Global Agricultural Marketing Management.

(Marketing and Agribusiness texts - 3)

Table of Contents

S. Carter FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS Rome, 1997 This publication has previously been issued as ISBN 92-851-1004-5 by the FAO Regional Office for Africa.
The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.

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Table of Contents

Preface Chapter 1: Introduction To Global Marketing Chapter Objectives Structure Of The Chapter The evolution of global marketing The international economic system Impetus to global marketing involvement Planning to meet the opportunities and challenges of global marketing Framework for international analysis Product life/market life cycle Chapter Summary Key Terms Review Questions Review Question Answers References Chapter 2: The Economic Environment Chapter Objectives Structure Of The Chapter Overview The global economy Chapter Summary Key Terms Review Questions Review Question Answers References Appendix 2A: European Union Consumers The changing structure of the retail trade Changes to the wholesale trade Packing requirements for self-service

Market overview Barriers to trade in the EU Appendix 2B: Southern African Development Community Historical development Appendix 2C: The Preferential Trade Area Of Eastern And Southern Africa Institutions of the PTA Chapter 3: The Cultural Environment Chapter Objectives Structure Of The Chapter What is culture The elements of culture Chapter Summary Key Terms Review Questions Review Question Answers References Chapter 4: The Legal, Political/Trade Environment Chapter Objectives Structure Of The Chapter Laws, rules, and standards Issues The political environment The legal environment Terms of access Winds of change Chapter Summary Key Terms Review Questions Review Questions Answers References Chapter 5: Identifying Market Opportunities Through Marketing Information Systems And Research Chapter Objectives Structure Of The Chapter Elements of the information system Sources of global information Chapter Summary Key Terms

Review Question Review Question Answers References Chapter 6: A Competitive Analysis And Strategy Chapter Objectives Structure Of The Chapter Competition Industry analysis Competitive strategy Sourcing Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Chapter 7: Market Entry Strategies Chapter Objectives Structure Of The Chapter Entry strategies Special features of commodity trade Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Chapter 8: Product Decisions Chapter Objectives Structure Of The Chapter Basic concepts Product design Production decisions Branding and trademarks Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Chapter 9: Pricing And Financing

Chapter Objectives Structure Of The Chapter The international financial system Pricing products Global pricing Financing of exports Malawi - Export Credit Guarantee System Pre- and Post-Shipment Support Facility Currency transactions Option Concluding comments Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Chapter 10: Distribution Decisions Chapter Objectives The Structure Of The Chapter Channels Channel structure Cotton marketing Physical distribution East Africa horticulture marketing Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Chapter 11: Promotion Decisions Chapter Objectives Structure Of The Chapter The nature of global promotion Global promotion Campaign design Chapter Summary Key Terms Review Questions Review Question Answers Carmel of Israel References Bibliography

Chapter 12: Global Marketing, Logistics - Access And Documentation Chapter Objectives Structure Of The Chapter Complexity Terms of access International trade Special trade terms in export sales Export documentation Commercial documents Official documents Insurance documents Transport documents Financial and financing documents Export financing Collection arrangements Letters of credit Conflict of law Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Chapter 13: Organising, Planning And Controlling Global Marketing Operations Objectives Of The Chapter Structure Of The Chapter Agricultural systems: organisation, coordination and performance overview Global marketing planning Global marketing control Formal control methods Informal control method Variables influencing control Chapter Summary Key Terms Review Questions Review Question Answers Fruit and vegetables marketing - the future Key statistical data on horticultural marketing References Bibliography Appendix 13A: Export control - The Malawi case Glossary of marketing terms

involving meticulous attention to global social and economic differences and/or similarities in product. the same as crude petroleum. without Zimbabwe having to prospect markets. in order to stave off potential famine. In 1954. distribution and socio/economic/legal requirements. developing countries as a group experienced annual export growth rates of 4 to 11% in categories like processed fruit and vegetables. (for example The World Development Report by the World Bank) will indicate that the world is becoming increasingly interdependent for its economic progress. Most international transactions are not like this. but often it is as a result of good and meticulous planning. Chapter Objectives The objectives of this chapter are: . For example. cotton and sugar actually declined in value during the 1980s. cocoa. representing 5% of world commodity trade. Most are clearly planned. the United Nation's World Food Programme (WFP) may purchase maize from Zimbabwe and distribute it in Tanzania. This "engineered" international marketing transaction may benefit Zimbabwe. Marketing goods and services on a global scale can happen in an "engineered" way. while developing countries trade in coffee. imports were only one percent of GNP. for instance. High value food product exports in 1990 totalled approximately $144 billion. Terms such as "global village" and "world economy" have become very fashionable. price. Malawi and Kenya. more than twenty Less Developed Countries (LDCs) had exports of high value foods exceeding $500 million including countries like Brazil. feed stuffs and oil seeds. In 1990. promotion. but in 1984 they had risen to 10%. fresh processed fish products. Thailand. China.Technical note: A short introduction to exchange traded options* Futures and hedging trading in cotton * Chapter 1: Introduction To Global Marketing Chapter Objectives Structure Of The Chapter The evolution of global marketing The international economic system Impetus to global marketing involvement Planning to meet the opportunities and challenges of global marketing Framework for international analysis Product life/market life cycle Chapter Summary Key Terms Review Questions Review Question Answers References A look at the appropriate figures. India and Senegal. In food crops. in the USA.

it became clear in the 1980s that this definition of marketing was too narrow. It then goes on to describe the major factors that have led to global marketing. The long held tenants of marketing are "customer value". including both economic and social. the organisation's language of business may be "English". Carter defines marketing as: "The process of building lasting relationships through planning. Preoccupation with the tactical workings of the marketing mix led to neglect of long term product development. For example. Finally the chapter examines the planning mechanism necessary to take account of important differences and/or similarities when marketing goods and services internationally. This not only requires a translation facility. S. where existing. Structure Of The Chapter The chapter starts by looking at the evolution of a firm's orientation from primarily a domestic producer to a global player. but it may have to do business in the "French language". develop the "correct" marketing mix and satisfy its own objectives as well as giving customer satisfaction on a continuing basis. The evolution of global marketing Whether an organisation markets its goods and services domestically or internationally. This means that organisations have to study the market. executing and controlling the conception. the definition of marketing still applies. develop products or services that satisfy customer needs and wants. have to be accounted for. so "Strategic Marketing" was born. social and political macro forces that shape the evolution of markets. by doing marketing across multinational boundaries. "competitive advantage" and "focus". pricing. promotion and distribution of ideas. firstly define "Marketing" and then see how. working closely with home country government officials and industry competitors to gain access to a target market. differences. However. this being primarily due to the numerous other dimensions which the organisation has to account for. In global marketing terms this means forging alliances (relationships) or developing networks. but the French cultural conditions have to be accounted for as well. government policy and regulations. The focus was shifted from knowing everything about the customer. However. to knowing the customer in a context which includes the competition. Also the marketing objective has changed from . Let us. To provide an understanding of the factors which have led to the growth of internationalism and globalisation  To produce a description of the major concepts and themes on which the subject of global marketing is based  To describe what is involved in planning for global marketing. This is particularly true when doing business with the Japanese. the scope of marketing is broadened when the organisation decides to sell across international boundaries. goods and services to create mutual exchange that satisfy individual and organisational needs and objectives". Doing business "the French way" may be different from doing it "the English way". and the broader economic.

It is important to note that marketing is not just a philosophy or one or some of the operational activities. because without satisfied customers the organisation will eventually die. marketing embraces selling. However. Further discussion on the topic is available in the accompanying list of readings. Even further. distribution and planning. The emphasis is towards the emergence of the "customising consumer". As a set of operational activities. the customer who takes elements of the market offerings and moulds a customised consumption experience out of these. the difference between domestic and international marketing lies almost entirely in the differences in national environments within which the global programme is conducted and the differences in the organisation and programmes of a firm operating simultaneously in different national markets. This reveals itself in the desire for the consumer to become part of the marketing process and to experience immersion into "thematic settings" rather than merely to encounter products. promotion. government and so on. pricing. be anywhere on a continuum of "foreign" to "global". therefore. they usually evolve into this from a relatively small export base. It is both. is also becoming liberated from the sole role of a consumer and is becoming a producer. transporting. post modernisim. "marketing" must still be regarded as both a philosophy and a set of functional activities. channel and other stakeholder franchise". place. As a philosophy embracing customer value (or satisfaction).producing act. It is . "consumer sovereignty". the organisation has to basically decide what it is going to sell. to which target market and with what marketing mix (product. In the post modern market place the product does not project images. it becomes not just a case of satisfying hunger needs. marketing must be internalised by all members of an organisation. advertising. So in consuming food products for example. that is. "target markets" and "product/market processes" are being challenged. It is recognised that in the "postmodern" era of marketing. The consumption of "designer water" or "slimming foods" is a statement of a self image. consumer sophistication and systems are not such that allow a quantum leap to postmodernism. negotiating and managing acceptable exchange relationships with key interest groups or of satisfying organisational objectives to one of "stakeholder" benefits . Whether one takes the definition of "marketing" or "strategic marketing". market research and product development activities to name but a few. on the basis of long run consumer. not just a product consuming act. when marketing across national boundaries. Some firms never get any further than the exporting stage. Profit is still essential but not an end in itself. Marketing overseas can. Acceptance of postmodern marketing affects discussions of products. advertising. price and people). given the fact that this textbook is primarily written with developing economies in mind. it is intended to mention the concept in passing. When organisations develop into global marketing organisations. Strategic marketing according to Wensley (1982) has been defined as: "Initiating. Although these tenents of marketing planning must apply anywhere. This is true in some foodstuffs. society. even the assumptions and long standing tenents of marketing like the concepts of "consumer needs". but also can be rendered as an image . where the environmental conditions. in the pursuit of sustainable competitive advantage within specific markets.including employees. it fills images. In planning for marketing. planning and organising activities to meet individual and organisational objectives. posts that the consumer who is the consumed. the ultimate marketable image.

which saw the introduction of many private abattoirs. This involves recognising that markets around the world consist of similarities and differences and that it is possible to develop a global strategy based on similarities to obtain scale economies. adaptation and creation. 4. However. the process can be very quick. Stage four: global organisations which create value by extending products and programmes and focus on serving emerging global markets (geocentric). but also recognises and responds to cost effective differences. Stage three: stage two organisations which realise that they must adapt their marketing mixes to overseas operations. In practice. had been the parastatal (or nationalised company) with the mandate to market meat in Zimbabwe. The focus switches to multinational (polycentric) and adaption becomes paramount. One such example is the Preferential Trade Area (PTA) in Eastern and Southern Africa where involved countries can trade inter-regionally under certain common modalities. Usually ripe for the taking by stage four organisations. 0 In "global marketing" the modus operandi is very different. evolved in 1995. Over time.1 outlines a typology of terms which describes the characteristics of companies at different stages in the process of evolving from domestic to global enterprises. solely domestically oriented organisations are probably doomed to long term failure. organisations evolve and Table 1. Its strategies are a combination of extension. a source which is still continuing. There is no time limit on the evolution process. 2. In some industries. It is unpredictable in behaviour and always alert to opportunities. the CSC lost its monopoly under the Zimbabwean Economic Reform Programme of 1990-95.well to note at this stage that the words "international". like horticulture. Most of the meat went out under the auspices of the Botswana Meat Commission. Whilst many organisations can survive like this. the CSC's exporting of beef to the EU is such that the EU can no longer be considered as " Foreign" but an "Operating" market. the quota had been a source of volume and revenue. for example raw milk marketing. "multinational" or "global" are now rather outdated descriptions. The four stages are as follows: 1. In addition. but creates an export division. Case 1. The latter. . Probably believes only in home values. this may evolve into an operating market rather than a foreign market. a number of which were up to European Union rating. 3. for many years. it's basic form being "exporting". with all activity concentrated in the home market. Stage one: domestic in focus. the CSC had obtained a 9000 tonnes beef quota in the EU. Another example is the Cold Storage Company of Zimbabwe.1 Cold Storage Company Of Zimbabwe The Cold Storage Company (CSC) of Zimbabwe. and as a driving force to the building of EU rated abattoirs. Stage two: home focus. but with exports (ethnocentric). In fact "global" has replaced the other terms to all intents and purposes. In this way. For many years. During its monopoly years the CSC had built five modern abattoirs. out of the Cold Storage Commission. Organisations begin to develop and run operations in the targeted country or countries outside of the domestic one. "Foreign" marketing means marketing in an environment different from the home base.

Californian fruit being sold three thousand kilometres away in New Jersey. Today there are a variety of spreedsheets that one can use to calculate comparative advantage. and make the assumption that the one country totally specialises in one product. To calculate the comparative advantage one has to compare the production ratios.Table 1. has a remarkably poor export record. despite the trend to world interdependency. Remarkably. This section will briefly examine the forces which have been instrumental in the development of world trade. the product trade cycle (Raymond Vernon) and The Business Orientation (Howard Perlmutter). one such is that . concepts and theories which have emerged as giving political explanation to the development of international trade. mainly because of their emphasis on exporting primary products. The USA. Theoretical approaches These include the theory of comparative advantage described in the book Wealth of Nations (Adam Smith) and David Ricardo). countries are better off specialising in their area of competitive advantage and then trading and exchanging with others in the market place. or it can gain from trade even if it has an absolute advantage in the production of all goods. for example. some countries have been less involved than others. This has been mainly due to its huge statewide domestic market. with countries of Africa struggling to make a significant mark.1 Stages of domestic to global evolution Management Stage one emphasis Domestic Focus Domestic Marketing strategy Domestic Structure Domestic Management style Domestic Manufacturing stance Investment policy Performance evaluation Stage two International Ethnocentric Extension International Centralised top down Stage three Multinational Polycentric Adaption Worldwide area Stage four Global Mainly domestic Mainly domestic Domestic Domestic market share Domestic used worldwide Against home country market share Geocentric Extension Adaption creation matrix/mixed Decentralised bottom Integrated up Host country Lowest cost worldwide Mainly in each host Cross subsidization country Each host country Worldwide market share Factors which have led to internationalisation There have been many underlying forces. for example. which is almost tantamount to "international trade". Even though a country has an absolute production advantage it may be better to concentrate on its comparative advantage. The theory of comparative advantage: The theory can be relatively complex and difficult to understand but stated simply this theory is a demonstration (under assumptions) that a country can gain from trade even if it has an absolute disadvantage in the production of all goods. Japan has risen fast to dominate the export rankings. To maximise the wellbeing of both individuals and countries. About 2000 US companies only account for more than 70% of US manufacturer's exports.

67 oranges = 1 apple Product So in apples. Now if the two countries specialise and trade the position is as follows: South Africa Europe Production Imports Consumers Production Imports Consumers Apples (000's) 0 30 30 80 30 50 Oranges (000's) 50 14 36 30 14 44 The trading price is 30:14 =2. At the other extreme South Africa can produce no apples and 50 oranges and Europe no apples and 30 oranges. Calculation of comparative advantage is as follows: Example It may be assumed that Holland is more efficient in the production of flowers than Kenya. both undifferentiated and produced with production units which are a mixture of land. So South Africa should concentrate on the production of oranges as its comparative advantage is greatest here.of the Food and Agriculture Organization (FAO). as the locally produced paw paw wine may be much inferior.1) and is attributable to Venon1 (1966) The international product trade cycle model suggests that many products go through a cycle during which high-income. The product trade cycle: The model describes the relationship between the product life cycle. lose their export markets and finally become importers of the product. These stages are reflected in figure 1. it is a well known fact that increased volumes result. The Boston Consulting group observed that as an organisation gains experience in production and marketing the greater the reduction in costs. The theory of comparative advantage also ignores product and programme differentiation. Consumers do not buy products based only on the lowest costs of production. Europe grows apples and South Africa oranges. trade and investment (see figure 1. including marketing. usually. and Europe can produce 80 apples and no oranges. . Kenyans may well be prepared to pay extra for imported French or South African wines. particularly less developed but not exclusively so. To use the same production units South Africa can produce 100 apples and no oranges. reliability of delivery and other tangible and non tangible factors come into play. labour and capital. shift from being importers to exporters. Yet Kenya succeeds in exporting thousands of tonnes of flowers to Europe every year. Indeed.1. in lower costs. these are two products. Image.two product model of comparative advantage. quality. in the so called "experience curve" effect concept. And it is not only "production" related but "all experience" related. However. in the supply of fresh cut flowers to Europe.67 (50/30). How? Take the simple two country . mass consumption countries which are initial exporters. Unfortunately the theory assumes that production costs remain relatively static.25 (100/80) but in oranges 1. South Africa has an advantage of 1. the Boston Consulting Group observed this phenomenon.14 apples = 1 orange 14:30 = 4. Kenya flower growers Sulmac and Oserian have achieved legendary reputations. At the same time other countries.

1 International product trade cycle From a high income country point of view phase 1 involves exporting. lack of skills or that . Pakistan and certain African countries. However. now face competition at home. which were sources of cotton in themselves realised that they had the labour and materials on their doorstep conducive to domestic production. Case 1. to phase 4 when import competition begins. Thus new products generally emanate from high income countries and. Soon they were able to support cloth and finished good back to the UK. in other advanced countries home markets. High income producers. Non more than the textiles industry. their growing economies of scale make them a competitive source for third country markets where they compete with high income exporters. specially cotton. foreign and high income country production begins to supply the same export market. As foreign producers begin to expand and gain more experience. then in international trade. so starts the second stage. They began to do so. In the second stage of the cycle. High income country entrepreneurs quickly realise that the markets to which they are selling often have lower production costs and so production is initiated abroad for the new products. As foreign producers expand. their competition displaces the high income export production source. In the early and mid twentieth century the UK was a major producer of cotton textile materials. This may be due to a number of factors like lack of access to capital to build the facilities to respond to the import. orders begin to be solicited from lower income countries and so a thriving export market develops. The assumption behind this cycle is that new products are firstly launched in high income markets because a) there is most potential and b) the product can be tested best domestically near its source of production. over time. once enjoying a monopoly in their own market. things do not always turn out as the cycle suggests. and finally. to phase 3 when production in the foreign country becomes competitive. At this point high income countries often decide to invest in foreign countries to protect their share. which by now had experienced growing production costs due to rising labour costs and failing market share. Such was their success in supplying their own huge markets that their production costs dropped dramatically with growing economies of scale. The cycle continues as the production capability in the product extends from other advanced countries to less developed countries at home. Whilst the underlying assumption behind the International Product Trade Cycle is that the cycle begins with the export of new product ideas from high income countries to low income importers. In this case..2 UK Textiles There are numerous examples of the International product trade cycle in action. the Trade Cycle ceases to be the underpinning concept. Now the UK has little cotton materials production and it served by many countries over the world. The final phase of the cycle occurs when the foreign producer achieves such a scale and experience that it starts exporting to the original high income producer at a production cost lower than its original high income producer at a production cost lower than its original high income supplier.Figure 1. based on domestic product strength and surplus-to phase 2. its former colonies like India. Sometimes a high or even low income exporter may put a product into a high/low income country which is simply unable to respond. then low income countries begin production of the product etc. including its former colonies and Commonwealth countries. when foreign production begins. primarily based on its access to cheap raw materials from its Commonwealth countries and its relatively cheap labour.

