capital)
- Working capital = current assets - current liabilities
- Working capital productivity = sales revenue / working capital

Operating Leverage:
- Measures how total costs are made up of fixed costs and variable costs
- Calculate how well a company uses its fixed costs tio generate profits
- Operating leverage = Q x (Price-varaible cost per unit) / Q x (price-varaible cost
per unit) - fixed costs
- High operating leverage must cover a large mount of fixed costs each month
- High operating leverage = increase in sales will result in more revenue
- Low operating leverage may have high costs that vary with its sales but lower
fixed costs each month
Cost to Buy (CTB) & Cost to Make (CTM):
- Determine for business to buy from a specialist producer or directly make them
- Cost to Buy = P x Q
- Cost to Make = FC =(VC x Q)
- CTB < CTM → business should outsource or offshore
- CTM < CTB → business should produce themselves