On this reduced volume. Coca Cola can be universally advertised as "Adds Life" or appeal to a basic instinct " You can't beat the Feeling" or "Come alive" as with the case of Pepsi. Zimbabwe steadily moved from a command to a market economy.  Ethnocentrism . Zimbabwe had. coupled with high interest rates made the $5.subsidiary country orientation . One can question "what feeling?". Case 1. In this case. In a short space of time. The new packaging would have greatly enhanced the product and generated export potential. youth with the same style and brand of basketball shirts or American Football shorts. Kuala Lumpar or Harare. Organisations have found that similar basic segments exist worldwide and. over and above those factors which have been attempting to restrain it. .  Geocentrism . The more culturally unbounded the product is. therefore. the company simply could not compete and closed its doors in January 1995.regional orientation . processed a variety of fruit juices for the Zimbabwean market. but that is not the point. Orientation of management: Perlmutter1 (1967) identified distinctive "orientations" of management of international organisations. One can see in the streets of New York. suitings. The company needed to make the transition to aseptic packaging which would alleviate the need for chemical preservations and enhance unrefrigerated shelf life. cashflow constraints within the holding company. coupled with higher transport costs. His "EPRG" scheme identified four types of attitudes or orientations associated with successive stages in the evolution of international operations. part of which allowed foreign importers. product substitution between the exporter and importer may also take place.  Regiocentrism . market share for Sunsplash fell from 1 million litres annually to a mere 400 000 litres. However. When Zimbabwe embarked on its World Bank sponsored structural adjustment programme in 1990.home country orientation .world orientation . A classic example of this phenomenon is the case of Zimbabwe Sunsplash fruit juice drinks. The latter two are based on similarities and differences in markets.the costs of local production cannot get down to the level of costs of the imported product. Cotton. However reduction in income and transport costs were not the only problems. but recognising differences.  Polycentrism . Market forces and development Over the last few decades internationalism has grown because of a number of market factors which have been driving development market strategies. (AFDIS).exporting surplus.3 Sunsplash Zimbabwe market strategies. since 1984. based in Masvingo. capitalising on similarities to obtain cost benefits. the more a global clustering can take place and the more a standardised approach can be made in the design of marketing programmes. Expenses like high interest rates were an inhibiting factor.8 million investment unviable. can be met with a global orientation. These include market and marketing related variables. London. Many global opportunities have arisen because of the clustering of market opportunities worldwide. as an ingredient in shirtings. and curtain material can be globally marketed as natural and fashionable.

those of experience. Communications and transport are shrinking the global market place. This is certainly true of many veterinary products. operates in so many markets. The unexpected release of Chinese tobacco depressed the tobacco price well below expectations. many raw materials are at the mercy of world prices. . South African and Spanish oranges in demand in their raw state worldwide. Israeli. new markets or increasing volumes into consuming markets have to be prospected and developed. A new pesticide is available almost globally to any agricultural organisation as long as it has the means to buy it. With a growing trend away from tobacco products in the west. resource utilisation and global strategy. warehousing. Tobacco producing countries of the world are finding this out. Beyer. Computers in agriculture and other applications are used universally with IBM and Macintosh becoming household names. If one considers the whole range of materials from their raw to value added state there is hardly a market segment which cannot be tapped globally. find themselves equally in global demand. In addition the ancillary products and services required to make the orange industry work. Technology has been one of the single most powerful driving forces to internationalism. This happened in 1993/94 with the Malawian and Zimbabwean tobacco companies. for example. requires volume to generate profits for the development of new products. concentrates. Take.This standardised approach can be aided and abetted with technology. Rarely is technology culturally bound. boiled water for its preparations. Massey Ferguson and ICI find themselves "under pressure" from the market place and distributors alike to position their brands globally. Kelloggs. for example. In many cases this may mean an adaption in advertising appeals or messages as well as packaging and instructions. leaving farms with stock and large interest carrying production loans. thus helping firms to improve quality. scale. British Airways and Barclays Bank. many provided by global organisations like Beyer. Farm machinery. transport services. The greatest lift to producers of raw agricultural products has been the almost universal necessity to consume their produce.the need to study markets carefully. but their downstream developments are equally in demand. oranges. Nestlè. This also has its dangers. Marketing globally also provides the marketer with five types of "leverage" or "advantages". By that time another country may plant or have its trees mature. machinery. and so many developing countries find themselves at the mercy of supply and demand fluctuations. were not universal phenomenon. packaging and a whole range of other production and marketing services are in demand. An orange grove will mature after five years. whereby it failed to realise that the ability to find. Value added manufacturers like Cadbury. Of course. Norsk Hydro. So insecticides. If it consumes a third of the world's cocoa output annually. chemicals. But this highlights one important global lesson . The need to recoup large costs of research and development in new products may force organisations to look at global markets to recoup their investment. Global volumes allow continuing investment in R & D. Not only are Brazilian. coupled with the literacy level to read the instructions properly. A multi-product global giant like Nestle'. with over £10 billion turnover annually. then it is in a position to dominate terms. Nestle will not be in a hurry to repeat its disastrous experience of the "Infant formula" saga. Unless these developments are picked up by global intelligence the plans for a big profit may be not realised as the extra volume supplied depresses prices. segments and orange pigments are globally demanded. Orange juice. buys so much raw material from a variety of outgrowers of different sizes. financial institutions. Many agricultural commodities take time to mature. that its international leverage is huge.

Kenya was favoured because of its ability to supply all year round . the introduction of wide bodied aircraft. Whilst losing out on temperature vegetables (courgettes etc) to lower cost Mediterranean countries. Under the colonialists. and trading relationships grew with European distributors. This lay in its ability for continuance of supply. emerged as a major supplier of high quality sweet peppers. Kenya. Kenya began supplying to other European markets. under the misguided reasoning that Kenya was too far from major markets. emerging global segments. increased affluence and foreign travel of West European consumers. courgettes and French beans and a major supplier of "Asian" vegetables (okra. chillies etc. So irrigation for production was limited and the markets served were tourists and the settlers in Kenya itseff. restaurants and department stores. but lower costs of production were not its strength. it increased its share in French beans and other speciality vegetables significantly getting direct entry into the supermarket chains and also Kenya broke into tropical fruits and cut flowers . These facilitated the development of a diversified product range. It also has a highly developed information . Case 1. Kenya's airfreight costs were kept low due to government intervention. Whilst the UK dominated. and air freight space increased.a major success. high value commodities. all year round supply and better qualities due to labour intensity at harvest time. sweet peppers. b) improved technologies and distribution arrangements for fresh products in Western Europe. Exports started in 1957. In the 1980's Kenya had its ups and downs.5 Kenya Off Season Vegetables Kenya's export of off season and speciality vegetables has been such that from 1957 to the early 1990s exports have grown to 26 000 tonnes per annum. which pioneered the European "off season" trade by sending small consignments of green beans. channelled into the export market and thus widening the export base.a competitive edge over other suppliers. better quality and Kenyan knowledge of the European immigrant population. With the development and organisation or many small "outgrowers".) to the UK growing immigrant population. the industry now provides an important source of income and employment. shrinking communications gaps and the drive to diversify product ranges. From these beginnings Kenya has continued to give high quality. Kenya's rapidly growing tourist trade also accelerated its canning industry and was able to take surplus production. covering many of the factors which have just been discussed-improved technology. the country's location and its diverse agro-ecological conditions. servicing niche markets.A number of suppliers of agricultural produce can take advantage of "off season" in other countries. or the fact that they produce speciality products. production remained small. This is the way by which many East African and South American producers established themselves in Europe and the USA respectively. via the Horticultural Cooperation Union. The 1970s saw an increased trade as private investment in irrigation expanded. In fact the case of Kenya vegetables to Europe is a classic. c) the emergence of large immigrant populations in several European countries: d) programmes of diversification by agricultural export countries and e) increased uplift facilities and cold store technologies between Europe and Kenya. Kenya took advantage of: a) increased health consciousness. chillies and other commodities to a London based broker who sold them to up market hotels. Kenya's comparative advantage was based on its low labour costs.

local enterprises may be protected from international competition as well as the local market. . Simply by creating barriers to entry. Encouraged by this and the availability of finance. More often than not sheer management myopia may set in and management may fail to seize the export opportunity although products may be likely candidates. whereby each country agrees to extend to all countries the most favourable terms that it negotiates with any country. have been overwhelming in their push to globalisation. anxious to get their fledging industries off the ground. Until the General Agreement on Tariffs and Trade (GATT) after World War II. Under this deal. Relative global peace has engendered confidence in world trade. Despite these trade agreements. However. The latest round.system. global corporations have been able to expand into many markets. The . Some have found the need to adapt the marketing mix. the World Bank has taken a very active role in the reconstruction and development of developing country economies. ft has to look to its laurels as Zimbabwe is rapidly beginning to develop as another source of flowers and vegetables. Many organisations have been put off or have not bothered going into global industry due to a variety of factors. The most favoured nation concept (MFN). for example. Similarly brands with a strong local history may not easily transfer to other markets. This affected liquidity drastically. a point which will be expanded on later. Uruguay. non tariff barriers like exclusion deals. GATT had the intention of producing a set of rules and principles to liberalise trade. Now an international reserve facility is available. Until 1969 the world economy traded on a gold and foreign exchange base. Similarly organisations may refuse to devolve activities to local subsidiaries. too daunting. the International Monetary Fund (IMF) and the evolution of the World Trade Organisation from the original General Agreement on Tariffs and Trade (GATT). market and otherwise.the World Bank (or International Bank for Reconstruction and Development to give its full name). may not find their Chibuku brand of beer (brewed especially for the locals) an easy transboundary traveller. Kenya is thus a classic case in its export vegetable industry of taking advantage of global market forces. African and Caribbean countries enjoy favoured status with EU member countries. standards and administrative delays are more difficult to deal with. coordinated though the Kenya Horticultural Crops Development Authority. Whilst the forces. Other negative forces may be created by Governments.the Lomè convention. The "round" of talks began with Kennedy in the 60s and Tokyo of the 70s. there remain a number of negatives. A similar system exists with the European Union. The principal forces have been the development of economic blocs like the European Union (EU) and then the "economic pillars". particularly the former. The international economic system Several factors have contributed to the growth of the international economy post World War II. After 1969 liquidity was eased by the agreement that member nations to the IMF accept the Special Drawing Rights (SDR) in settling reserve transactions. the world trading system had been restricted by discriminating trade practices. Recently. helped reduce barriers. This is typical of many developing countries. was recently concluded in April 1994 and ratified by most countries in early 1995. especially in many culture bound products. National Breweries of Zimbabwe.

the United States. especially with the collapse of the former USSR. Peace in Mozambique. where in the latter. people can see what is happening elsewhere and this can cause desire levels to rise dramatically. Only recently has television been introduced into Tanzania. it can be at a price. necessitated a large influx of foreign produce. The Gulf War coalition of the 90s. and experience through others may result in orders. especially yellow maize from the USA and South America. Similarly. closer to the average Tanzanian. Whilst on the one hand this is good. The liberation of economies under World Bank sponsored structural adjustment programmes have also given opportunities. along with Japan.8 billion of foreign investment in the stock exchange and mining projects have occurred in the early 1990s. Not only did this give a market for maize only. Canada and Mexico has created market opportunities and challenges. for example. and peace in Vietnam as examples have opened up the way for domestic growth and also. New countries are trying to join these blocs all the time. Blocs like the European Union (EU).break up of the former Soviet Union has opened up vast opportunities to investors. the "normalisation" of South Africa. Costs and time have reduced enormously and with the advent of television. Sometimes. This is certainly the case with the former Soviet bloc. No doubt a great impetus to global trade was brought about by the development of economic blocs. Impetus to global marketing involvement Individuals or organisations may get involved in International Marketing in a rather unplanned way which gives the impetus to more formal and larger operations. have been playing an increasingly influential role in world affairs. the North American Free Trade Agreement (NAFTA) with the USA. and this has brought the world and its markets. This is often typical of small scale organisations. visits. by the collapse of others. This atmosphere of peace has also allowed the steady upward trend of domestic growth and again opened up market opportunities domestically to foreign firms. Speedy communications like air transportation and electronic data transmission and technology have "shrunk" the world. the collapse of the old communist blocs have given rise to opportunities for organisations as they strive to get into the new market based economies rising from the ruins. social and other advantages they bring. and. aided by the World Bank and the European Development Bank. ASEAN. conversely. Importers . In the late 1980s and early 90s. was an example of the price. for example. over Z$2. market opportunities open up through "Acts of God". primarily put together by the USA as the leading player. This is very true of countries like Zambia and Zimbabwe. This may happen in a number of ways: Foreign customers Unsolicited enquiries through word of mouth. but opened up opportunities for transport businesses and services to serve the drought stricken areas. foreign investment. exhibitions. because of the economic. as the USA is committed to world welfare development. The great drought of 1992 in Southern Africa. therefore.

or in an ad hoc manner. export organisations like ZIMTRADE. These will be expanded on later in this text. based on the fact that the opportunity to export may arise long before exporting behaviours became manifest. these may go to major. Lusaka or Nairobi may never see Zimbabwe flowers. An example of these is flowers from Kenya to Holland. export management companies or cooperative organisations. is that in all stages. parastatals like the Kenyan Horticultural Crop Development Authority or even individual executives. domestic based export agents. This may be due to colonialisation late into the twentieth century. Other sources These may include banks. developed country consumer centres. search out international opportunities. This is called "piggybacking". In the case of fresh cut flowers. The latter type of organisation may systematically.domestic based export merchants. The context of internationalisation . In analysing behaviour one has not to generalise. Behaviour as a global marketing impetus We saw earlier in the internationalisation process that organisations may evolve from exporting surplus or serving ad hoc enquiries to a more committed global strategy. Intermediaries These may be of four types . or products which can be imported on more favourable terms.2 Cavusgil's three stage model of export involvement According to Cavusgil attitudes are determined by the operating style of the organisation and cultural norms which prevail in the domestic market. Figure 1. Sometimes an intermediary may provide export services in an attempt to reduce their own costs on the export of their own produce by acting as a representative for other organisations. See figure 1. for example. for example from the Southern African Development Conference (SADC) to Europe. not all globalisation takes place like this. (1982) demonstrated that German and Swedish firms internationalise much earlier in their corporate history than do French or British companies. Hakansson et al4. What is certain. for example from Harare to London or Amsterdam and Frankfurt. An organisation's style may be defensive or prospective. mangoes in the UK. However.2. This gradual change may involve moving from geographically adjacent markets to another. the balance of opportunity and risk is considered. Culture plays a vital part in the internationalisation process.Importers may be looking for products unavailable in domestic markets. say. Attitudes as precursors to global involvement Cavusgil3 (1984) developed a three stage model of export involvement. African culture is not littered with international marketers of note.

Strategy is the response of the organisation to the realities of shareholders and the business environment. haphazard organisation often leads to haphazard results.3 Strategy formulation The global environment . Figure 1. may lead to rapid progress. "Strategy" gives such a picture. Planning to meet the opportunities and challenges of global marketing In order to take advantage of global opportunities. In planning for international marketing organisations need a clear picture of the steps involved. "social" and other factors need to be accounted for. "Late starters" may use existing contacts as a "bridge" to new opportunities. This discussion on international infrastructure concludes the factors which have led to internationalisation. It may not have the resources or the will. Strategy Whatever business we are in. The existing situation of the firm will affect its interest in and ability to internationalise. Every organisation needs an understanding of what is involved in "strategy". If one can place products or services at a point on an environmental sensitivity/insensitivity continuum. as well as meet the challenges presented by so doing a number of concepts can be particularly useful. It is a complex focus of internal and external factors and looking carefully at risk versus opportunities. In low and high infrastructure situations.It is essential to see in what context individual organisations view internationalisation. Rising protectionism in recent years has given impetus to late starters to establish production facilities in target markets. The phases in the strategy formulation process are given on figure 1.3. or else the hapharzardness involved in chance exporting can be accepted as the norm with all inherent dangers involved. such is the case in international marketing. Also potential exporters need to know what is going on in the global "environment". Joint venturing. If the organisation faces intense competition then it may be forced to up the pace and scale of foreign investment. with its added infrastructure. This section examines all these concepts in brief. Just as in domestic marketing "Government" "competition". "Early starters" are likely to experiment or depend on contacts with experienced organisations which know the process. By comparing the similarities and differences between domestic and international marketing needs and planning requirements. Infrastructure for foreign operations may also change (firms also reduce their investment as well as invest). Internationalisation infrastructure Johanson and Mattison5 (1984) have explored the notion of differences in tasks facing organisations which internationalise. When this happens the perceived risk changes also. Such may be the low domestic quality and organisation that a firm could never export. one can see more clearly the need to account for differences in the marketing mix. then the organisation is in a better position to isolate the key factors critical to success. supplies or competitors to get into joint venturing. They may also be pressurised by customers.

At the one end are environmentally insensitive products and at the other end. of course. Figure 1.6 A Conceptual framework for multinational marketing: National market versus other nations Once having identified the unifying and differentiating influences and answered many questions about where one could or could not standardise the marketing planning process then a conceptual framework for multinational marketing planning can be developed.Of all the steps in formulating strategy. .4 shows the major environmental factors to be considered.5). planning and control of marketing in constraint economies. Figure 1.4 Foreign "uncontrollables"-in the global macroenvironment International environment An analysis of the environmental uncontrollables allows the potential marketers to place products on a continuum of environmental sensitivity. based on the environmental "uncontrollable" factors. Figure 1.5 Environmental sensitivity Framework for international analysis In order to put together the task of finding the differences and similarities in environmental and market analysis. This should not.7 A conceptual framework for multinational marketing in constraint economies Key questions for analysis. sociocultural. those more sensitive to economic. physical and other factors. economic and political differences is a must when dealing with different markets. Taking account of cultural. Environmental analysis allows the organisation to cluster markets according to similarities and differences. this text will treat the "incontrollables" in the conventional way. The international "uncontrollables" are in addition to the organisation's domestic "uncontrollables" so need to be treated with extra care. For example. However. More will be said on these factors in later chapters. be misconstrued as "insider information". Figure 1.7. An example is given below (figure 1. a framework needs to be devised. it may build a relationship with certain politicians who may have intimate knowledge of the political system. having made this caveat. no one step is as important as the ability to assess the "environmental" factors in international marketing. One such conceptual framework is given in figure 1. It must be noted that according to the "relationship" marketing school of thought. the so called "incontrollables" can be made more "controllable" by building relationships with the influences of these factors. Where unifying influences are found then the marketer is able to develop more standardised plans. The greater the sensitivity. When there are a large number of differences. Figure 1. the greater the need for the organisation to learn the way the product interacts with the environment.6 gives a framework for the process of identifying similarities and differences. then plans have to be designed adapted to circumstances. if an exporter of horticultural produce wishes to be able to anticipate changes in the political environment. Figure 1.

size. tariffs. population and socialisation? iv) Laws. development stage.size. balance of payments. trade regulations. licensing and labour laws?  Leading to an economic analysis  Gathering of appropriate data on: b) Appropriate environmental variable data i) Market characteristics-physical. remittance of funds.distribution. indebtedness and policies ii) Government's policy of economic development. foreign exchange. state intervention. subsidies. foreign intervention. research. appropriate technology? iv) Resources. stage of development? ii) Market institutions . growth rate. practices.manpower and money? Planning c)Target country experts or generalist staff to plan operations? d) What are the authorised target markets and the product appropriateness? e) Market size? f) What is the stage of development and strenght of competition both state and private? g) What is the appropriate product/market technology? h) What is the necessary adaptaton of the marketing mix? i) How do the goverment and company objectives coincide? j) What is the trading risk? k) What goverment/organisation interface is required? How are licencies agreed and obtained? Who are the principle characters? . media. services? iii) Industry conditions. foreign exchange. private sector development and import substitution? iii) Government's social objectives including indegenisation. equity arrangements.a) Principle constraint analysis i) Government's attitude to employment. barter deals. duties. cultural.

The market life cycle is very similar and what global marketers have to be wary of is that not all markets are at the same stage globally. So the appropriate marketing strategy will be different for each market. growth. Product life/market life cycle Just as in domestic marketing the concept of the Product Life Cycle has often been cited as a useful (but often maligned!) planning concept. This is far from the case. This involves a close look at all the necessary environmental factors. they may be the last thing required where labour is plentiful and very cheap. attitudes and economic and social objectives how is an effective marketing plan designed. It may be appropriate to have tractor mounted ditchers and diggers in Africa or the UK where labour is not too plentiful. It would be very easy to discuss the global marketing decision as a case of deciding whether to export or standardise or adapt your product/market offering. but in India.8 gives an outline of the Market Life Cycle across international boundaries. Figure 1. resouced and implemented? what degree of adaptation and cooperation is required at all levels? (Government marketing institutions and function)? Who will be responsible for each level"? Controlling the market program n) Who is responsible and how is the plan performance measured and monitored? o) What controls. most of it. If one considers food marketing as the physical and economic bridge linking raw materials production and consumer purchases then a whole series of interdependent decisions. Even the smallest nuance of change in the global environment can ruin a campaign or plan. is essential in practice. other than profit are required? Are employment and other such objectives necessary? p) Has the company the ability and authority to alter the parameters to bring actual results into line with desired? q) What are the principal control parameters? Can they be easily adjusted at all? This framework is particularly relevant to developing economies where government constraints and controls tend to be more intensive than developed a well documented phenomenon.Structure l) How does the company have to be structured to meet the government. Figure 1. Attempts are made in the maturity stage to extend the cycle. . In food marketing systems many transactions and discussions take place across international boundaries. Whilst the above discussion has tended to be theoretical in nature. decline .introduction. so it can be useful in international marketing.8 The product/market life cycle The traditional four stage life cycle . maturity. if not all of it. economic and social objectives as well as company objectives Plan implementation m) Given the goverment's policies.

This process often transcends several different industries and markets. the bridge may involve a whole set of utilities afforded to the end user (time. a number of "environmental" factors have to be considered but generally one is looking for "unifying" or "differentiating" influences which will dictate a "standard or "adapted" planning approach. In other words. can give insight and a guide to global planning. To shift a perishable like strawberries 7000km from Harare. and add value at each stage of the transaction. The evolution of global marketing has been in a series of four stages from exporting to truly global operations. Chapter Summary The development of global marketing has been brought about by a number of variables both exogenous and endogenous. Zimbabwe to the UK requires an extraordinary complex series of activities. importing countries. "polycentric" and "geocentric". transported and necessitate information flows. but the fact that its investment in large production economies of scale. Finally. involving both an understanding of the theoretical and practical aspects involved. involving perfect timing. So does price and quality differentiation. Government and economic environmental factors playing a major role in international marketing. it grew to account for 80% of world trade by the early 1990's. In addition. Its success. including the International Product Life Cycle. Prescriptions are totally inappropriate. be graded. Key Terms Absolute advantage Comparative advantage Ethnocentrism Geocentrism Global environment Marketing Global evolution Polycentrism Global marketing Regiocentrism International product life cycle . packed. many of them crossing international boundaries. These stages have been termed "domestic" in focus to "ethnocentric". and within. When planning to do global marketing. From a cottage industry in 1970. therefore. therefore. The product may change form. bulk transport and storage technologies considerably reduced international transport costs and facilitated improved distribution of the juice to. balances commodity supply and demand and stimulates end demand and enhances consumer welfare. quality standards designed for producers and transporters may apply as may product improvements. The detail involved in this intricate transaction will be explained in later chapters.institutions. financial resources. With commodities. a number of concepts and techniques. has been based on price and added value quality differentiation. In later years the enormous success of the Brazilian frozen concentrated orange juice industry has been attributable not only to poor climatic conditions prevailing in its competitive countries. This concludes the discussion on the reasoning why internationalism has grown and the next chapters' took more closely at the environmental factors which have to be taken into account when considering to market internationally. This system involves numerous independent and interdependent players and activities. invoice and retailing or wholesaling functions. Food marketing stimulates and supports raw material production. resource flows and physical and business activities take place. International marketing is. physical. quite a complex operation. place and form).

Both require the identification of product/market objectives. 3. What are the principal differences between marketing domestically and internationally or globally? 2.Review Questions From your knowledge of the material in this chapter. Concepts and techniques available include:  Strategy formulation  Global environmental scanning  Framework for isolating similarities and differences  Conceptual frameworks  Product/market life cycles Students should be encouraged to give examples of the concepts. give brief answers to the following questions below. the Product Trade Cycle and Perlmutter's business orientation. growth in domestic economies.  The International System . communication and transport technology. context and the international infrastructure. techniques and factors where appropriate. . Essentially there is no difference between the two. Factors include:  Theoretic . The differences lie in the degree of market similarities and differences. GATT.impetus through global experience. an analysis of the internal and external environment and the organising. global peace. global corporation growth. cost/volume considerations. clusters. 1. implementation and control of an effective marketing strategy. 2. 3. international leverage. planning.comparative advantage.  Market forces . the International Monetary Framework. What factors have led to the growth of "Internationalism" since World War II? Discuss which you think are the most important and why. shrinking of transport and communication gaps.  Others . technology. and the extent to which the product to be marketed is environmentally sensitive or insensitive. Which concepts and techniques are available to aid marketers isolate differences and similarities in domestic and international marketing in order for them to plan appropriate marketing strategies? Review Question Answers 1.development of economic blocs. attitudes (Cavusgil).

Exercise 1.1 Zambezi nuts Zambezi nuts was a small agricultural cooperative, recently developed in the Zambezi Valley in Zimbabwe. In previous years much time had been spent selecting and clearing a site and putting in cashew nut trees and a service road. The trees had now reached maturity. Although the domestic market was attractive, the cost of production and the quality of the nuts meant that far higher returns could be gained by selling the nuts on the international market. The cooperative provided employment for about twenty small scale growers with a hectare each. Irrigation was in place. The coop itself had collection, grading and bulk packing facilities but no packaging facilities. It employed ten workers, a supervisor and general manager. It had two one tonne trucks which collected from farms and distributed from the coop. The company had no experience at all in selling its produce overseas. Task What should Zambezi nuts consider before deciding on an exporting operation?

1. Vernon, R. "International Investment and International Trade in the Product Cycle." Quarterly Journal of Economics, May 1966, pp 190 -207. 2. Perlmutter, H.J. "Social Architectural Problems of the Multinational Firm." Quarterly Journal of AISEC International. Vol. 3, No. 3, August 1967. 3. Cavusgil, S. T. "Differences among Exporting Firms based on Degree of Internationalisation". Journal of Business Research, Vol. 12,1984. 4. Firat A. F., Dholakia N., Venkatesh A., "Marketing in a Postmodern World. European" Journal of Marketing Vol 29 No. 1 1995 pp 40-56 5. Hakansson, H. (ed), "International Marketing and Purchasing of Industrial Goods." IMP Project Group, John Wiley and Sons, 1982. 6. Jaffee S. "Exporting high value food commodities." World Bank Discussion Paper No. 198. The World Bank 1993. 7. Johanson, J and Mattison, L.G. "Internationalisation in Industrial Systems - A Network Approach." Paper prepared for the Prince Bertil Symposium on Strategies in Global Competition. Stockholm School of Economies, 1984. 8. Keegan, W. J. "Global Marketing Management" 4th Edition. Prentice Hall International Edition 1989. 9. Kotler, P." Marketing Management, Analysis, Planning, Implementation and Control", 6th Edition. Prentice Hall International Edition, 1988.

10. Wensley J.R.C. "PIMS and BCG New Horizons" or False Dawns Strategic Management Journal No. 3 April/June 1982. 11. Carter, S. "Multinational and International Marketing in Constraint Economies." The Quarterly Review of Marketing, Summer 1988, pp 13-18. 12. Smith, P. "International Marketing." University of Hull, MBA Notes, 1990. 13. Terpstra, V. "International Marketing", 4th ed. The Dryden Press, 1987. 14. "The Business Herald " (Zimbabwe) January 19, 1995

Chapter 2: The Economic Environment
Chapter Objectives Structure Of The Chapter Overview The global economy Chapter Summary Key Terms Review Questions Review Question Answers References

Much was said in the first chapter about the necessity to take into account the global "environmental" factors. These factors are those so called "uncontrollables", unlike the "controllable" factors of price, promotion, place and product. They include market tastes, economic, socio cultural, legal, technological, competitive and political factors to name but a few. Failure to account for these factors can lead to dire consequences. As can be seen later, the failure by Tanzania to take account of the market changes and demand shift to polypopylenes from sisal, led to a demise in that country's sisal industry.

Chapter Objectives
The objectives of this chapter are:  To describe and demonstrate the importance of the "economic" environment factor in planning and carrying out global marketing  To show the importance of the "economic" factor in global marketing  To describe and give an understanding of the major world regional economic blocs with particular emphasis on developing countries

Structure Of The Chapter
The chapter starts off with a review of the global economy, the composition of world trade and the World Trade Institutions. Regionalism is a major phenomenon of the late 80s and early 90s and so the chapter describes in detail a number of major regional economic blocs. Very important in any discussion on economic factors is the size of market, and more specifically, the market ability to purchase, which depends on levels of income. The chapter finishes by looking at the nature of economic activity including the stages of market development, urbanisation and infrastructure as important precursors to the degree of economic activity.

Note that a comprehensive case study covering the "environmental" aspects of global marketing occurs at the end of chapter four.

In the past fifty years the global economy has changed rapidly. Particularly marked has been the development of world economic integration and standardised products. Coca Cola, Nissan and Marlboro cigarettes are examples of products which serve nearly every market. Generally there have been four major changes:  capital movements rather than trade have become the driving force of the global economy  production has become "uncoupled" from employment  primary products have become "uncoupled" from the industrial economy and,  the world economy is in control - individual nations are not, despite the large world economic share of the USA and Japan. Taking each of these changes in turn, world trade is about some US$ 3 trillion, however, capital movements are much higher. The London Eurodollar market is worth about US$ 75 trillion per annum and foreign exchange transactions are US$ 35 trillion per annum. Another change is the decoupling of employment from production. Employment is in decline whilst manufacturing output is growing or remaining static at 20-25% of GNP. Sectors such as agriculture, are achieving higher productivity through mechanisation but this is at the expense of employment. Still another change is the decoupling of the primary product market from the industrial economy. Many commodity prices have collapsed, for example tea, yet industrial economies have been relatively affected. Unfortunately the prime producers have been dramatically affected. Finally, the most significant change is the change of focus from domestic to the world economy as the chief economic unit. This has been grasped by Japan and Germany, but not really by the USA, or Africa. These factors have repercussions on exporting by developing countries. Firstly with developing countries' emphasis on the export of primary products, they are at the mercy of world supply and demand movements, with the resultant fluctuations in prices. Depressed world market prices can have a deleterious effect on developing economies. Secondly the rapid globalisation and focus away from domestic economies has created global competition and in turn, this has pushed up quality. Generally speaking, unless developing countries can break into non-comittally based products they are being further left behind in the global economic stakes. However positively, whilst developed worlds concentrate on industrial and service products it leaves opportunities for developing countries to export more food based products.

The global economy

The development of the global economy can be traced back many hundreds of years when traders from the east and west came together to exchange goods. However, the growth of the modern global economy is marked by a number of features as follows: The legacy of mercantilism 1500-1750 The prevalent wisdom was one of nationalism, that is, that one nation prospered at the expense of another. Nations like the UK, Netherlands and later France and Germany, with powerful navies which ruled the waves in the West, and the traders of the East, dominated that area. Over time, nationalism gave way to bullionism, where gold and silver, rather than other raw materials, became the basis of wealth. Still later, domination took another form, where countries were believed to be powerful if they had a favourable balance of trade - an excess of exports over imports. Mercantilism died with the development of the United Nations (UN) and the General Agreement on Tariffs and Trade (GATT), along with Adam Smith's tome on the "Wealth of Nations" which advocated market forces as the principal driving force to development and wealth. World trade Economic progress is linked to world trade and those who preach trade restrictions are denying this fact. Countries like the old communist bloc (Russia, East Germany, etc.) have not developed as fast as those with more outward orientation. The same can be said of African nations, where the inability to industrialise and export in volume has locked them into, generally, primary product producers. Economic Structural Adjustment Programmes (ESAP) are supposed to remedy this situation by giveng "command economies" a market oriented focus. Another argument concerns whether marketing has relevance to the process of economic development. Less developed countries (LDCs) have traditionally focused on production and domestic income generation. Also, marketing addresses itself to needs and wants and it could be argued that where LDCs' productive capabilities are far less than unsatisfied needs and wants, then marketing is superfluous. However, adopting "marketing" could lead to the more efficient and effective use of productive and marketing resources and it may be able to focus on current needs and find better solutions. For example, techniques developed in the West for optimising transport resources could well be transferred to effect. Similarly, adopting new methods of marketing may give better results. A good example is the Cold Storage Company of Zimbabwe (CSC). By changing from the current system of marketing cattle (the CSC takes in cattle, at fixed prices and slaughters) to an auction system by description, all actors in the system could benefit. Decisions in product, price, communications and merchandising can stimulate economic development. Changing from fixed price systems to market based pricing could lead to the faster achievement of development objectives (for example "higher incomes"). In current drought conditions in Africa, governments could well benefit from advertising other forms of nutritious food, for example, fish, rather than let the populace be left uninformed and disgruntled about the lack of maize. Composition of world trade Agriculture, minerals, fuels and manufactured goods figure most in world trade. However shifts are occurring (see table 2.1)6.

Table 2.1 Shift in commodity trade - % of world trade
Product Agriculture Minerals Fuel Manufactures 1980 1985% 1988% 22.5 1 14 14 -5 14 41 -3.5 1 17 4.5 1

Interestingly enough, those economies which have divested themselves of agriculture (or made it more efficient) and invested in manufacturing are those which have shown spectacular growth. Table 2.2 compares Zimbabwe with Thailand6. Patterns of trade Most industrialised nations trade with each other. This had led to their continued domination. particularly the USA, Western Europe and Japan which between them have 66% of world GNP and trade. In 1985 industrialised trade to other industrialised countries accounted for 47% of trade, next came developing countries to industrialised (15%), and finally industrialised to developing countries (13%). Political influences can also be seen between trading partners, for example Zimbabwe's trade with China. Marketers need to identify trading patterns between nations and product trading patterns. East-West trade and West to the former communist bloc is likely to grow at the expense of North-South trade. Table 2.2 Structure of production
Distribution of GDP % Country GDP $ m Agriculture Industry Manufacturing 1970 1992 1970 1992 1970 1992 1970 1992 Zimbabwe 1415 5350 15 22 36 35 21 30 Thailand 7087 110337 26 12 25 39 16 28

Services 1970 1992 49 43 49 49

This pattern is repeated throughout Africa and Asia in general. Comparative costs - comparative advantage As discussed in chapter one, price has been called the immediate basis for international trade cheaper prices based on different cost structures, especially labour. Countries trade because they produce and export goods in which they enjoy a greater comparative advantage and import goods in which they have a least comparative advantage. A further refinement of this is the international product cycle discussed fully in chapter one. Balance of payments This is the measure of all economic transactions between one nation and another. The balance of payments is made up of the current account, showing trade in goods and services; and the capital account, which shows financial transactions. In 1989, after official transfers, the USA had a US$ 109,242 million deficit on its current account, Japan had a $ 131,400 million surplus, Tanzania a $ 778,5 million deficit and Zimbabwe a $ 2,783 million deficit.

To counteract the growing power of the EU. It seeks to improve the prices of primary goods exports through commodity agreements. the EU (reporting 33% of world trade) and EFTA are very important.tariffs. Its intention was to create a general system of preferences and negotiate tariffs for members' products on a nondiscriminant basis and provide a forum for consultation. ASEAN is a collaboration of industry and agriculture. GATT had over 120 members and associated and accounted for 80% of world trade. A principal collapse has been the Council for Economic Assistance (COMECON) with the disappearance of the communist bloc in Eastern Europe. Some regional groupings have either market (EU) or command (China) or mixed economies (former communist countries and The Preferential Trade Area (PTA) and The Southern African Development Community (SADC). The major regional economic organisations are: Acuerdo de Cartegna (Andean Group). It also established a tariff preference system favouring developing nations. The capital account may show the nations which have control restrictions and hence be difficult to deal with. power. . export pricing zones (Mauritius) and other schemes. Economic Community of West African States (ECOWAS). Government policy This refers to the government measures and regulations which have a bearing on trade . The EU. UNCTAD furthers the development of emerging nations. SADC and PTA have had historically little impact but are now beginning to grow in importance in view of the normalisation of South Africa. Central American Common Market (Mercado Comùn Centro Americano). North American Union and the Pacific Rim Union will pose the greatest power blocs in future years. These can cause formidable barriers to marketers and will be dealt with at length later. Preferential Trade Area (PTA) and the Southern African Development Conference (SADC). exchange controls and invisible tariffs. Regionalism Regionalism is a major and important trade development. In this regard. These blocs are of various form. quotas. Association of South East Nations (ASEAN). PTA in tariffs. The Kennedy Round of the 1960s was superseded by the Tokyo round of the 1970s and that by the current Uruguay round signed in 1994. free trade zones have occurred (all internal barriers abolished) economic unions (the EU). Council of Arab Economic Unity. World Institutions Institutions like GATT and the United Nations Conference on Trade and Development (UNCTAD) have been of help to countries in their development. African nations are generally disadvantaged. Asian Pacific Rim countries (APC).The balance of payments account helps marketers select the location of supply for foreign markets and the selection of markets. Many developing countries have entered into trading blocks as a reaction against loss of developed country markets or as a base to build economic integration and markets. the USA and Canada have entered into an agreement with Mexico as a willing partner and created the North American Free Trade Agreement (NAFTA). With these developments. Latin American Integration Association. influence and success. the European Union (EU). Of these blocs. Organisation Commune Africane et Mauricienne. Caribbean Community and Common Market (CARICOM).

on a short term basis. However many developing countries require institutional funding to help them with trade and balance payment problems. per capita. the USA has played an increasingly important role in the economic affairs of the world.The development of trading blocs can bring headaches and advantages to trade. Other major lenders include the EU and bilateral donors and agencies who have provided money for developmental projects. SADC and PTA are described in a little detail in appendix one and two of this chapter. the larger the population. or International Bank for Reconstruction and Development (IBRD) deals with international capital. China has 2 billion plus people. It is worth comparing the European Union. IMF began to fade somewhat. a relatively well developed bloc. especially Japan and the Asian Tigers. A principal donor is the United States Agency for International Development (USAID). to countries with payment problems to help them continue trading. the bigger the market. Involved countries joined IMF to establish a par value for other countries in terms of the US dollar and maintain it with +/. It provides long term capital to aid economic development. India 1 billion. . The system fell down because large corporations were holding more funds than banks and so a "float" set in. and its agency USAID. Since that percent of that value. with SADC and the PTA which are well developed. itself. However it still lends. so Bretton Woods. The IMF deals with the International Monetary System. Size of market General indications of market size include population (growth rates and distribution) and income (distribution. A study of these helps answer the questions . GNP). have increasingly flexed their muscles. post World War big is the market and what is it like? Currently there are over 200 individual countries in the world. has shifted towards the Pacific rim. The international financial system Global financing operations based on the gold standard gave rise to instability. marketers must consider carefully individual economies. the balance of economic power in recent years. saw the nascence of the International Monetary Fund (IMF) and World Bank. The United States of America Since the Gulf War of 1991. However there is no correlation between income level and population. However. The role of the World Bank has often been criticised especially on its conditionalities for loans to Africa in funding structural adjustment and trade liberalisation programmes. Individual economies Whilst the global factors listed above have aided the development of a world economy. a) Population: In general. The World Bank. Currently it has about US$ 22 billion annually for this operation.

the world's "hot spots" Income is the most important variable affecting market potential. UK $17. clothing and shelter. it could be serious.5% and 9% of the world's population. Another limitation of per capita measures is the lack of comparability with the figures themselves. currently standing at 5 billion is experiencing a rapid growth rate. Per capita measures have therefore. Different age groups have different needs and population density should mean good market potential. education and welfare. In the early 90s. US$ 22. . Half of the world's population lives with an average per capita income of only US$ 270. especially in Africa and South East Asia.2 million. Also in the UK.520. and Africa in general. many limitations. In 1993 the USA population of 252. The US budget contains food. Gross National Product is a better indicator of potential than Gross Domestic Product as GDP includes more than "product".Nov.they are good for sales but bad for world resources. The strain on world resources is likely to be very large. Product saturation can be equally troublesome in affecting market potential. the higher the better. World GNP figures reveal the concentration of wealth in the three nations. the USA. Growth rates have a dual edge . Low income countries and oil rich countries have the largest growth rates.1%. per capita figures are less meaningful. 1. they do not have the same income per capita as the USA or UK. Other limitations are that sales of goods are not well correlated with per capita income and if there is great unevenness in income distribution. the Ivory Coast 6%. Per capita is usually reflected in US dollars and is only valid for comparison if exchange rates are equal. In many of the less developed nations these items may be largely self provided and therefore not reflected in national income tables. South Africa estimates AIDS will cost South African industry R16. unless a cure or prevention is found.1994). The distribution of the population is also important.3)3. and this is not. The distribution of income is very uneven.16. The Netherlands have 1000 persons per square mile. the USA spends more per capita than Bangladesh b) Income: No one has yet been able to assess accurately the impact of the AIDS pandemic on world population and economic activity.9 income elasticity of demand and the USA 0. were respectively 6%. It is expected to reach 7 billion by the end of the century. the UK 57. However. the UK had an annual growth rate of 0. there is an inverse correlation between GNP per capita and income elasticity of demand for food. A vacuum cleaner in the Netherlands has a 95% household penetration rate. Suffice to say. Asia has a 0. However the USA and UK had an infinitely higher GNP per capita income than Africa. obviously. Interestingly.300 and Africa $ 270 respectively (1989). Bangladesh 1. Different countries experience different population growth rates. 24. The world population. Per capita judges a country's level of economic development and its degree of modernisation and progress in health.791 but the USA only 65 persons per square mile. snow equipment is included. Markets are not markets without money to spend.Zimbabwe 8 million.7 billion by the year 2000 (Business Herald . Exchange rates reflect international goods and services in a country but not domestic consumption. In Kenya the lowest 20% of the population receive less then 3% of national resource. 3% per annum. Japan and Western Europe. in Africa and parts of Asia. However. Africa trails far behind (see table 2. but only 7% in Italy. This bimodal distribution of income means marketers must analyse two economies in a country.4 million and Africa 400 million.

The World Bank has published a comparison of ICP findings with its own Atlas figures based on the exchange rate conversion. political instability. increasing competitive threat. growing domestic market. became unfashionable. Simply. Various methods have been derived to classify economies. Little market potential.3 GDP and GNP of selected countries GDP % GNP % US$ bn of World US$ bn of World USA 5670 35 3000 29 UK 903 6 540 5 Africa 322 3 220 3 The United Nations International Comparison Project (ICP) developed a sophisticated method for measuring total expenditure. .incomes less than US$ 400 GNP per capita. i) Preindustrial countries . Table 2. heavy reliance on foreign the Southern African drought in 1992 can devastate economies and derail any economic development plans and exports.per capita between US$ 401 and US$ 1. Parts of Sub-Saharan Africa. low literacy rates. three or more submarkets in a country. The nature of economic activity Economic activity is often correlated to the type of economic activity. for example. Limited industrialisation. Extremes of climate . because they are being consumed by the domestic economy. has "rural" and "urban" areas with different needs and wants. The nature of economy More than money makes up an economy's economic environment. If synthetic gold or tobacco were developed or. consumption of steel is 3 times that of Belgium's. Natural resources -raw materials now and in the future are important. Topography may produce two. Zimbabwe's economy would be ruined. These are: Stages of market development Global markets are at different stages of development which can be divided into five categories based on the criterion of gross national product per capita. in the case of the latter. Belgium's GNP is better than India's but India's. Zambia.635. For example. products are not available to export. The use of exchange rates tends to distort real income or standard of living measures. mature product markets. Early stages of industrialisation. high birth rates. which has been used to derive more reliable and directly comparable estimates of per capita income. ii) Less developed countries .However. when evaluating markets it is wise to consider individual product areas.

information processors. 17 nations including Brazil. modern techniques in agriculture and production. Portugal and Greece. i) Low income economies. developments in infrastructure and social institutions  Stage 3 the takeoff. GNP per capita of between US$ 676 and US$ 2. production of durable goods and services. high standard of living. v) Other economies . 40 nations including Zimbabwe.per capita income in excess of US$ 10. Decrease in percentage of agricultural workers.500. modern technology applied to all fronts. GNP per capita of between US$ 2. Product opportunities are in new products.  Stage 4 the drive to maturity.695. Mozambique and Switzerland are the two extreme ends of the spectrum with US$ 80 per capita and US$ 29. can produce anything  Stage 5 the age of high mass consumption. international involvement. The World Bank classification The World Bank has drawn up a classification of economies based on GNP per capita. other low-income-GNP per capita income of between US$ 675 or less. large amounts of .880 per capita respectively. little increase in productivity.636 and US $ 5. Kenya.iii) Developing countries . v) Advanced countries . knowledge based. good social environment.501 and US$ 10. ii) Middle income economies. Mexico and Thailand. iv) High income economies. innovations and raw materials plus fresh foods.355. iv) Industrialised countries .000. lower middle income. 24 nations including UK and the USA. no modern science application systematically. high literacy rates.communist bloc. formidable competitors. China and India. Rostow (1971) produced a five stage model of economic takeoff:  Stage 1 traditional society.356 or more. rising wages.000. lower wage rates than developed countries. normal growth patterns.per capita income between US$ 5.676 and US$ 8. rapid agricultural and industrial modernisation. 41 nations including Tanzania. Rostow: Whilst economic in nature. less machine based. iii) Upper middle income. low level of literacy  Stage 2 the preconditions of takeoff. industrialisation. GNP per capita of between US$ 8. OECD members and others. Moving towards post industrialisation. Zambia and Malawi. Post industrialisation.per capita income between US$ 1.

India has only some 10 million telephones to a population of 1 billion people. accountants. Without being able to get produce to the point of exportation. The number of international companies operating in an economy can be both good and bad. Media availability is important. has also a relatively poor internal rural infrastructure. more developed communications and access to new products. but gives rise to negative feelings because access to Japan is not so easy. Transportation.These classifications enable marketers to assess where and how to operate in countries which may display the stage characteristics. Tanzania. For example Zambia has an unofficial inflation rate of over 100%. what inputs go into a particular industry's output? What combination of labour. materials and equipment? Infrastructure Infrastructure is a very important element in considering whether to market in a country or not. Japan's investment in the USA and UK is high. Input-output tables provide other insights into a country's potential. The less energy is consumed. but without the accompanying incomes characteristic of developed countries. Energy consumption shows the overall industrialisation of a society as does its infrastructure. advertising agencies and other services. Malawi has no domestic television service but access to satellite it farm or factory generated? Farm workers tend to have low incomes. exporting cannot take place. This has led to calls for protectionism. . Communications are essential.banks. For example African exporters would look to stage 4 and 5 economies to obtain the greatest revenue opportunities for other produce. Developing countries tend to suffer from rural drift. Some encourage joint ventures and investment. Urbanisation Differences exist between "urban" and "country" dwellers. Without these " transaction " facilities. City dwellers may have more income. that is. Commercial infrastructure is also vital . the less likely the development of the market resulting in a not too attractive market proposition.059 per 1000. which makes it difficult and expensive to access capital for investment and obtain pre-export finance. Another way to assess the market alternatives to a potential global marketer is to look at the origin of its national product . especially during the rainy season. Other Inflation causes havoc with economies and foreign exchange. Zambia has 680 radios per 1000 population. The role of Government is essential. Zambia and Zimbabwe are landlocked and have relatively poor transport facilities. So when assessing market opportunities widespread urbanisation is no guarantee of a good market potential. for example. whilst having direct access to the coast. France 2. others do not. countries will suffer poor export performance accordingly. creating jobs. is vital. Chaos can therefore ensue.

This can seriously undermine economic development and trade. "developed" or "less developed". or whether not to. although this is often done for ease of analysis. especially if interest rates rise. at worst. but they also can cause internal economic upheavals for long periods of time. This leads to instability in the underdeveloped country because it has no "hostage" leverage. They can create market opportunities. Countries show great within country differences also and marketers have to be aware in assessing market potential that they do not use general descriptions of nations as criteria of whether to. or forever to be at the mercy of world demand and prices. Many African countries are undergoing structural adjustment and trade liberalisation programmes. these have met with limited success. Markets differ widely in their size and state of development world wide. It behoves these nations in the continent to derive policies and strategies for rapid industrialisation. to sub optimal opportunity and. detracting from investment by outsiders and limiting the export opportunities.Similarly. The economic environment is one of the major determinants of market potential and opportunity. Careful analysis of this. The global economy can be traced back hundreds of years when traders from the east and west came together to exchange goods. Discuss the various measures for assessing the size of market potential. are at a disadvantage. Review Question Answers . What are the problems in the assessment? Give examples. due to their primary material export dependence. including the growth of regional economic blocs. flows from developed countries to less developed ones are generally one way. as is often the case. Key Terms Balance of payments Gross National Product National income General Agreement on Tariffs and Trade International Monetary Fund World Bank Gross Domestic Product Mercantilism World Trade Organisation Review Questions 1. Failure to do so will lead. It would be too easy to classify these markets as "rich" or "poor". Chapter Summary Economic factors are just some of the "environmental uncontrollables" which marketers must consider when deciding to market globally. at best. Through the legacy of mercantilism up to the current GATT Round. Less developed countries like Africa. all aimed at increasing cooperation between the grouped nations. In what way has the global economy changed in the last 50 years? Why? 2. In some cases. particularly income and the stage of economic development is essential. to disaster. open trade negotiations. marketers have had to contend with changes and developments in the economic environment. Repatriation or transfer of dividends can be an issue which can detract from investment if negative facilities exist.

advanced. The Global economy has experienced the following changes a) Capital movements rather than trade have become the driving force of the global economy. References .1. regulations. (Ask students to find the figures which can be gained for rates of growth and returns on capital employed in International trade. less developed. Sectors are becoming more productive. d) Infrastructure e) Inflation f) Role of Government . industrial. c) Commodity prices may collapse but industrial economies can be unaffected. d) World trade is recognised as vital to economies as domestic growth slows down and opportunities overseas grow. Problems in assessment a) Data too general and non specific b) Data may be out of date c) There may be lucrative segments hidden by the general data d) Data may be invalidated or false e) Data may be incorrectly gathered and reported f) Units of reporting may differ from country to country g) Data gaps or nonavailability. developing. d) The world economy is in control. with injections of capital equipment and new technologies. income (GNP/capita) b) Nature of the economy . c) primary products have become uncoupled from the industrial economy. Reasons a) World trade is some US$ 3 trillion. b) production has become "uncoupled" from employment. Growth achievable in international trade is often at a greater rate than domestically and the returns higher. stability.population. Measures for assessing market potential are a) Size of market .) 2. history. rules.alone is some US$ 75 billion per annum and foreign exchange transactions were US$35 billion per annum.laws.confidence. whereas the London Eurodollar market .urban and rural c) Nature of economic activity-preindustrial.  World Bank classification  Rostow's five state economic tale off model. stability g) Economic environment .gains are often more lucrative than investment in goods and services manufacturing. b) Employment is in decline while manufacturing either grows or remains static. Interest and exchange rate .

"European Union Case Study". 1987 6.R. Zimbabwe 1994 5. Terpstra. FAO consultant. "Global Marketing Management". World Bank. Masanzu. Prentice Hall International Edition. 1993 3. "International Marketing". 1971 .1. Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa. 1991. 4th ed. W. "SADC and PTA". 4. G. Keegan. Zimbabwe 1994 2. 7. Dixie. W.J. W. "Guiness World Data Book". 1989. "The Strategies of Economic Growth" 2nd Edition. The Challenge of Development. 4th ed. V. The Dryden Press. Oxford University Press. F. London: Cambridge University Press. "World Development Report 1991". Rostow. Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa.

Change from EC to the Economic Union (EU) In 1992 the EC achieved a single European Market in which all duties.notably coal. the European Community (EEC) and the European Atomic Energy Community (Euratom) came into being. 1993 was the first year in which member states operated in a totally free trade area.bigger than the USA and Japan combined. EC plans for economic and Monetary Union (Maastricht 1994) have been discussed. Poland and Slovakia have indicated that EC membership is a long term aim. Sweden's population turned down membership by referendum although it negotiated to apply. This led to a change of name and outlook from an Economic Community to an Economic Union. The community has been gradually enlarged since 1967 with the accession of the UK. Since 1975. when they merged their executives and decision making into a single European Community (EC). Cyprus.Appendix 2A: European Union Consumers The changing structure of the retail trade Changes to the wholesale trade Packing requirements for self-service Market overview Barriers to trade in the EU Introduction In 1950 the governments of Belgium. Italy. The three communities were distinct until 1967. the EC has had its own revenue independent of national contributions from memberships. Finland and Norway in 1994. The latter two were aborted but in 1951 the European Coal and Steel Community came into being with the Treaty of Paris. The Federal Republic of Germany. Greece 1981. There are now currently 15 members in total. foreign affairs and defence. tariffs and quotas have been removed on trade between member states and many obstacles to the free movement of people. money and goods have been abolished within the community. Hungary. In 1957. Malta and Switzerland are applicants and the Czech Republic. with the members the same as for the European Coal and Steel Community. and there has been increased coordination on foreign policies and research and development. steel. The current community is the largest free trade area in the world . Portugal and Spain in 1986 and Austria. thus creating the embryo European Union of today. and has a total of 370 million consumers. France. Luxembourg and the Netherlands began negotiating to integrate their interests in specific fields . The institutions of the EU . Turkey. Ireland and Denmark in 1973.

The presidency of the Council of Ministers rotates with each member state taking the chair for six months. However. At least one representative is appointed from each member state. The creation of the EU free trade area will not lead to higher tariffs for imports of tropical produce from developing countries. existing restrictions within the framework of the EU have been kept in place. and that all road haulage permits and quotas for trade between member countries have been abolished. product standards. Many time-consuming delays at border crossings have been eliminated. Members (MEP's) have the right to be consulted on legislative proposals submitted by the Council of Ministers or the Commission and have the power to reject or amend the budget of the EU.the Commission. The Commissioners elect a president and 6 vice presidents from their members. The court is responsible for deciding upon the legality of the decisions of the council of ministers and the commission and for adjudicating between the states in the event of disputes. The EU since 1992 In order to achieve freedom of movement. trader based controls do exist to provide adequate safeguards in order to protect the Community's high standards of hygiene and plant health. labelling and price reporting are now almost standard throughout all EU member states. In practice this means that no regulatory checks are imposed at the internal frontiers in the Union. grading standards. Belgium. there have been many changes in key areas of business. The council of ministers: This is the main decision body of the EU. such as company law. the Council of Ministers. to the great advantage of traders in perishable goods. Figure 2A-1 The institutions of the EU The European Parliament: This consists of some 600 members elected for five years by adult voting in member states. The Commission meets in Brussels.There are four main Institutions . the European Parliament and the European Court of Justice (see figure 2A. . The Parliament meets in Strasbourg. The European court of Justice: This consists of judges and advocates general appointed for years by the governments of member states acting in concert. However. Ministers represent national interests and their decisions are usually unanimous although there is provision for majority voting.1) The Commission: This consists of 17 members appointed by their national governments for a period of 4 years. Heads of Government meet three times a year as the European Council. transport and VAT. The Commission acts independently of national governments and makes proposals to the Council of Ministers and executes the decisions of the council. Products that do not meet the new harmonised requirements will not be allowed into the European market. its committees in Brussels and its secretariat in Luxembourg. The Council consists of the foreign ministers of EU member states. but specialist councils can meet at other times. Inspection schemes.

Recently. and the chains Tengelmann. the need for a healthy nutritious diet. Southern European growers have started producing kiwi fruit. In Belgium. If a product is not grown within the union. There has been a general shift of power from producers and suppliers of goods to retailers. As yet. and lower transportation costs. and by using polythene coverings. In Scandinavia and Germany. and Greece. because European growers have the competitive advantage of direct free access to the single market. Spain. The main trends which have contributed towards the increased consumption of exotic fruits and vegetables are foreign travel. In Germany. Thus the German discount store Makro has come to Britain and France. In addition. such as Portugal. then suppliers from outside the community can market their produce only during the off-season period. to which importers pay particular attention. and Edeka have opened stores in the East. specialised storage and handling facilities etc. Consumers The European consumer has become very discerning and requires high quality fruits and vegetables. The growing strength of the . buying groups and voluntary chains are far more important. avocadoes and lychees. This has led to a new class of consumer with more sophisticated tastes and requirements. greater affluence. the Netherlands and the UK the big supermarket chains now completely dominate the food retailing sector with market shares of over 50%. greater product mobility (transport. The changing structure of the retail trade The liberalisation of trade in the community has had its effect on the structure of retailing in many states. Italy. France. Meanwhile. If a product is grown within the EU itself. The multiple retailers are becoming increasingly powerful and have gained strong bargaining power vis-a-vis suppliers. In most countries. Rewe. and into the former German Democratic Republic and Eastern Europe.A further implication of the EU free trade area for overseas producers is the protection of the home market. developing countries can market their produce to Europe the whole year round. French retailers have moved into Spain and Italy and are reported to be gaining a market share. have greatly extended the season for harvesting salad crops. Norway and West Germany the local food specialist remains important. Suppliers from developing countries will see their marketing opportunities for these products restricted to the off season alone. the small independent retailers are in general decline.) has increased consumer accessibility to a wider range of products such as exotic and offseason products. the supermarkets and hypermarket outlets play only a minimal role in food retailing in these countries. One of the most significant changes that is currently taking place is the expansion of some of the large supermarket chains into other member states. the food retail structure remains much more fragmented. In the southern Mediterranean countries. This is due to the concentration and consolidation that has been taking place in the industry over the last ten years. and a willingness by consumers to try new and exotic products.

hygiene in packing. The recent developments in the trade have had the effect of shortening the marketing chain. and . The investments for these developments has come from mergers and acquisitions within trade itself.multiple retailers is resulting in rapidly increasing co-operation at international level. Those companies most likely to survive are the ones which can meet all the logistical requirements of the supermarkets. to new warehouse type premises. in which leading chains of many European countries co-operate. Many suppliers are quite vulnerable as far as importers are concerned. notably quality standards. Changes to the wholesale trade The strength of supermarket buying power has directly affected the traditional role of importers and wholesalers of fresh produce. many established importers provide technical and marketing assistance for their suppliers. and can find themselves replaced at short notice. The wholesale sector will be under severe pressure during the next decade. more powerful organisations has increased their expectations of suppliers and the degree of competition among producers. where the buyers now look for large volumes of product consistent in quality and supply. In the exotics sector however. Therefore by obtaining a contract with a single retail chain. It looks for common sourcing and shipping programmes for major product lines from southern hemisphere countries as well as summer fruit from northern Europe. and Fruttital's presence in Spain and the USA. The requirements of this industry for quality fruits and vegetables. Those importers which have geared up to supply the supermarkets have expanded rapidly. 70% of all goods bought in the EU will have been sold by large retail chains. Examples of this are the expansion of the British companies Albert Fisher and Geest into Germany. and begun to undertake packing. For the importer. AMS develops common marketing. storage and national distribution to high standards. However. means that it is becoming increasingly difficult for exporters to get away with sending inferior quality for sale in the wholesale markets. Meanwhile in the wholesale markets the growth of the catering sector is very much in evidence. a significant proportion of trade is likely to remain in the hands of independent specialists. and brought about a dramatic change in the nature of their business. The most successful have moved out of the wholesale commission markets. It has been predicted that by the year 2000. packing standards and transportation. reliability in delivery and quantity are the most important factors in choosing between different suppliers. with the more powerful firms seeking an international presence. the concentration of buyers into fewer. One example is Associated Marketing Services (AMS) a group based in Switzerland. However. Aspects of supply have become more rigidly controlled. where capital requirements were modest. buying and own brand production programmes for all suppliers to these retailer groups. a supplier can gain access to a much wider market than was once the case. It is essentially a buyer's market.

all of which increases the investment incurred by a producer. Demand for fresh vegetables has been falling in favour of convenience products. Consumers here have closer cultural associations with seasonality. Between 1987-1992. in spite of the single market. and pre-priced. Imports grew in value by 31 per cent between . quality control and hygiene. in Germany consumers place particular importance on price. It is important that the true cost of these investments is considered when produce selling prices are calculated. Requirements can be wide-ranging to cover standards of construction. whereas in France consumers are quality conscious. and one of the largest markets for exotic produce. and the consumer selects the items required. Most of the imports into the Netherlands are re-exported. This has been fuelled by the interest in healthy eating and to some extent by the fashion for exotic fruits. Import penetration into the Southern European markets is far lower. when a small number of units. usually in association with a wholesaler. Consumption of fruit is however increasing. The total value of imports into the EU was worth US$36. when it is often in bulk.543 million. Market overview The overall consumption of fresh fruits and vegetables in the EU has been fairly static or even gradually declining in some countries for some years. especially the British stores. there was growth in the value of imports into all EU markets. Many of the larger supermarkets. The largest market for exotics and off-season products in the EU is the UK. This market probably offers the most potential for taking more imports. It is therefore essential for any supplier from a developing country to try to establish long term relationships with wholesale importers. such as 125 grammes of baby corn. maintenance.438 million in 1992. on a small tray. They are then weighed and priced at the check-out. Alternatively produce may be presented as "free-flow". economics often dictate that it is done at source. If produce is to be prepackaged. Europe is a heterogeneous market. insist on a high standard of hygiene in these local packhouses: buyers travel overseas to inspect production areas and packhouses. This is followed by France and Germany with differences in emphasis between markets. Consumer preferences differ from one country to another. are wrapped in clingfilm. In 1992. The sector exhibiting the strongest growth has been exotic fruits and vegetables.may even be prepared to take on freight charges if they think that a supplier has sufficient potential. Produce may be presented "pre-packed". Packing requirements for self-service Supermarkets sell their produce by "self-selection" in which consumers select produce for themselves and pay for everything at a cash desk at the exit to the store. and place much more emphasis on taste and freshness. For example. total imports of fresh fruits and vegetables were valued at US$5. in the UK they are said to 'eat with their eyes'. The United Kingdom The United Kingdom (UK) is a leading European market for off-season fruit and vegetables.

the demand for exotics is strong and the French are willing to try new products. While traditionally it has been more self-sufficient in vegetables. they prefer fresh ingredients to frozen or canned products. France is a larger market for off-season items than true exotic produce. it is the largest nation in the EU. In addition. A large concentration of ethnic groups in many urban areas provides a substantial market for fruit and vegetable types that have not yet been accepted by the indigenous population. French consumers are extremely quality conscious. of around 53 million. green beans and several other exotic products. Germany Germany is the largest market for fresh produce in Europe. Imports increased in value by 39 percent between 1987 . The ethnic population.1992. Italy. German consumers are still on average among the most wealthy in Europe. and demand for offseason produce continues to grow. now try to display a range of exotic produce at all times. but not as yet for specialist exotic produce. Portugal. Imports of all fresh fruits and vegetables were valued at US$12.593 million in 1992. Germany and Spain and also with Switzerland. Its population of more than 56 million is fairly affluent. are mostly of West Indian or Asian origin. but has a similar population. With a population after unification of 78 million.1987-1992. Portugal and from French overseas departments in Africa and the Caribbean. and are willing to pay high prices for the best produce. Germany is a relatively small market for tropical fruit and particularly for tropical vegetables. which is easily the largest conurbation in the country. Spain and Turkey which creates a demand for fresh Mediterranean type fruit and vegetables. especially in the Paris region. There is an immigrant population of around 3 million workers from countries such as Greece. total imports of fresh fruits and vegetables were valued at US$5. towns and villages. changing tastes and lifestyles have increased the demand for off-season items. there is a large community of foreign workers in the country. France France is twice as large in area as the UK. France is a major market for tropical and off-season fruits and vegetables in general. and is the largest European market for pineapples. and two thirds of its fruit requirements. In 1992. Spain. Over a fifth live in the Paris area. It imports almost 50% of its vegetables. and boost demand for exotic produce. and will buy in large quantities when accepted. The UK relies on imports for more than 50% of its fruit supplies. For its size.789.3 million. Supermarkets. Demand is expected to continue to grow. France has excellent surface transport links with the neighbouring EU states of Belgium. they originate mainly from North Africa. While political changes have imposed great economic strains. However. . The rest of the population is well scattered in smaller cities. Unification has increased the demand for mainstream imports such as bananas and citrus fruits in the former German Democratic Republic. about 5% of the total.

while the capital. Despite its small population. It is one of the most crowded countries of the world. The Dutch are well travelled and commercially aware. and the Dutch have a long history as traders and entrepreneurs. Belgium is an important entreport for neighbouring countries: it lies between the major European heavy industrial areas of northern France. 660. In the French -speaking part of the country. In 1992. has importance in fostering commercial trade. and are generally willing to try the new products among the wide range of articles available in their supermarkets and specialist greengrocers' shops.1 million (this includes Luxembourg). and its capital Brussels. Despite this home . with excellent port facilities and river links to Germany and Belgium. it is an important market for purchased foodstuffs.1992. Between 1987 . and of deciduous fruit. mainly from Surinam. and the city of Brussels. Therefore despite its small size. The Dutch economy is centred around intensive agricultural and horticultural production from its rich marine silts. the total value of fresh fruits and vegetables was valued at US$2. Belgium is also renowned for certain specialist crops such as chicory and endive. Turkey and Morocco. Local glasshouses are used for the production of off-season vegetables and flowering plants. About 4% of the population is of ethnic origin. Brussels. due to its position. Therefore an exporter to Belgium may gain access to a far wider market than that in the country itself. the extremely quality conscious consumers prefer fresh produce to frozen or canned goods. The population is split almost 50:50 into Flemish-speaking people and Frenchspeaking Walloons. It is the most densely populated country in Europe. However.Belgium Belgium lies at the heart of the EU. About 95% of the Belgian population is urbanised. on the River Scheldt. there is no ethnic market of any significance. There is a strong tradition of market gardening. the German Ruhr. It is a major focus of commercial and political life in Europe. Aubergines. Belgium has a population of under ten million. with about 800 people per square mile. combined with trade. producing vegetables and flowers which are marketed via grower-owned auctions. situated around the river estuaries of the Rhine. and the Netherlands. Scheldt and Meuse bordering the North Sea. capsicums and tomatoes are important protected crops. the demand for imported off-season produce will remain limited by the output from its own glasshouses. is a key shipping port for northern Europe and the country also handles a great deal of passing trade between its neighbours and the UK.500 hectares. It is also a major producer of vegetables in the open. Belgium is a promising market for tropical produce of high quality. the value of imports grew by 53 percent. has a mixture of two groups. with around 15 million inhabitants. has a wealthy and cosmopolitan community. The population has a relatively high standard of living. as the head-quarters of the Community. However. It has a considerable glasshouse production of 4. The Netherlands' position at the gateway to Europe. Nevertheless. a little larger than Belgium. Antwerp. The Netherlands The Netherlands is a small country. Vegetables are an important crop and feature strongly in the diet.

which is the industrial heartland of the country. Hence the Netherlands is one of the largest importers of fruit and vegetables in Europe. is therefore very limited. In 1992. Total imports of fresh fruits and vegetables increased in value by 41 percent between 1987 . strawberries. which has a long production season and is cheap. By 1990 consumption had risen to 1. they are also very price-conscious. and the indigenous population is catered for by Italian grown produce. the Netherlands actually imports three-quarters of its fruit requirements. In 1975. 88% of the population is urbanised. Imports grew in value by 51 percent between 1987 -1992. asparagus and melons are especially popular. extending from the Alps southwards into the same latitudes as North Africa. Its urban population . the import of exotic produce was negligible. the Randstad. and only produce which is first class in appearance and taste will fetch a good price. especially vegetables. Combined with the rising demand for off-season items.1992.5 million. In the longer term.263. Rotterdam. and this has attracted a very considerable entreport trade. The bulk of home production is exported.5 kilogrammes per person. Indeed the region between the country's largest cities.production. . total imports of fresh fruits and vegetables were valued at US$4. and a quarter of its vegetables. Forty five percent of the Dutch live in this region. between the Alps and the Apennines. Exotic produce accounts for about 20% of fruit and vegetables imports. Despite the importance of agriculture in the economy. and is still increasing.3 million. of around 57 million. Italy Italy has a similar population to that of the UK and France. To give some examples. and the third largest importer of mangoes.60% of the total is mainly concentrated in the northern Lombardy plain. Recent improvements in their standard of living and attention to health issues has increased the demand for fresh rather than processed produce. however. the Dutch are significant consumers of fruit and vegetables. In 1992. The demand for off-season and exotic produce. It is a large and immensely varied country in both climate and culture. plentiful and wide-ranging. for example. the volume of imported produce is expected to increase. consumption of exotic fruits was 100 grammes per person. Amsterdam.459. There is practically no ethnic market for true exotic products in Italy. Twenty years ago. They are discriminating buyers. Being major producers of fresh produce in their own right. 30% of imported fruits and 45% of imported vegetables are re-exported to other European countries. is so densely populated that it is referred to as one big city. Much of this is tropical off-season produce. which is not recorded in the import and export statistics. total imports of fresh produce were valued at US$2. and for exotic and off-season items. the Netherlands' own glasshouse production of produce is likely to be constrained by energy costs and the increasing stringency of environmental controls. the Netherlands is the second largest European importer of melons. French beans and strawberries. particularly in citrus fruits. The Hague and Utrecht. Green beans. In addition there is a substantial transit trade.

The barriers can be grouped as follows:  Tariffs and quotas  Quality standards  Pesticide residues  Hygiene issues  Packaging. concluded in December 1993. a process involving the abolition of quotas and other non-tariff barriers. They focus and highlight on those issues which are most likely to affect LDC's current and potential exports of horticultural products. There remain significant differences between importing countries on a number of issues. and by December 1993 membership had increased to 114 contracting nations. This is in addition to the recent GATT Agreement concluded in April 1994. Transparency is achieved if all import barriers are converted into import tariffs (as reflected in the quest for 'tariffication' of all border measures protecting domestic farm sectors in the context of the Uruguay Round of GATT negotiations). GATT's aim is the liberalisation of world trade.Barriers to trade in the EU The European trade in fruit and vegetables is currently regulated by a variety of EC and domestic directives. or MFN Clause). It is still not clear what the outcome of some of these issues will be and how they will be implemented. and should be aware and kept constantly informed about the plethora of EU restrictions and legislations. To describe in detail the regulations in each major market goes beyond the scope of this document. citing Zimbabwe as an example. This is essential given the complex nature of the EU regulations and GATT provisions and the uncertainty surrounding some of the issues. GATT The GATT system was established in 1947 by 23 Western countries. Since the establishment of GATT there have been several 'rounds' of international trade negotiations. The following notes review the issues involved. after several extensions. The GATT principles are founded on non-discrimination. Although there is an intention to harmonise all the national regulations into EC-wide standards. and the gradual reduction of tariffs. All GATT members are entitled to the same treatment on import into a particular country (the most Favoured Nation. The most recent and extensive. transparency and reciprocity in tariff reduction. The exporter should discuss the regulations with a knowledgeable importer as part of the planning stage of an export project. The Agreement was launched . this process is taking its time. the Uruguay Round was launched in 1986 and. This 'information gathering' process should be maintained on an on-going basis.

Where there is a tariff. For the moment.  50% reduction for some items. A duty regime exists for many of the products in the present study. The EU's implementation of the GATT Agreement: The GATT Agreement is to be implemented as from 1995 The broad outlines of the EU's commitments on fruits and vegetables are discussed below. based on the price paid by the importer. much of the following discussion remains speculative. came into force in 1995. and apples provided the minimum import price is respected. These are as follows: 20% reduction of most tariffs over the six-year transition period  36% reduction for some products. sweetcorn depending on local supply. Commission proposals are expected before long. and once imported goods are free to circulate within the EU without further duty. the tariff is shown as a percentage which is usually applied to the value of the produce (often referred to as ad valorem). a levy is raised or lowered on. the exporter must ensure that each shipment is accompanied by documentary evidence that the goods comply with the rules of origin. The preference is given either by lowering or by removing the tariff. Details of their implementation are as yet unknown. and after ratification. and grapefruits from November to April . avocadoes between December and May. Caribbean & Pacific). These include some nuts. A commodity will attract the same tariff irrespective of the port of entry. These include potatoes asparagus. but can otherwise be supplied by the importer for completion. however. Listed below are some of the measures which are most likely to affect some of Zimbabwe's current and potential exports of horticultural products. with Council decisions before the end of the year. or by the simplified procedure which uses predetermined values for the goods. While most are not subject to quota. Specific reference is made to imports. set fortnightly across the EU. For customs purposes the valuation of the produce may be arrived at either by transaction method. The importer is responsible for customs clearance. GATT has since been replaced by the World Trade Organisation (WTO). Where there is duty to be paid. a product may receive preferential treatment as originating in an ACP ( Marrakesh in April 1994. Form EUR 1 must be supplied. pineapples and avocadoes between June and November. dates. table grapes for part of the year. To be classified as ACP. To benefit from these preferences. for example. Forms should be available locally. Existing tariffs and quotas: The application of tariffs and quotas to imports into the EU has now been harmonised across the member states.

despite the GATT Agreement on tariffication. jackfruit. papaya. the countervailing charge will be set to equal the shortfall. Ecu 372 per tonne for tomatoes in the example quoted above). starfruit. cashew-apples. The impact of EU legislation and the GATT Agreement on Zimbabwean exporters and other LDC's:  Under the new GATT Agreement. There is. the fall in duties by between 20 . It is understood that if the shortfall is small. If the entry price/value of a particular consignment is below the minimum entry price then a countervailing charge will be levied. For tomatoes. however. These products are currently subject to reference prices and. lychees. It may not impose more restrictive import conditions. If however. the charge is listed as Ecu 372 per tonne. Detailed analysis by the Confederation of Fresh Produce . in the period 1 November to 20 December for example. passion fruit.30% over the next five years and up to 50% for those products which do not compete with European production will bring some modest benefits to exporters. the entry price falls below 92% (88% for apples and pears) of the specified minimum entry price then the countervailing charge will be set to equal the full maximum tariff equivalent (i. it is the EU's intention that minimum import prices (known as minimum entry prices) will continue to apply. carambola. The maximum countervailing charge that can be levied is also specified in the tariff schedules as a maximum tariff equivalent. particularly 'off-season' suppliers. The products are as follows:  tomatoes  cucumbers  globe artichokes  courgettes  citrus. This creates an almost impossible situation for exporters particularly during the main European growing season. For a number of products rather more complicated and protective arrangements are to apply. some uncertainty about the amount of the countervailing charge which will be levied.e. sapodilla plums. These include the minor tropical fruits such as tamarinds. The EU can improve upon the arrangements for the above products.  Although minimum entry prices are themselves set to fall by 20% between 1995 and 2000. except limes and grapefruit  table grapes  apples  pears  apricots  cherries  peaches  plums. A complete elimination of duty on coconuts and tropical fruits (under Tariff heading 080109091). they have been set for many products at levels higher than local wholesale prices.

pears. and provide a simple classification based on quality and size. cucumbers and courgettes. The entry price system effectively precludes the export of low quality. peaches. low value products. Prospects for exporters may therefore become less attractive in some areas than they may have been before. These include oranges. Non-EU suppliers must focus on obtaining high prices and the system will make it necessary for exporters to take greater responsibility for controlling volumes and managing the market. corms and tubers Cut flowers and foliage Asparagus Chicory Beans (other than shelling Cucumber beans) Brussels sprouts Lettuce and endives and batavia Cabbage Sweet peppers Cauliflowers Tomatoes Celery Courgettes Garlic Leeks Onions Peas . Standards have been agreed for the following: Fruit Apples Apricots Cherries Grapes Kiwifruits Lemons Mandarins (and similar hybrids) Oranges Peaches and nectarines Pears Plums Strawberries Vegetables Artichokes Salads Aubergines Non-edibles Flowering bulbs. The manner in which the system will be implemented is still to be resolved. There is little doubt that many of the EU regulations and new import regulations accepted under GATT are highly protectionist. clementines. They establish a specification for the commodity. even for products exported within quota (and therefore duty free). Forceful lobbying and negotiation by export countries and their supporters could therefore reduce the negative impact. Quality standards The EU has agreed on a set of common standards for a range of fresh horticultural produce. when their import price is calculated to be lower than the entry price the exporter is liable for an additional tariff called the Maximum Tariff Equivalent (MTE). These tariffs are always set sufficiently high to render profitable exporting impossible.Importers (CIMO) has shown that the entry prices are unrealistically high (often during the specific periods) for a number of commodities.  As the Agreement stands. tomatoes. lemons. apples. plums.

quality standards are being considered for avocadoes. OECD. Within the EU there is a conflict between the higher standards (i. if it is to be traded within the EU. and the lower standards acceptable to . Products with lower residues were established for a list of vegetables and fruit. has already taken some initiatives in this respect. All standards should however be treated as a minimum requirement. when provided. for example. Individual states were allowed to accept higher levels of residues. In the basic Community Regulation EC/76/895 minimum levels of pesticide residues were established for a list of vegetables and fruit. and South Africa. Pesticide residues Now a "Quality" concept within the EU environmental controls is increasingly being applied to horticultural production. including import. The Dutch government is planning to reduce air and soil pollution through insecticide use by up to 60% by the year 2000. and the produce must comply with the standards. ACP countries need to organise to get "approved status" in place for their systems. it is more important to fulfill the customers' own specification which can be significantly more stringent. raspberries. Produce containing residues in excess of an MRL can be seized or destroyed.e. Products with lower residue levels than those mentioned in the regulation were given free access to the market in each of the member states. grapefruit. and to shift inspection to the company level and to trade associations working together with the State's Public Authorities. for other produce can be found in the UN/ECE Standards for Fresh Fruit and Vegetables (ECE/AGR/55 United Nations.Spinach In addition. Until this is achieved national measures will be retained. broccoli and mushrooms. Paris 1962 1987. The EU Regulation 90/642/EC on Maximum Residue Levels (MRL) was adopted by the member states in 1990. the country of origin. NB. New regulations make it possible to relocate EU border "Quality Control" inspection to the place of production. The standards apply at all stages of distribution. It is expected that imported fruit may also have to meet the same requirements as European production in the future. water melons. As a minimum requirement all produce must be  intact  sound  clean  sufficiently developed or ripe. New York 1980 1987) of the International Standardisation of Fruits and Vegetables. rather than legislation. but the list of MRLs is not yet complete. The Netherlands is playing a pioneering role in this field. lower levels of residue) preferred by the northern states. The Commission's target is to harmonise between 80 and 100 pesticides for 1995. Recommendations.

3. Once landed in the EU. maximum residue levels are not likely to be exceeded. sample and test any consignment where they believe such action is appropriate. The following guidelines outline sensible practice:1. Although regulation 90/642/EC on MRL's has been adopted by the Member States of the EU. Ensure that the pesticides are applied by trained operators. 4. 6. . A "Compendium of Pesticide Regulation in the European Community" (Oct. While it is principally concerned with food preparation within the community it will probably form the basis of future regulations for imports to the EU. Hold records available for inspection. produce is liable to national food safety regulations. Apply the pesticide according to the manufacturers' instructions. Record all applications. 2. Be aware of differences in regulations between importing nations. which again differ between member states. It is. The authorities may examine. 1989) has been compiled by EUCOFEL. Produce suitable for import to the UK is therefore likely to be acceptable. Pay attention to the maximum dosage rates and to the minimum harvest intervals. For the UK the Imported Food Regulations 1984 provide general rules which are applied to imports from outside the EU. pears and kiwifruit in particular into the country. elsewhere in the community. on hygiene grounds. EC Council Regulation No. 5. sampling and analysis. important to clarify these issues with the importer. a Phytosanitary Certificate should still accompany every shipment to ensure swift import although it is no longer mandatory for most fruit and vegetables. Council Directive 98/39/EC regulates inspection. The regulations prohibit the importation of such food that is unfit for human consumption or is unsound or unwholesome. sample produce from time to time for independent analysis of residue. If possible. Only use approved pesticides. The exception is Italy which accepts a more limited list of chemicals and permits a lower level of chemical residue to be present. therefore. Implement any amendments to EU directives and legislation. detain.southern states. In general. A new Directive (93/43/EC published 14 June 1993) on the hygiene of foodstuffs will enter national legislation soon. 3185/91 ensures protective measures for the import into the community of fruit and vegetables from certain countries affected by cholera. This causes difficulties for the import of Southern Hemisphere apples. If the pesticide manufacturers' instructions are followed. Maintain contact with importers on the subject. the UK food hygiene regulations are among the most demanding in the EU.

Some EU governments. In particular. Even when the Directive is adopted. additives. experts should still pay attention to national requirements as these may exceed the EU regulations. it is likely that importers will set high standards for preparation and packing conditions. In the case of prepacked vegetables such a code of practice will be stringent. protection and marketing which have hitherto dominated the requirements of the trade.B. and environmental impact relating to the handling of the used packaging. preservatives and composition of food. Packaging A number of issues must be addressed when selecting packaging. There is now increasing pressure to create a more environmentally friendly means of handling packaging waste. one of the most environmentally sensitive members of the Community. Imported products fall under the same legislation. re-use by re-cycling and safe disposal where no other use is possible. was the first country in the world to enact legislation affecting packaging. The distribution and processing industries have had to develop new systems for either re-using packaging or re-cycling the packing material. The important points for exporters in the German Ordinance on the Avoidance of Packaging Waste are as follows:  it affects all types of packaging  imports are subject to the same laws as locally produced goods  for imports the responsibility for disposal of the packaging waste rests with the importer . protection to ensure the produce arrives at the point of sale in the best possible condition. The manual on the Packaging of Fresh Fruit and Vegetables ITC UNCTAD/GATT introduces overseas exporters to the packaging requirements of the European markets. In order to meet these regulations as well as their own customers' specifications. GATT is committed to basing all protective measures on scientific reasons for SPS (Sanitary and Phytosanitary Systems). Some major EU countries and the EU Commission have shown sympathy with the German Ordinance and may well adopt its basic tenets. which was introduced progressively from 1991 to 1993. Their common objectives include the minimisation of waste.Once imported into the UK produce is subject to the requirements of the Food Safety Act 1990. N. have already enacted legislation regarding packaging and packaging waste. Broadly. marketing to present the produce in a preferred style. Germany. rather than wait for an EU wide directive. they can be grouped into questions of containment for the logistics of distribution. This covers a range of issues including labelling. it deals with the questions of containment.

France. the situation is similar to that in Germany with a "Point Vert" label administered through ECO-EMALLAGES with reciprocal arrangements with the German Green Dot. Foil/film . Belgium and the Netherlands have all begun to adopt legislation for packaging waste. coating.e. Bags should have no other material attached or be in any way contaminated.Only PE and PP foils without print. for example cartons rather than wooden crates. however. packaging waste cannot be disposed of in public landfills or by incineration  the obligation to take back packaging does not apply if the importer takes part in a disposal system. oil. Wood and wooden pallets . Under the Ordinance an umbrella corporation . No plastic material should be attached. Recycling legislation has implications for exporters of fruit and vegetables. An EU waste packaging directive was agreed in principle at the end of 1993 against objections from Germany. The government will enact legislation if the goals are not met. Belgium. clean.should be free of any substances which would make them unsuitable for the paper production process such as bitumen. The DSD is funded by a levy per item bearing its stamp (the Green Dot) which guarantees that the packaging can be reused or recycled. Foam containing CFC is not acceptable. Further debate was set to continue through 1994. where it is feasible. adhesive and tape (excepting those which are of the same material as the foil) are acceptable. While the UK has yet to enact stringent legislation.the Duales System Deutschland (DSD) was set up jointly by German trade and industry to finance and manage packaging waste collection and recycling. nor metal parts that are more than 1 centimetre in diameter. The following general points apply to packaging materials in Germany: Paper and cardboard . In France. those suitable for recycling or containing recycled materials. returnable packaging such as . is introducing a system of "Eco-taxes" which encourage the use of environmentally friendly products. purchases may dictate protective packaging which is easy to re-cycle. impregnating agents or coatings. adhesives. Third country exporters to Germany have had to ensure that their packaging fits into a recycling system or leaves no waste.only solid wood and untreated chip board without coatings. paint or lamination or similar is acceptable. In the Netherlands goals have been set to reduce packaging waste. i. It is recommended that exporters should obtain the label for appropriate packaging through their importing partner. Firstly. Polyurethane foams and expanded polystyrene must be white. Secondly. wax. without adhesives or smell and be separated into formed parts and loose chips. the Netherlands and Denmark that the targets for recovery and recycling were too lenient. This Green Dot has rapidly gained acceptance throughout the trade and is recognised by the consumer. otherwise it will not be accepted by German retailers.

7 (1989) Tanzania 25.6 110 2.4 Botswana 1. Lesotho. Zambia and Zimbabwe. 1990) (US$ billion) Angola 10. Each member state is given a specific sector to coordinate through a Sector Coordinating Unit which is part of its government structure. namely: Angola.0 609 7. Table 2B-1 SADC basic economic indications Population GNP/capita GNP (million) (US$.3 (1989) Malawi 8.7 530 0.4 200 1. Appendix 2B: Southern African Development Community Historical development Introduction The Southern African Development Community (SADC) is an organisation of eleven independent states of Southern Africa. Botswana. Botswana. Namibia. better organised and managed export operations who are fully supported by their national governments in the expensive process of negotiating with the EU and in challenging unscientific phytosanitary restraints to trade. SADC is a decentralised organisation with a small secretariat based in Gaborone. Impact on ACP and LDC's Stricter control will be needed over pesticide usage and packaging materials and designs may have to be modified.5 (1993) Swaziland 0.3 (1994) 2530 117.5 (1989) Mozambique 15.4 1030 n/a South Africa 40. The impact of the legislation will be to favour the larger.9 810 0.6 (1989) Lesotho 1. This clearly involves greater logistical problems for third country exporters who are further from the market than EU producers. South Africa.8 (1989) Country .3 2040 1.1 (1989) Namibia 1. Swaziland.4 80 1.pallets will be encouraged. Malawi. Mozambique.

SADC graduated from an informal club (SADCC) . The founder Member States were Angola. Sector Coordinating Units are funded by the hosting Governments while specific projects are donor funded. Mozambique. Tanzania. Treaty and Protocol in Windhoek.5 (1992) 420 640 4. The Declaration and Treaty effectively launched a scheme of economic integration. The Treaty was ratified by Member States in September. 1993. Botswana. a descendant of SADCC.Zambia Zimbabwe 7. They agreed to convene a conference in Arusha (Tanzania) with donor Governments and International Development Institutions to discuss a regional programme of economic development in Southern Africa. through appropriate institutions of SADC. was established on April 11980. The Secretariat and Commissions are jointly funded by Member States on an equal basis. In July 1979 the Arusha Conference provided these states with an opportunity to explain to potential international cooperating partners the main parameters of such cooperation and the policy assumptions on which the cooperation was being constructed. The conference also agreed that other majority ruled countries of Southern Africa should be invited to participate in the drawing up of the Lusaka Declaration on Southern African Development Coordination Conference.Southern Africa: Towards Economic Liberation.established by a legal organisation/community (with provisions for binding rules and regulations) in which Member States. Swaziland. The SADC also receives income from its investments. Namibia became the tenth member upon the attainment of its independence in 1990. income from its enterprises and receipts from regional and non-regional resources. was established on 17th August 1992 when the ten Member States signed the Declaration. rationalise and harmonise their overall macroeconomic and sector policies and strategies. Historical development In May 1979 Foreign Ministers of Frontline States met in Gaborone to discuss economic cooperation. South Africa became the eleventh member in August 1994 following the attainment of its independence earlier in the year. but not only. when nine Heads of State or Government of majority ruled states of Southern Africa adopted the Lusaka Declaration . Zambia and Zimbabwe. programmes and projects in the areas of cooperation. The Southern African Development Coordination Conference (SADCC). Lesotho. Namibia. coordinate. particularly. Malawi. The now SADC.5 10.8 (1989) n/a Sources: SADC '94 Official Summit Brochure SADC: Regional Relations and Cooperation Post Apartheid SADC is funded through contributions from Member States. From SADCC to SADC The transformation of SADC from a loose organisational set up to an economic community was due to changed circumstances and reorientation of the original objectives which were: the reduction of economic dependence. on the then apartheid ruled South Africa .

and 343 years to catch up with high income countries. The findings of the 1967 United Nations/Economic Commission for Africa (UN/ECA) study on economic development prospects in Africa continue to show no sign of abating. thereby necessitating their closer collaboration with coastal states and. the gap may have even widened  12 years' experience of regional cooperation under SADCC  the political developments in South Africa towards majority rule  the peace process underway in civil strife torn Angola and Mozambique .pushing their countries projects for funding .  the political geography of Southern Africa makes the majority of the countries of the region landlocked. or for that matter reducing. The rationale for launching SADC lies in the following: the continuing search for an organisational structure that would facilitate the translation of political independence into economic independence  the continuing dependence on the export of a few raw materials  the small size of Member States' economies and low incomes which make it difficult for them to individually attract and sustain the necessary investment for development and growth and restructuring at higher levels of efficiency and productivity  the inadequate socio-economic infrastructure and the high per capita cost of providing this infrastructure on account of the small size of their economies. One of the weaknesses of SADC was its inability to mobilise the regional business community and professional associations in the implementation of its programmes. Since April 1980 the organisation had been largely a mere forum of State bureaucrats and technocrats . Experiences in African countries have shown that instead of reducing. The study concluded that it would take at least 273 years for African countries.and high income countries.  the growing gap between African countries and middle . interstate and regional policies and.rather than an instrument of popular participation in the economic development of the region.  concerted action to secure international cooperation within the framework of the strategy for economic liberation. the forging of links to create a genuine and equitable regional integration  the mobilisation of resources to promote the implementation of national.

 strengthen and consolidate the long standing historical. The summit of heads of state or government: The summit consists of heads of state or Government of all Member States and is the supreme policy making institution of the SADC.  the world seems to be edging towards protectionism and isolationism as evidenced by the various and major trading blocs such as the North American Free Trade Agreement. preferably a minister responsible for economic planning or finance. social and cultural affinities and links among the peoples of the region. It decides on the creation of commissions. the summit has retained Botswana as chairman since the inception of the then SADCC in 1980. and appoints the executive secretary and his deputy on the recommendation of the council of ministers. unless otherwise provided for in the SADC Treaty. coordination and . the need to establish and maintain peace in the region in order to minimise the threat of conflict and to reduce the defence expenditure  the re-emergence of multi-party politics in the region  the re-introduction of market oriented economic systems aimed at restructuring heavily government controlled economies. on a rotational basis. systems and institutions  promote and defend peace and security  promote self-sustaining development on the basis of collective self-reliance and the interdependence of Member States  achieve complementarity between national and regional strategies and programmes  promote and maximise productive employment and utilisation of resources of the region  achieve sustainable utilisation of natural resources and effective protection of the environment and. Objectives The specific objectives of SADC are to: evolve common political values. It meets at least once a year and is responsible to the summit for overall implementation. the European Union. The summit elects a chairman and vice chairman of SADC from among its members for a 3 year period. The council or ministers: The council consists of one minister from each member state. committees and organs as the need arises. the Economic Community of West African States. its decisions are by consensus and are binding. (This is likely to stimulate foreign interest in the region and perhaps lead to investment) and. other institutions. It meets once a year and. etc. however.

appointing its committees as necessary. So far. Decisions of the council are by consensus. respectively. Commissions work closely with the secretariat. but are responsible and report to the council. functions.supervision of SADC's activities. The composition. powers. the Southern African Transport and Communication Commission (SATCC) based in Mozambique and the Southern African Centre for Cooperation in Agricultural Research (SACCAR) based in Botswana. and convening conferences and other meetings as appropriate. The chairman and vice chairman of the council are appointed by the member states holding the chairmanship and vice chairmanship of SADC. there are only two commissions. designating member states to coordinate activities in the various sectors. directing. . Organisational structure The SADC structure is shown in figure 2B-1 Figure 2B-1 SADC organisational structure Commission: Commission are constituted to guide and coordinate cooperation and integration policies and programmes in designated sectoral areas. such as approving programmes and projects for SADC. coordinating and supervising the operations of SADC institutions subordinate to it. They are jointly funded by member states on an equal basis. procedures and other matters related to each commission are prescribed by an appropriate protocol approved by the summit.

The United Nations General Assembly granted international recognition of the organisation in its Resolution 37/248 adopted on 21 December 1982. Industry and trade . If a cooperating partner expresses interest in a project. representation and promotion of SADC. It is a technical advisory committee to the council and is responsible and reports to it.The standing committee of officials: The standing committee consists of senior civil servants from each member state. Cooperation with the international community SADC seeks cooperation from the international community in the implementation of its regional programme towards the achievement of its priorities and objectives. The secretariat: The secretarial is the principal executive institution of SADC and is responsible for strategic planning and management of SADC programmes. It meets at least once a year and its decisions are by consensus. The executive secretary is appointed for four years and may be eligible for appointment for another period not exceeding four years. it becomes the primary responsibility of the country or countries directly involved and assisted by the sector coordinator. respectively. SADC has benefitted considerably from its decisions to develop an open and friendly dialogue with the international community. powers. projects are presented for financial support. to negotiate with the donor and implement the project. The SADC commissions and committees help to define regional priorities. preferably from the Ministry responsible for economic planning or finance. The Secretariat is headed by the executive secretary appointed by the summit and responsible to the council. SADC holds an annual consultative conference with cooperating Governments and international agencies. organisation and management of SADC meetings. functions. To this end. The SADC programme of action The programme of action comprises of programmes and projects in several sectors. financial and general administration. and problems and bottlenecks are ironed out. At the conference. procedures and other related matters governing the tribunal are prescribed in a protocol adopted by the summit. Once a programme is prepared and approved. cooperating partners are updated on progress in regional cooperation. The chairman and vice chairman of the standing committee is appointed by the member states holding the chairmanship and vice chairmanship of the council. and coordination and harmonisation of the policies and strategies of member states. assist in mobilising resources. Its members are appointed for a specified period and its decisions are final and binding. The composition. where necessary. the regional projects are. presented to SADC's cooperating partners at the annual consultative conference. The tribunal: The tribunal is constituted to ensure adherence to and proper interpretation of the provisions of the SADC Treaty and subsidiary instruments and to adjudicate upon such disputes as may be referred to it. implementation of decisions of the summit and council. and to maximise the regional impact of projects.

to fully utilise the local resources. acting as a broker for investment as well as coordinating programmes of action. SATCC had 220 projects at an estimated cost of US$7 billion of which US$3 billion had been secured. civil aviation.8 Zambia (US$ million) 31. The sector aims to address the fundamental areas of institutional structures. bureaucratic red tape and the differing investment policies and codes of the member states. Table 2B-2 SADC: Intra-regional trade Imports 1985 1988 Botswana (US$ million) 36.3 26.2 31.5 0.Apartheid Transport and communications The sector is coordinated by Mozambique under the auspices of the Southern Africa Transport and Communication Commission (SATCC).2 Mozambique (US$'000) 4.3 101.9 Country Exports 1985 1988 19. The unit has been mobilising funds for investment in the sub-sectors of road and transport.2 203.The Industry and trade sector is coordinated by Tanzania. railways. Technical studies have sought to find ways of removing barriers to investment such as exchange controls. meteorological services and telecommunications. As of August 1994. On the trade side. Studies are being carried out to look at trade flows within the region and how intra-trade can be facilitated. It has been focusing on the rehabilitation and development of the regional transport and communications infrastructure in the region.6 81.1 n/a 32.2 1. Table 2B-2 shows intra . Emphasis is also being placed on creating an enabling environment for industrial development.3 Zimbabwe (US$ million) 49. Infra-regional trade currently accounts for a mere 5 percent of total trade in the region.5 n/a 1. at the same time. The sector has also identified a number of specific macroeconomic policies for consideration by national governments which aim to promote increased production and investment. Large scale projects considered include fertiliser plants.7 Lesotho ('000 Maloti) 2. which preferences can be implemented and at what levels. based on domestic and regional raw materials. . The main focus of SADC policy is to develop existing industrial capacity and. postal services. which commodities are needed.1 n/a n/a 112. It promotes viable regional industries. and boost intra-regional trade. and with access to the regional market. ports and shipping.regional trade. iron and steel mills and manufacturing industries.3 30. SADC is in the process of developing a programme. improve efficiency.7 Source: SADC: Regional Relations and Cooperation Post .4 39.6 Swaziland ('000 Emalangeni) n/a 5.1 n/a Malawi (US$ million) 23.4 72.

legumes and land water management. . including improving sorghum and millet crops. and migrant pests control through regional information projects.  the generation and exchange of information: to this end the sector operates regional early warning and remote sensing systems. Protocol development is expected to commence in the last quarter of 1994. The sector's activities are divided into four interlinked groups. Food security This sector is coordinated by Zimbabwe and aims to increase regional food availability and to enhance the capacity of the people in the SADC region to acquire enough food for a healthy diet. fisheries and forestry  promote dissemination of available technology  promote studies into common problems and. livestock. SACCAR is a commission established in 1985 to coordinate regional efforts in the field of agricultural research.  promotion of improved food access. agricultural development and natural resources security. The sector has undertaken a variety of projects.SATCC is also at the forefront of encouraging programmes dealing with restructuring and commercialisation of the sector through seminars. Agriculture research The sector is coordinated by Botswana through the Southern African Centre for Cooperation in Agriculture Research (SACCAR). namely:. Implementation of sector specific programmes is the responsibility of the eight sector coordinating units which are grouped together under the FANR programme. nutritional surveillance. Agriculture and Natural Resources (FANR) A new strategy for FANR was adopted in 1993 and is made up of three major cross cutting programmes.  food policy analysis and research  promotion of improved food availability and. The programme aims to: strengthen national agricultural research systems  promote the interchange and utilisation of scientific and technical information  generate new technologies needed by farmers to raise the productivity of food and nonfood crops. i. Responsibility for overall coordination of the sector is based in Zimbabwe. Food.e.

fish handling. innovative methods which are cheap and easy on the environment. Inland fisheries. processing and quality control. its economic impact and how it is kept in check in the member states. marine research and resource assessment. The objectives of specific regional marine fisheries programmes aim at maximising sustainable yields. The sector has identified regional needs in training and institutional capacity building. several thousand technicians and several improved varieties of the crops have been released to farmers. Malawi.a rabies control programme and a regional tsetse control project based in Zambia which will provide manpower training for persons working in the field.  regional plant genetic resources at a centre in Zambia. One of the main areas of regional cooperation is the Foot and Mouth Disease Project under which researchers around the region gather information on the disease. Other projects in the pipeline include:. and distribution and marketing. The sorghum and millet project has trained 100 peoples to degree level. Projects underway include studies to improve: production methods in sorghum and millet at Matopos in Zimbabwe  groundnuts at the Chidesa Research Station in Malawi  cowpeas in Mozambique  land and water management at Sebele College in Botswana and. Namibia. animal production and drought management. securing fish supply as food and significantly increasing the industry's contribution to the GNP. A tsetse control project conducted by SADC has been one of the most successful projects in Africa. Livestock production and animal disease control The sector is coordinated by Botswana and is working on projects in the areas of animal disease control. surveillance and control. The project in Zimbabwe is developing simple. provide regional support services. A coordination centre has also been established in Zimbabwe to distribute the vaccine to end users. forestry and wildlife . Since March 1994 the Foot and Mouth Projects in Angola. Zambia and Zimbabwe are being funded by the EU. A second regional cooperation project is based in Malawi where researchers are working on a vaccine for East Coast Fever. Marine fisheries and resources This sector is coordinated by Namibia and generally aims at the sustainable exploitation of the marine fisheries resources.

has successfully interconnected electricity supply among Botswana. since its inception in 1984. Tanzania and Malawi have an ongoing project to share power along the borders. The sector is also developing projects and regional programmes of action to deal with desertification. petroleum. The total mining sector programme is made up of 30 projects which will cost US$28 million. and the market survey of soda ash which contributed to the finalisation of the investment decision which has seen the opening of the soda ash Botswana project. which was destroyed by fire. has also been rehabilitated. and energy conservation. Extensive work has been done on the sustainable use of water resources and on shared water systems. coal. Mining The mining sector is coordinated by Zambia and. Environment and land management The sector is coordinated by Lesotho and its main focus of activity has been studies in water resources management and environment and land management. has several sub-sectors covering electricity. A total of five projects have been fully implemented of which 40 approved projects are in the pipeline at an estimated cost of US$260 million. oil and gas sub-sector has seen limited activity. has successfully collected geological and mining data on which investment decisions are being based. The petroleum. The sector has been successful in involving communities at grass roots level in environmental awareness. conservation and sustainable utilisation of natural resources. Completed projects undertaken by the sector include a detailed feasibility study on the exploitation of the Mulanje Bauxite deposit in Malawi. wood fuel. the core of the sector's programme. Namibia is also importing electricity from Zambia to service the Caprivi Strip. the only major project undertaken is the SADC Joint Petroleum Exploration Programme intended to improve . coordinated by Angola. Other areas being worked on in the electricity sub-sector include: rural electrification. new and renewable sources of energy. and is now concentrating on connecting Southern Angola and Northern Namibia. Zimbabwe and Zambia. The ultimate aim is to have an integrated regional power grid with all the member states interconnected. The Kafue Gorge Station in Zambia. The electricity sub-sector. specialists training in electrical power. Energy The sector.The sector is coordinated by Malawi and aims to develop the region's vast resources of flora and fauna. computerisation of operational centres in each country and maintenance training for power stations. The sector has been considerably successful in the development of the small scale mining industry through a study on the Investment Climate in Small and Medium Scale Mining which has resulted in most member states reviewing their legislation in order to create an enabling environment. oil and gas. The rehabilitation of Cabora Bassa Power Station is underway.

the official languages of SADC. The viability of utilising wind power and solar photovoltaic power is also being looked into. aims to promote a greater awareness of the region's cultural heritage. Botswana is the only country which has made extensive use of solar heating. A Coal Distribution Yard and Information Centre has been set up in Botswana and its findings will be applied to other member states. languages and other related items. coordinated by Lesotho. Culture and information The sector. In the wood fuel sub-sector. Its activities include: organising general support to the coordinating unit through discussions with donors. Human resources development The sector. is working towards the completion of its long term development strategy which ultimately will see a fully integrated tourism industry in Southern Africa. The sector has been running a language training programme to teach English and Portuguese. In the new and renewable sources of energy sub-sector. Advantages/strengths .member states geological data bases and to evaluate individual countries' petroleum potential. coordinated by Swaziland. The sector.  tourism. The sector has produced a Directory of Regional Training Institutions which has been updated annually since 1987.  the SADC Arts and Festival to run from 1995.  the establishment of a data bank for cultural organisations. is a vital part of the SADC Programme of Action as all sectors depend on trained personnel to carry out projects and activities. established in 1991 and coordinated by Mozambique. The Tourism Development Programme is divided into four components. It focuses on providing leadership training and developing special courses for specific groups in the other sectors. the main focus has been on studies to assess its impact on the environment. The coal cub-sector has focused on manpower development and training. namely: Tourism product development  Tourism research and marketing  Tourism services and  Human resources development and training.

The countries of Southern Africa are bound together by cultural and political affinitives which have in the past enabled them to intervene to solve internal conflicts in individual countries. tariff and non-tariff barriers  low growth of trade between Member States  heavy external debt  the imposition of structural adjustment programmes from developed countries  lack of banking and other financial facilities  relative or sometimes absolute neglect of rural African populations leading to low levels of income  conflicting obligations of some Member States stemming from their membership of the PTA and the Southern African Customs Union  different traditions. leading to inequitable distribution of responsibilities and obligations to the organisation  the economic disparities and inequities among Member States. supply and demand divergence in national economies. giving it some amount of leverage in its negotiations with cooperating governments and international donor institutions. management and administration procedures and  different standards. developed market economies. The signing of the SADC Treaty gave the organisation a legal status that its predecessor did not have. qualifications and performance criteria for staff involved in the management of regional programmes . Disadvantages/constraints Problems facing integration of key sectors and services in the region stem from the fact that member states depend very heavily on the exports of primary commodities to and imports of industrial products from. Other problems include: the lack of appropriate technology for the production of mass consumer goods  the paucity of technical expertise and trained personnel in management and entrepreneurial skills  different and often inadequate provision of staff and other resources for the coordination and management of the regional programme. particularly with respect to South Africa  lack of policy measures focused on the removal of constraints such as lack of information.

Sectoral coordinating Units are likely to be converted to commissions such as SATCC and SACCAR. it is reliably understood that one of the six options under consideration is the splitting up of the PTA into north and south. Possible duplication of resources in their activities is one of the arguments in favour of a merger. The future of SADC also lies with the findings and recommendations of the ministerial committee established to look into the harmonisation of relations between itself and the PTA. Governments should be prepared to give up their national sovereignty if economic integration is to succeed. the various sectors in the decentralised structures have no clear line of authority and accountability in the implementation of regional programmes. While recommendations of the ministerial committee have not yet been made public. The future SADC has a declared objective of creating a genuine and equitable integration among its member states. . with the latter equating to SADC. Involvement of the people is essential and will entail free movement of people. capital and labour without need for visas or even passports. Various trading blocs have been or are being established throughout the world and Southern Africa cannot be the exception. SADC has a lot to learn from similar organisations to ensure success.

The PTA is primarily funded by subscriptions paid by Member States. set up five subregional Multinational Programming and Operational Centres (MULPOC's). Comoros. Tanzania. The . Weights of 30%. Mozambique. The Treaty came into force in September 1992 following ratification by nine Member States. Subscriptions were initially based on the following formula: country's GDP. as a first step towards higher forms of regional economic cooperation and integration to bring about sustainable growth and development of Member States. Namibia. Lesotho. The formula was revised in 1989 to 30%. Madagascar. It was recommended that preferential trade areas with similar arrangements be established within each MULPOC area not later than December 1984. the United Nations Economic Commission for Africa (ECA). 15% and 42. Sudan. Swaziland. Malawi. Ethiopia. Zambia and Zimbabwe. West Africa. intraregional imports weighted at 7. Zambia. Central Africa and the Great Lakes Community comprising Burundi. These centers were for Eastern and Southern Africa. Djibouti.5%. based in Lusaka. twentytwo states are members of the PTA: Angola. Membership and location: The PTA Treaty was signed on 21 September 1982 following ratification by more than seven signatory states as provided for in Article 50. It should be noted that the formula is currently under review in response to complaints that it places a heavier burden on a few states. The MULPOC for Eastern and Southern Africa. income per capita and value of intraregional exports. Today.Appendix 2C: The Preferential Trade Area Of Eastern And Southern Africa Institutions of the PTA Introduction The Treaty establishing the Preferential Trade Area for Eastern and Southern Africa was signed in December 1981. Kenya. successfully negotiated a treaty for the establishment of the Preferential Trade Area for Eastern and Southern Africa in 1981. Rwanda and Zaire.5% respectively.e. Burundi. Mauritius. and included a new parameter i. Uganda. Rwanda. Historical background Formation of the Preferential Trade Area (PTA): Following the recommendation of the Lagos Plan of Action to expand intraAfrica trade. 40% and 30% were assigned to each parameter respectively. Eritrea. Somalia. Seychelles.

Botswana is not yet a member. Objectives and funding of the organisation The objectives of the PTA are summarised as follows:i) to promote cooperation and integration covering all areas of economic activity. industry. agriculture and monetary affairs ii) to raise the standards of living of the people of the region by fostering closer relations among Member States iii) to create a common market by the year 2000 in order to allow the free movement of goods. transport and communications. Zambia. PTA strategy includes:  reduction and elimination of trade barriers on selected goods traded within the area  cooperation in customs through simplification and harmonisation of customs procedures and regulations  introduction of rules of origin to determine which goods will receive preferential treatment  granting of transit rights to all transporters when coming from or entering other Member States or third countries  clearing and payments arrangements to promote trade in goods and services within the subregion  cooperation to develop coordinated and complementary policies and systems in transport and communications  cooperation in the field of industrial development in order to promote self sustained industrialisation within the PTA. capital and labour within the subregion and iv) to contribute to the progress and development of all other African countries. Towards attainment of these objectives. particularly trade and customs. technology and marketing and stabilize the prices of agricultural commodities in the subregion . The PTA is headquatered in Lusaka. to expand trade in industrial products and to bring about structural transformation of industry for the purpose of fostering the overall social and economic development of Member States  cooperation in the area of agricultural development so as to raise production and supply of food to coordinate the export of agricultural commodities to harmonise programmes in agricultural production develop land and water resources share agricultural services.Republic of South Africa is expected to join in the near future.

preferably of trade and industry and designated by Member states. institutions or enterprises to membership of the Eastern and Southern African Trade and Development Bank. Thus. It keeps PTA's activities under constant review in order to advise the Authority on matters of policy and gives directions to all the other subordinated institutions of the PTA. through special consideration in allocating multinational industries. It also decides on the accession of bodies. The decisions of Tribunal are binding and final. The decisions and directions of the Authority are by consensus and are based on recommendations of the Council of Ministers. administrative and budgetary affairs and legal and financial matters sit on the Commission. The PTA tribunal: The Tribunal is the judicial organ of the PTA and it ensures proper interpretation and application of the provision of the Treaty. Lesotho and Swaziland.g. the PTA has a broad and challenging mandate. Decisions of the Council are taken on the recommendation of the Intergovernmental Commission of Experts. Finance and Budgetary Committee. the Transport and Communications Committee. the Committee on Botswana. transport and communications. Technical committees and subcommittees: There are technical committees for each economic sector forming the activities of the PTA. Committee on Agricultural Cooperation. Council of ministers: Ministers. sit on the council. the Committee of Legal Experts and the Administrative. Organisational structure The authority: The Authority consisting of heads of state and government is the supreme policy organ of the PTA. Intergovernmental commission of experts (ICE): Member State's experts in customs and trade. The decisions of the technical committees are recommendations to the Commission and are taken by simple majority. The Council is responsible for ensuring that the PTA functions in accordance with the Treaty. simplification and harmonisation of trade documents and procedures in the area and  interventions to assist the least industrialised Member States e. Current technical committees of the PTA are the Committee on Industrial Development. as well as the judges of the Tribunal. The ICE'S main function is to oversee the implementation of the provisions of the Treaty. Its decisions are recommendations to the Council of Ministers. agriculture. The technical committees have authority to appoint subcommittees which report to them. The Commission also considers reports from all the technical committees of the PTA. The Committee of Central Bank Governors: The Committee of Central Bank Governors determines the maximum debit and credit limits in relation to the Clearing House and the . industry. It adjudicates any disputes that may arise among Member States relating to the interpretation and application of the Treaty. appoint the Secretary General of the PTA. The Authority is empowered to decide on the accession of members under Articles 46 and 50 of the Treaty.

The Committee also deals with issues concerning monetary and financial cooperation. Agriculture.daily interest rate for outstanding debit balance. Canada. Finland. Trade and Customs. Germany.2 billion to the PTA towards implementation of its programmes and projects. There are seven divisions in the Secretariat. The Secretariat: The head of the Secretariat is the Secretary General of the PTA. industry. Figure 2C-1 Organisational chart of the Preferential Trade Area Cooperation with donors and intergovernmental organisations During 1985-1992. Japan. Monetary Affairs and Legal Affairs. Sweden. Fisheries and Forestry. undertakes research and implements the decisions of the Authority and the Council of Ministers. Belgium. . Administration. namely. Norway. Transport and Communications. Italy. Cooperating partners are listed as follows:  Bilateral donors: Austria. It assists all institutions of the PTA in carrying out their functions. development partners have contributed US$1. Each division is headed by a Director reporting directly to the Secretary General. the Netherlands. the United Kingdom and the United States of America. France. Energy and the Environment. Denmark. The Secretariat administers.

 abolition of the Common List which specified the products in each member state that could be traded at reduced tariff rates. UNIDO. United Nations agencies such as ECA. Transport and communications Achievements in transport and communications have been:  rehabilitation and upgrading of interstate roads.  road customs transit documents have been simplified and harmonised with the introduction of a single Road Customs Transit Declaration Document. Monetary and financial cooperation Achievements in monetary and financial cooperation have been:  establishment of the Clearing House in February 1984 . railways. 1996 80%. FAO. clearing and payments procedures. UNDP. About 50 percent of the network has been restored  the PTA Third Party Motor Vehicle Insurance Scheme (the Yellow Card) implemented in July 1987 has facilitated the movement of vehicles within the subregion. IFAD. Commonwealth Secretariat. WHO and the World Bank. The majority local equity and local management clause has been deleted. 1998 90% and 2000 100%.  establishment of a computer based subregional trade information network (TINET) with focal points in each Member State. countries' imports and exports and tenders. providing information on the enterprises in each country. The programme of action of the PTA The PTA programme of action covers trade liberalisation. ports and telecommunications links. Multilateral Development Financing Institutions: ADB. UNIFEM. Achievements in trade liberalisation and promotion since 1982 include:  a 60 percent average tariff reduction on goods originating in the subregion. EC. agricultural development and monetary and financial cooperation. industry. ITC. Value added criteria is being applied with a commodity said to originate from a Member State if its value added is at least 45 percent. resulting in preferential exchange of all commodities produced within the subregion  the Protocol on the Rules of Origin has been streamlined to facilitate intraregional trade and investment. cooperation in transport and communications. UNCTC. It is envisaged that interregional tariffs will be progressively eliminated by the year 2000 as follows: 1994 70%.

The Bank provides financial and technical assistance to promote Member States's economic growth and development. and run by an executive secretary. Its function is to reduce the outflow of foreign exchange in the form of payments to overseas reinsurance companies by providing reinsurance services for companies within the PTA. was channelled to the trade sector. Insurance companies have been asked to cede 10 percent of their business to ZEPRE. the PTA Bank is currently headquartered in Nairobi. UAPTA 41 million. ZEPRE is headquartered in Nairobi. In January 1992 the Clearing House was formally established under its own charter with its own secretariat. The Eastern and Southern African Trade and Development Bank: Based in Bujumbura. Burundi since 1985. It facilitates the operations of the Clearing House by establishing correspondent relationships among commercial and merchant banks. . PTA Association of Commercial Banks (BAPTA): BAPTA was formed in November 1987 by commercial and merchant banks operating in the PTA subregion. The UAPTA is equivalent to 1 Special Drawing Right (SDR) of the International Monetary Fund and. The objective of the Clearing House is to promote cooperation in the settlement of payments for intraPTA trade. The Clearing House operates a payments scheme which allows for settlement of day-to-day payments in member state's currencies.  the launching of the PTA Monetary and Financial Harmonisation Programme in November 1990 with the eventual goal of establishing a monetary union to facilitate the economic integration process. The PTA reinsurance company (ZEPRE): Established in September 1992. Kenya following political developments in Rwanda and Burundi. Institutions of the PTA The Clearing House: The PTA Clearing House was set up in 1984 under the Reserve Bank of Zimbabwe. establishment of the PTA Trade and Development Bank for Eastern and Southern Africa (PTA Bank) in November 1985. Settlement of accounts is done every 75 days beginning 15 March to 15 November each year. headquartered in Harare. Kenya. Additional functions include harmonisation of banking practices. The Bank has disbursed UAPTA 58 million since 1990 to finance industrial projects and trade. Each member state has an account with the Federal Reserve Bank of New York through which just the net debits on trading are settled in hard currency. in August 1988 enabling Member States' citizens to travel within the region without having to use foreign currency. Most of the money. UAPTA. The Bank provides finance for multinational development projects and financial resources to promote intraregional trade  introduction of PTA travellers' checks. The secretariat is housed in the secretariat of the Clearing House. provision of ancillary services and credit facilities for various economic agents and provision of a permanent forum to discuss issues of common concern among members.

Angola. iron ore. 1994. There is. fisheries. Burundi. Comoros. consultancy services and information dissemination. Disadvantages of the PTA are:  High transport and transit costs. nickel and uranium. copper. manganese. cobalt. diamonds. Malawi.  The resources of the sub . Sudan. Tanzania. phosphate. Djibouti. platinum. coal.region includes an area of sixty percent covered by rivers and lakes which could be jointly exploited to develop irrigation. water transport and hydropower. The Leather and Leather Products Institute (LLPI): The LLPI was established in Addis Ababa in November 1993 Its main objective is to upgrade member states' leather sectors through training. over 200 billion tonnes of petroleum. chrome. at the end of August. The total population in the region is about 200 million with an effective demand of at least 100 million. Somalia. therefore.Eastern and Southern Business Organisation (ESABO): The charter establishing ESABO was signed in Maputo. Its main function is to promote cross border cooperation among national chambers of commerce and industry. trade and consumption in the PTA retards trade and economic integration  The subregion includes 14 countries namely. Ethiopia. significant disparities in economic activities and development militate against regional integration  The more economically advanced Member States have tended to maximize their exports at the expense of economically weaker countries. From PTA to COMESA . Federation of National Association of Women in Business: The Federation was formed serves as a mechanism for channelling resources to female entrepreneurs in the PTA and provides a forum for discussion for businesswomen. Rwanda. Thus. 170 billion cubic meters of natural gas. Mozambique. gold. Less than 9 percent of ariable land is currently being cultivated. border tolls are high but are revenue for countries. Uganda and Zambia that are classified by the UN as least developed countries.  Lack of complementarity in production. an estimated hydroelectric capacity in excess of 700 billion kilowatts per annum. research and development. Advantages of the PTA are:  The PTA is the largest subregional economic cooperation arrangement in the African continent. ESABO replaces the PTA Federation of Chambers of Commerce and Industry. Lesotho. Mozambique. a large potential for regional integration.

and the adoption of a common external tariff on imports from nonCOMESA countries  free movement of capital and finance and a common investment procedure so as to create a more favourable investment climate for foreign direct investment. Member states are obligated to abide by common decisions. Whilst most PTA members have signed the treaty at a meeting in Malawi. COMESA embodies the following principal elements which are not contained in the PTA:  a full free trade area involving trade liberalisation under which there is free movement of goods and services produced within the common market and the removal of all nontariff barriers  a customs union involving zero tariff on all products originating in the common market. In addition. Whereas the PTA emphasized decision by consensus. the right of settlement. in December . The role of member state Governments will be to create an enabling environment for business to invest and produce more efficiently. including the right of establishing and eventually. Organisational structure COMESA is expected to retain the main structures of the PTA. common visa arrangements. programs were pegged on the slowest moving Member States. expelled from membership to COMESA. The Tribunal will be replaced by the Court of Justice and a Consultative Committee will be established. and as such. Sanctions may be imposed against any member state that "deliberately and persistently" fails to comply with agreed decisions. COMESA is based on the concept of multispeed development by which two or more member states can agree to accelerate the implementation of specific provisions of the Treaty while allowing others to join in later on a reciprocal basis. strategy for the 1990s is to bring about full market integration beginning with the transformation of the PTA into the Common Market for Eastern and Southern African States (COMESA).Based on past experiences and member states' determination to move forward with cooperation to bring about sustainable growth and development. crossborder investment and domestic investment  a payments union and eventual establishment of a COMESA Monetary Union and  free movement of persons. eventually. The future COMESA will replace the PTA when the Treaty is ratified by at least 11 member states. The COMESA Treaty provides for both enforceability and sanctions. Errant states can be suspended and. under COMESA a two thirds majority will prevail where consensus cannot be reached. COMESA is designed specifically to facilitate the business community to take maximum advantages of regional integration.

coordinate and rationalise the activities of the PTA and SADC. 2089 1 393 823 8261 799 6331 2267 4321 7719 63793 1990 9473 1385 174 338 4891 10844 558 1622 1 774 2125 1359 801 7779 816 6597 2396 4348 8408 65688 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 * 1-18 lists countries in alphabetical order e. It is also envisaged that the UAPTA will be convertible in European currency markets and in South Africa by 1997. In August 1994 the issues were discussed by heads of states and Government at the SADC Summit in Lusaka which recommended that a Consultative Committee of Council of Ministers of PTA and SADC be set up to formulate guidelines and procedures to harmonise. significantly.g.1994. One of these countries was. Table 2C-1 GDP. which enjoys one of the highest inter PTA exports. Angola 2. 1980 prices* US$ bn 1982 5077 1 012 154 301 4215 7515 385 1 202 1 125 2308 1 278 751 7776 585 5074 2072 4011 6148 51 025 1983 5291 1 083 160 301 4428 7570 363 1 247 1 129 2045 1355 682 7937 580 5050 2270 3925 6282 51 698 1984 6170 1 082 167 314 4361 7807 391 1 314 1 182 2000 1 297 705 7539 603 5280 2077 3884 6162 52335 1985 6106 1 208 161 316 4087 8199 403 1 402 1 265 1 792 1354 762 7066 689 5300 2039 3954 6590 52693 1986 6868 1 255 166 322 4370 8788 400 1 407 1 365 1 827 1 428 789 7753 715 5548 1 864 3961 6765 55691 1987 7645 1 306 170 334 4802 9309 429 1 441 1 484 1 900 1 420 829 7841 705 5767 1 984 4084 6695 58145 1988 8744 1352 172 337 4919 9870 482 1 478 1 585 1 978 1 427 823 7692 768 6064 2127 4311 7314 61 443 1989 8890 1 372 172 334 4975 10320 520 1 552 1 655. Burundi 3. Closer cooperation between PTA and other intergovernmental organisations in the Eastern and Southern African region will be pursued in order to avoid duplication of activities and waste of scarce resources. the new COMESA's proposed relationship with SADC had been funded. not all countries ratified it. Zimbabwe. 1. Comoros . Zimbabwe would not ratify the formation until. The following mechanisms to promote intraregional integration will be put in place: a stock exchange to bring about a capital market in the region an equity fund subscribed by western institutional investors to facilitate investment in the region a revolving fund for supporting women in business with a targeted capitalisation of US$360 million a US$130 million reserve fund under the PTA Bank to support the operations of the Clearing House.

51 3.70 8.66 32.16 76.25 39.45 37.77 3.41 41.02 59.52 41.49 51. Source: Clearing House Annual Report 1993 .59 87.10 1988 5.90 43.08 5.61 37.69 228.68 231.04 4.60 46. 18.05 112.46 199.80 36.75 944. Namibia and Seychelles were not yet members.36 36.44 69.26 29.56 28.06 2.47 12. 12.87 35.73 110.34 0.20 50.56 37.77 218.90 1651.86 177. 17.45 39.35 8.13 49.76 1554.70 28.54 1990 5.71 2.22 35.50 86.30 30. 6.57 31.40 18.42 3.22 200.09 1.34 110.86 0. Djibouti Ethiopia Kenya Lesotho Malawi Mauritius Mozambique Rwanda Somalia Sudan Swaziland Tanzania Uganda Zambia Zimbabwe Eritrea.81 158.68 1043.42 294.64 34.89 38.31 36.89 92.21 24.00 20.70 17.15 318.88 7.10 1.80 1991 7.02 34.99 30.39 1402. Madagascar.12 273.30 62.77 21.01 4.56 104.80 43.30 110.83 43.51 47.11 13.48 290.91 1.07 88.57 29.31 52.38 1220.87 2.75 71.20 28.72 6. 8.53 3.42 92.21 56.27 97.94 36.38 55.43 44.48 28.97 5.19 80. 15.98 59.93 4.46 37.91 5.28 35. 16. 7.39 59.55 44.25 73.16 5.81 98.60 45.43 43.40 43.43 0.40 26.62 1986 2.19 65. 10.87 23.71 0.14 97. 9.36 102.74 278.79 25.32 1992 10.31 32.35 2.41 122.57 145.14 246.41 8.47 1. Table 2C-2 Intra-regional trade by country 1985-92* (US$m) 1985 7. 5.54 43.07 40.30 4.30 45.79 39.35 36.68 2.60 0.52 2.30 8.60 41.47 114.42 3.76 1225.85 29.12 15.88 273.67 2.05 48. 13.19 48.28 231.07 39. 14.94 34.48 850.24 1987 9.70 55.48 53.69 81.96 13.44 20.61 4.14 39.08 320.30 87.79 5.46 249. Source: PTA Development Report: A Decade of Economic Integration 1982 -1992.70 41.20 33.92 1989 5.94 1.4.55 90.24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Excludes Eritrea.34 95. 11.

1 +61.1 197. 7. 12.0 -15.8 -27. 8. 18. 2. Angola Burundi Comoros Djibouti Ethiopia Kenya Lesotho Madagascar Malawi Mauritius Mozambique Namibia Rwanda Seychelles Somalia Sudan Swaziland Tanzania Uganda Zambia Zimbabwe Table 2C-3 Clearing house transactions (UAPTA million) Total value Annual % change Net settlement foreign currency % of total 74.4 -21. 5.7 118. 15. 3.1 +31.0 -11.0 50.8 31. 19. 16.3 348.1 441. 14.4 22.7 272.2 51.6 98. 17. 13.0 54. 20. 21.1 +37. 4. 9. 10.2 33.8 46.8 42.5 85. .7 175. 11.6 74.9 389.8 +48.1.0 +55.0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Source: Clearing House Annual Report. 6.8 283.

this chapter will concentrate on a discussion of it only. would not go down well in Beverley Hills. with shrinking communications and with more people than ever travelling. Neither would Middle Eastern sheeps eyes menus. is one of the most difficult to comprehend. or at least the study of it. like computers. As "culture" is the essence of a society. finding a world market niche. Chapter Objectives The objectives of this chapter are: To describe what is meant by "culture" and the numerous ways which have been devised to study it  To give an understanding of how "culture" effects global marketing planning  To show why the study of "culture" is important to marketers. So even the infamous Veldschoen footwear of the South African pioneers has found its way into most corners of the world. This is particularly true of foodstuffs. have a universal appeal. California. This is particularly so when the product or service is "culture bound". However there is plenty of evidence to suggest that. take account of and harness to advantage. Sadza in Zimbabwe. culture. Structure Of The Chapter .Chapter 3: The Cultural Environment Chapter Objectives Structure Of The Chapter What is culture The elements of culture Chapter Summary Key Terms Review Questions Review Question Answers References Social and cultural aspects of a society form its very nature. and is. even the most culture bound product or service can. Products of a more technical nature. Such products and services include those which are generally indigenous by nature and/or of relatively small value and very common. Of all the so called "environmental uncontrollables". a staple food made from maize meal. on the other hand.

hidden below the surface. In the search for standardisation certain "universals" can be identified. alongside economic factors. therefore. diffusion theory. if hot taken into account. say. are very different in outlook when one looks below the surface. Similarly. One can talk about "the West". It is not uncommon to have a European culture. . is not transmitted genealogically. The task of the global marketer is to find the similarities and differences in culture and account for these in designing and developing marketing plans. the Self. There are briefly reviewed here. Murdock7 (1954) suggested a list. the need to overcome cultural myopia is paramount. The chapter emphasizes the need to study culture carefully as it can be a major source of failure in global marketing. family ties and so on. Culture also reveals itself in many ways and in preferences for colours. in Zimbabwe. but Italians and English. religion. especially in Africa. Levitt5 (1982) suggested that traditional differences in task and doing business were breaking down and this meant that standardisation rather than adaption is becoming increasingly prevalent. Approaches to the study of culture Keegan3 (1989) suggested a number of approaches to the study of culture including the anthropological approach. high and low context cultures and perception. The colour red is very popular in the west. What is culture Much has been written on the subject of culture and its consequences. Whilst on the surface most countries of the world demonstrate cultural similarities. but not popular in Islamic countries. Terpstran9 (1987) has defined culture as follows: "The integrated sum total of learned behavioral traits that are manifest and shared by members of society" Culture.Reference Criterion (SRC). The chapter then goes on to describe the various approaches to the study of culture and culminates with a study conducted by Hofstede which is one man's way of looking at culture's consequences. both belonging to the so called "West". there are many differences. Culture. Shona. where sober colours like black are preferred. Much argument in the study of culture has revolved around the "standardisation" versus "adaption" question. Often different cultures exist side by side within countries. Maslow's approach. religious rituals and athletic sport. alongside an indigenous culture. styles. Failure to do so can be disasterous. Culture is very often hidden from view and can be easily overlooked. It is not. for example. including age grading. according to this definition. also innate. but learned. is probably one of the most important environmental variables to consider in global marketing. Facets of culture are interrelated and it is shared by members of a group who define the boundaries.The chapter begins by defining culture and its constituent elements.

When these higher needs are fulfilled. to those cultures which openly flaunt the female form. to the untrained can appear bizarre. in food marketing. whilst still applicable. motives and values. potatoes. maize meat is the staple diet of the population of countries in Eastern and Southern Africa. The anthropologist. The hierarchy is illustrated in figure 3.1 Maslow hierarchy of needs Physiological needs are at the bottom of the hierarchy. apparently. many Africans who are able to improve their lot. this remains as the staple diet throughout their lives. for example is capable of producing over 30 million x 90Kgs bags with a marketable surplus of 20 million x 90Kg bags. for example. maize is still often eaten despite the social and economic progression that an individual may make. whereby one could systematically reduce this perception. water. In order to understand beliefs. unable to improve their lot. He suggested a four point approach. air. For example. However. Interestingly enough. The next need is safety . Maslow hypothesised that people's desires can be arranged into a hierarchy of needs of relative potency. comfort.self respect . Figure 3. good meat cuts and even fast foods. These are basic needs to be satisfied like food. emphasis may be laid on the three lower level needs.and the need for status improving goods. appears bizarre. The self reference criterion (SRC) Perception of market needs can be blocked by one's own cultural experience. Once these lower needs are fulfilled "higher" needs emerge like esteem . though a time consuming process. Whilst the hypothesis is simplistic it does give an insight into universal truisms. Lee (1965)4 suggested a way.a feeling of well being. whereas in the developed countries. Social needs are those related to developing love and relationships. As soon as the "lower" needs are filled.1. Maslow approach In searching for culture universals. For a lot of people. food may be bought to meet higher needs. The highest order is self actualisation where one can now afford to express oneself as all other needs have been met.Anthropological approach Culture can be deep seated and. other new and still higher needs emerge. some of this brought about by social interaction. considers behaviour in the light of experiencing it at first hand. most of which goes to feed the urban population. the purchase of champagne or caviar may relate to esteem needs. Case 3. . In Africa. other and higher needs emerge immediately to dominate the individual.1 The Case Of Maize Meat In Africa Introduced by the white settler. The Moslem culture of covering the female form may be alien. progress on to other forms of nourishment -fish. Zambia. the anthropologist studies the country in question anthropology and unearths the reasons for what. Maslow's6 (1964) hierarchy of needs gives a useful analytical framework.

take the innovation on.2. d) Redefine the problem without the SRC influence and solve for the foreign market situation. trial and either adoption or rejection (in the case of non adopters). increasingly more conservative. The adoption process itself is done in a series of stages from awareness of the product. characterised by a normal distribution.a) Define the problem or goal in terms of home country traits. See figure 3. The speed of the adoption process depends on the relative advantage provided by the product. its complexity. divisibility (how quickly it can be tried) and how quickly it can be communicated to the potential market. evaluation. culture may be hidden or non apparent. through to interest. how compatible or not it is with current values or experiences. c) Isolate the SRC influence in the problem and examine it carefully to see how it complicates the pattern. b) Define the problem or goal in terms of the foreign culture traits. In his book. the approach gives useful guidelines on the extent for the need of standardisation or adaption in marketing planning. Uneartherning the factors in b) may. In .2 Adopter categories In this case the innovators are a small percentage who like to be seen to lead. Nonetheless. One of the most prolific writers was Everett Rogers8. habits and norms. Diffusion theory Many studies have been made since the 1930's to assess how new innovations are diffused in a society. be difficult. habits and norms. The problem with this approach is that. then the others. therefore. Figure 3. as stated earlier. "Diffusion of Innovations" (1962) he suggested that adoption was a social phenomenon.

High perceptual skills need to be developed so that no one misperceive a situation. Coca Cola may be acceptable in all three cultures.different drink can satiate the same need. things must be written. for example like Northern Europe. less developed countries do not yet have the same interdependence in general. Consumer products are likely to be more culturally sensitive than business to business products. The elements of culture . blocs like NAFTA and the EU are. however specific types may have. developed countries a high degree of interdependence exists. primarily because technology can be universally learned. with even the same advertising appeal. in high context cultures less information is required in the verbal message. Whilst appealing to a very universal physiological need . drink can be very universal and yet culture bound. Whilst "universals" are sought there is still a need to understand local customs and attitudes. a person's word is not to be relied on. Nationalism Nationalism is a cultural trait which is increasingly surfacing. It is primarily a question of trust.thirst . but it does in Zimbabwe. a person's word is their bond. The break-up of Yugoslavia and the USSR are witness to the fact. However. In low context cultures messages have to be explicit. and so organisations need to reassess their contribution to the development of nations to make sure that they are not holding them "to hostage". which could lead to negative consequences Many of these theories and approaches have been "borrowed" from other contexts themselves. but they do give a useful insight into how one might avoid a number of pitfalls of culture in doing business marketing an assessment of the product or service in terms of these latter factors is very useful to the speed of its adoption. coffee American but neither are universals in African culture. Perception Perception is the ability to see what is in culture. In fact. On the other hand. The SRC can be a very powerful negative force. becoming more economically independent. In low context cultures. like Japan and the Middle East. However. for example. Most horticultural products. However there are dangers in over generalisations. High and low context cultures Hall2 (1977) has suggested the concept of high and low context cultures as a way of understanding different cultural orientations. in high context cultures. For example. It is unlikely that produce like "squash" would sell well in Europe. have no problem in transfer from one culture to another. so it is not so easy to be all that independent. In Western. Tea is a very English habit. if anything. Culture is a very powerful variable and cannot be ignored. These are usually no better understood than by the making use of in country personnel.

Zimbabwe did not allow both alcoholic and non alcoholic beverages to be packed in cans. Aesthetics Aesthetics refer to the ideas in a culture concerning beauty and good taste as expressed in the arts -music. For example. power. For example. drama and dancing and the particular appreciation of colour and form. art.especially in the use of media or written material. education. packaging. the brand name FAVCO would mean nothing to Western importers. However. There were both economic and environmental reasons for this. brand names and media messages. attitudes and values and social organisation. religion. It is best to learn the language or engage someone who understands it well. the Government of Zimbabwe decided to allow the import of some 4 million cans as an experiment. (see case) Case 3. Some countries have two or three languages. Education can transmit cultural ideas or be used for change. Education Education refers to the transmission of skills. Material culture introductions into a country may bring about cultural changes which may or may not be desirable. Economically. Shona and Ndebele with numerous dialects. In Zimbabwe there are three languages .English. ideas and attitudes as well as training in particular disciplines.The major elements of culture are material culture. some linguistic groups have engaged in hostile activities. There may be many sub-cultural languages like dialects which may have to be accounted for. aesthetics. All aspects of marketing are affected by material culture like sources of power for products. Environ mentally. Material culture Material culture refers to tools. in Zimbabwe most people would instantly recognise FAVCO as the brand of horticultural produce. Aesthetic differences affect design. refrigerated transport does not exist in many African countries. Language can cause communication problems . USA and Europe Language Language reflects the nature and values of society. with the advent of trade liberalisation under the Structural Reform Program. Input-output tables may be useful in assessing this. The result was a huge influx of canned alcoholic and other beverages not just from nearby Botswana and South Africa but from Australia. after which it would assess the environmental impact. media availability and distribution. communications and so on. artifacts and technology.2 Canned Drinks In Zimbabwe Until the early 1990s. African music is different in form to Western music. thus avoiding a litter problem. for example the local university can build up an economy's performance. unless explained. Zimbabwe had seen the litter in Botswana. By putting a deposit on glass containers they ensured the empties were returned to the retailer. Zimbabwe did not have the production facility for canning. Before marketing in a foreign culture it is important to assess the material culture like transportation. In Nigeria. colours. . caused by discarded empty cans. language.

 support sources .Malay. Education levels. Attitudes and values .Islam  caste systems .Hinduism and organizational structures.Maylasia . Religion Religion provides the best insight into a society's behaviour and helps answer the question why people behave rather than how they behave. or lack of it. A survey in the early 1980s revealed the following religious groupings (see table 3.  consumption patterns .1) Religious groupings Groups Million Animism 300 Buddhism 280 Christianity 1500 Hinduism 600 Islam 800 Shinto 120 Religion can affect marketing in a number of ways:  religious holidays .Ramadan cannot get access to consumers as shops are closed. Table 3. but the figure is 97% in the USA. advancing agencies etc.difficulty in getting to different costs for segmentation/niche marketing  joint and extended families . "Western" images  market segments . Chinese and Indian cultures making market segmentation  ensitivity is needed to be alert to religious differences. affect marketers in a number of ways:  advertising programmes and labelling  girls and women excluded from formal education (literacy rates)  conducting market research  complex products with instructions  relations with distributors and.  institution of the church .fish for Catholics on Friday  economic role of women .The UN agency UNESCO gathers data on education information. For example it shows in Ethiopia only 12% of the viable age group enrol at secondary school.Iran and its effect on advertising.

Taiwan and Singapore. for example. Working with two colleagues Franke and Bond1 (1991) he sought to explain why "culture" could be a better discriminator than "material" or "structural conditions" in explaining why some countries gain a competitive advantage and others do not. and its inverse as the expectation of relative equality in organizations and institutions  "Individualism" . In order to understand the results a word of explanation is needed on what the authors mean by "cultural variables". There are other aspects of culture. Other forms of groups may be religious or political.Society's endorsement of inequality. They took two examples of 18 and 20 nations. Franke and Bond sought to answer that question in research entitled "Cultural Roots of Economic Performance". Nigeria and Zimbabwe were in the study. extended families. comparing rich countries like the USA. In some countries kinship may be a tribe and so segmentation may have to be based on this. Unfortunately he stopped short of the key question as to why certain nations develop competitive advantage and others do not. for example. caste and so on. Hofstede's contribution One of the most prolific writers on culture is Hofstede. entrepreneurialism may not always be relevant. rather than in material and structural conditions (the private and state control) are ultimate determinants of human organization and behaviour.The tendency of individuals primarily to look after themselves and their immediate families and its inverse is the integration of people into cohesive groups . age. and it may be better to relate products to traditional values rather than just new ones. They hypothesized that differences in cultural values. in Buddhist society these may not be relevant. a Dutchman. In their study Hofstede. Many African societies are risk averse. Attitudes are always precursors of human behaviour and so it is essential that research is done carefully on these. Canada and Australia. or even wanted. In one form or another these have to be taken account of when marketing internationally. units. It is essential to ascertain attitudes towards marketing activities which lead to wealth or material gain. UK. kinship. Social organisation Refers to the way people relate to each other. therefore. but the above covers the main ingredients. Also "change" may not be needed. Pakistan and Thailand and those on the rich/poor dividing line like Hong Kong. and thus of economic growth. There are as follows:  "Power distance" .Values often have a religious foundation. All these groups may affect the marketer in his planning. and attitudes relate to economic activities. to poor countries like India. They noted that in Michael Porter's 1990 book on the "Competitive Advantage of Nations" he popularized the idea that nations have competitive advantage over others.

An assertive or competitive orientation.  "Integration" . Whilst debatable. from this study.  "Moral Discipline" . However. this research may attempt to explain why the Far East. . the results of the research have a revealing. The cultural values of the populations of the East may be very different to those of Africa.Is an acceptance of the legitimacy of hierarchy and the valuing of perseverance and thrift. This is a liability in a world in which group cohesion appears to be a key requirement for collective economic effectiveness. at the expense of competitiveness: it has a "broadly integrative. as compared to say Africa. further evidence is required before generalisation can be made.Taps a feeling of discomfort in unstructured or unusual circumstances whilst the inverse show tolerance of new or ambiguous circumstances  "Confucian Dynamism" . b) "Individualism" is the next best explanatory index. therefore.  In the research work these variables were called "constructs" or "indices".Open-hearted patience. This index appears to explain the relative success of East Asian economies over the past quarter century. all without undue emphasis on tradition and social obligations which could impede business initiative.the tendency of individuals primarily to look after themselves and their immediate families (its inverse is the integration of people into cohesive groups) and finally a tendency towards competitiveness at the expense of friendship and harmony. all without undue emphasis on tradition and social obligations which could impede business initiative. "Masculinity" . Now. c) In extrapolations on the data after 1980 economic growth seems to be aided by relative equality of power among people in organizations (lower power distance) and by a tendency towards competitiveness at the expense of friendship and harmony (lower integration). courtesy and kindness. "individualism" . harmony and friendship a society endorses. and sobering effect on economies seeking economic growth via structural or material changes viz: a) "Confucian dynamism" is the most consistent explanation for the difference between different countries' economic growth.Rigid distancing from affairs of the world. In conclusion. as well as sex role distribution and its inverse is a more modest and caring attitude towards others  "Uncertainty Avoidance" . comes from "dynamism" the acceptance of the legitimacy of hierarchy and the valuing of perseverance and thrift. "better" economic growth can be explained more by culture than structural or material changes. Economic power.Degree of tolerance. socially stabilizing emphasis"  "Human Heartedness" . has prospered so remarkably in the last ten years.

or even similarities. religion. and perception approaches. 2. Marketers must either respond or change to it. How does Hofstede's approach to cultural differences aid the international marketer? Do you think his approach is reasonable and valid? Review Question Answers 1. who.language. "Culture" itself is made up of a number of learned characteristics including aesthetics.The integrated total sum of learned behavioral traits that are manifest and shared by members of society. socio economics.Culture has both a pervasive and changing influence on each national market environment. diffusion theory. high and low context culture. The study of culture has taken many forms including the anthropological approach. 3. The world would be a poorer place if it ever happened. societal regulations. List the major approaches to the study of culture and show their relevance in international marketing citing examples. Key Terms Anthropology Diffusion theory High context culture Attitudes and values Hierarchy of needs Low context culture Culture Self reference criterion Review Questions 1. Chapter Summary Along with "economics". Elements are . Describe the main elements of culture. . social norms. nationalism. attitudes. aesthetics. Ignoring differences. the self reference criterion. (Discuss each in turn with students). Main elements of culture "Definition of culture" . "culture" is another so called "environmental uncontrollable" which marketers must consider. values. Maslow's hierarchy of needs. ethics. offers many insights and guides to marketers when dealing with diverse nationalities. social organisation. education. In fact. One of the principal researchers on culture and its consequences is Hofstede. in culture can lead to marketers making and executing decisions with possible disastrous results. it is a very important one as it is so easy to misread a situation and take decisions which subsequently can prove disastrous. religion and attitudes and values. it will not change values to such a degree that true international standardisation can exist. as a result of his studies. Whilst internationalism in itself may go some way to changing cultural values. mores. traditions. material culture.

................................. sophistication and price c) Self reference criterion ..... 2...................................... and their effect on business attitudes............ In one word give your basic impression or image of the following: a) English people. f) Italians. .............. NB..relevance to interpretation of ways of doing business e............ b) Maslow's hierarchy of needs ........................ c) Indians (Asians). e) High and low context ...g..... h) Arabs........... Whilst he concentrated in his original theories on "power distance" and "masculinity versus femininity" dimensions......relevance in the standardisation versus adoption concepts of marketing strategy.............. advertising........ Main approaches to culture a) Anthropological .. d) Japanese.................2..........relevance to the degree of necessity to have explicitly verbal or written communications e....1 Cultural dimensions group discussion.... The tutor is required to ask each question in turn and discuss the response.......... contracts.................relevance to sensitivity in operation of the marketing mix variables e..................The tutor should be sensitive to group dynamics before using this exercise.................................... Why do you think these people are what you say they are a) English..........................relevance to product type.... The following is a group discussion/participation exercise aimed at discovering dimensions of culture.....relevance to rates of adoption of innovations and of new products.................. b) Africans...... Japan versus USA.... c) Indians (Asians).. e) Americans....... Exercise 3....... d) Diffusion theory ... g) Russians................. 3................. Students should be asked to describe Hofstede's approach first...............g.....g............................... students should note how he adapted this approach to the study described in the text.. .. Whilst his approach may be reasonable it can only be valid if it is repeated with the same results across a number of studies and/or experiments.. f) Perception . 1. b) Africans.........

.... p 145........ "Cultural Roots of Economic Performance: A research note"..... 9...A..... 4.. "The Globalization of Markets". J.... "Cultural Analysis in Overseas Operations".. 1991. Murdock. Leavitt and L.H.. 3..R.. Free Press 1962.. Franke............ "A Theory of Human Motivation. . 4th ed.. Which of these people would you least like to do business with and why? 5... Rogers.. Columbia University Press.. Anchor Press/Doubleday. Keegan...... May-June 1983.......P "The Common Denominator of Culture in the Science of Man in the World Crisis"........ 2.. G.. 3. "Beyond Culture".. V. G. University of Chicago Press.. 12.J.. T.... The Dryden Press. Sum.. Japanese cars Ugandan chillies Tanzanian coffee Indian cashewnuts Nigerian beer Kenyan tea Zimbabwean beef Malawian tobacco Malaysian rubber References 1.... E.......... A. f) Italians.. 4th ed. Mar-Apr 1966.... Lee.............J...... 1987. Hall.. Eds............ 5.. Harvard Business Review........ Pondy... Ed.. Harvard Business Review.. pp 165-173. H... pp 106-114.. "Diffusion of Innovations"... Why do you feel this way? If you do not know the product still describe your attitude......... 6... "International Marketing".... Describe briefly your attitude towards the following products..... e) Americans....H.... Strategic Management Journal Vol.T.....M... Prentice Hall International Edition. In Readings in Managerial Psychology".........d) Japanese.. 1945.... pp 6-24. 1964... pp 93-94.. 1976.. Maslow... R....H. Levitt. g) Russians. h) Arabs.. R. Linton.. The tutor can pause here and lead a discussion on the responses.............. Terpstra. 7. 8.. E..... "Global Marketing Management". 1989.. Hofstede. Which of these people do you think you would most like to do business with and why? 4..... W.... and Bond M..

and standards Issues The political environment The legal environment Terms of access Winds of change Chapter Summary Key Terms Review Questions Review Questions Answers References The legal/political aspect is very important in global marketing.Chapter 4: The Legal. Political/Trade Environment Chapter Objectives Structure Of The Chapter Laws. operating restrictions or expropriation. in detail. "International law" can be defined as rules and principles that states and nations consider binding upon themselves. ownership controls. rules. Chapter Objectives The objectives of this chapter are:  To give an understanding of the major factors which must be considered in the legal/political environment when planning to market globally  To describe the "Terms of Access" and show the importance of these as vital elements of facilitating trade  To give. The second is the lack of an adequate international judicial and administrative framework or a body of law which would form the basis of a truly comprehensive international legal system. a description of the main elements of the latest GATT Round  To show the importance of legal/political aspects in global marketing. . The host government may take measures like taxation. This raises two interesting characteristics of international law. The first is that "law" belongs to individual nations and international law only exists to the degree that individual nations are willing to relinquish their rights. Home governments can apply pressure not to deal with disapproved parties. These measures may take the refusal to grant an export licence. The international business is also subject to political decrees made by governments both in "home" and "host" countries. or withdrawal of export guarantee cover.

and rules and conventions defining allowable and non-allowable forms of cooperation and competition (standards. Well defined and enforced systems regarding property rights are essential. So may ingredient and nutrition information. Standards may include basic weights. financial solvency and so on. rules of contract. regulations regarding certain tests or inspection of products. what constitutes "chocolate" and a "sausage" to name but . It then goes on to describe in detail the major elements of the legal environment and Terms of Access. labelling and information. These standards help where trade is at a distance. Laws. and give order and stability to the means of doing business. rules. and standards All agricultural exports operate within an institutional environment. quality grades and contract forms. along with the phenomenon of product liability. consumer and trading bodies like the EU are enforcing the disclosure of more and more information. pesticides used on horticultural produce. Articulated ownership and rights to use. measures. Quality standards may be mandatory or voluntary and minimum or multiple grades. Rules and conventions specifying entry conditions and boundaries on cooperative and competitive policies also facilitate exchange and coordination. since this assigns to individuals the right to benefits and losses in production and marketing activities. Increasingly. A major section of the chapter is devoted to the main provisions of the new GATT Round (1995) and an assessment of its impact on the global marketer. for example. The establishment and enforcement of standards can reduce transaction costs by increasing the available information to buyers and consumers. social and legal ground rules. fair trading etc). issuing directives on product descriptions and pricing. handling and processing procedures may be enforced. One of the problems with this noble effort to inform the consumer is that producers may lose their competitive differentiation advantage through divulging information to competitors. As this trend to disclosure of information grows. including hygiene. allocating and enforcing property rights. This occurs when the criteria for licensing revolves around asset holdings. Performance standards are built in to maintain the licensing agreement. For example the EU directive on the pricing of cabbages runs to hundreds of pages and. The EU has a strict set of standards regarding horticultural products for example. This is becoming an increasingly important issue as food products become more complex and varied. exchange and distribution and give rise to certain expectations and assurances about the actions of others.Structure Of The Chapter The chapter begins by looking at the major factors which the marketer must consider in assessing vulnerability to the legal/political environment. These ground rules form the laws of all production. quality and certificates of origin. including both tariff and non tariff barriers. The EU has gone to extraordinary lengths to inform the consumer. Particularly. which is made up of a set of political. these efforts revolve around packaging. The most important rules in any system are those defining. trade and alter assets is vital to market development. Licensing also facilitates marketing agencies and producers by reducing transaction costs.

But Britain. ii) Property rights . sugar and. "What is to stop the chocolate industry from putting pressure on the EU to allow 10 percent or even complete substitution of cocoa butter and still call the remaining product chocolate?" said Gerrit Ribbink of the Netherlands Development Organisation (SNV) in The Hague. Case 4. Chocolate producers stand to profit from relaxed standards.possibility and length of action with the possibility of image damaging necessitating arbitration. It is particularly so for any substance which may have long term harmful effects.often necessitating protocols or the signing of trade frameworking agreements. cocoa solids. as is the USA.made up of political. it is considering whether to allow up to 5 percent CBEs in chocolate manufacturing. Efforts to regulate the international legal system include individual country efforts. social and legal ground rules within which the global marketer must operate. trademarks. Issues Most issues in the legal/political environment centre around the following:i) "Institutional environment" . especially if the price of cocoa were to soar. iii) Taxation . milk.two products.what taxation schemes will be faced abroad? iv) Recourse .patents. The GATT system is a set of norms and procedures which member governments have accepted to create order and predictability in international trade relations. The following case proves the point2. Ireland and Denmark as well as new EU members Austria Finland and Sweden are exempted from the directive and allow manufacturers to use cocoa-butter equivalents (CBEs) such as palm oil in making chocolate. But the ingredients are less likely to be as much a sticking point as the labelling issue. on food additives or flavour substitutes. v) Movement of equity and expropriation threats . As defined by a 1973 European Commission directive. It's misleading to the consumer to use . in the case of milk chocolate. as the EU brings its policies into line. is quite revealing.1 When Is Chocolate Not Chocolate? Sometime this year the European Union will have to decide at what point chocolate stops being chocolate. The EU is also very strict. Now. The EU produces "E numbers" standards for product additives and artificial colorants or flavourings. like the USA International Trade Commission and the GATT system. (see chapter on Product Decisions). chocolate can only contain cocoa butter.

Ideology: A country's ideological leaning may be capitalism. and iii) fair trade which prohibits export subsidies on manufactured products and limits the use of export subsidies on primary products." A British consumer spokesman said Britain. The political environment Checks can be made on the legal/political system as to its ideology. What scares producers even more is that American chocolate manufacturers could lobby the US Food and Drug Administration (FDA) to follow the EU's example. urged the European Union not to enact the proposals.producing countries. many African countries are abandoning their centrist leanings in favour of market led economies. which produces more than 90 percent of the world's cocoa. socialism. The most dramatic example has been the collapse of the communist USSR and Eastern Europe and its replacement with market led policies and ideologies. SNV estimated that if the EU allowed CBEs in chocolate. and this could cut demand even further. the packaging issue is secondary to the fear that an increase in the use of CBEs will lead to a drop in the demand for cocoa. For cocoa . In the last years remarkable changes have been taking place in the ideologies of many countries. stability and international relations. nationalism. Zimbabwe and Tanzania. In a statement last October. This can be done by reference to the appropriate embassy or government agency or via magazines like "Foreign Affairs" and even by reference to a domestic agency in the host country. which is keen on keeping its current practice of using up to 5 percent CBEs. None of these principles is fully realized. Similarly.each member country must treat the trade of all other member countries equally ii) open markets which are encouraged by GATT through a prohibition of all forms of protection except customs tariffs. The three basic principles are: i) nondiscrimination . simply because it is impossible to "police" all sovereign governments and dictate what is or is not tariff or non tariff discriminating. demand for cocoa could drop by anywhere between 100 000 and 200 000 tonnes.other ingredients and still slick to the name chocolate. affecting up to 10 percent of world cocoa production. the 13-nation Cocoa Producers' Alliance. a mixture or other form. The need to systematically evaluate the legal/political environment cannot be overemphasized. . he said. would oppose new laws that would change labelling standards. "The UK would say the products are still called chocolate". for example.

Stability: Changes in regime. free ports. In Zimbabwe. which are not tied as in partnering. However these measures may increase the risk of expropriation or reduce the potential success of the venture. even if initially the investment is not favourable. "Partnering" remains widespread (inward investment in tandem with a domestic company) as does restrictions on repatriation of funds. The key is to look at what the disadvantages are. enterprise zones etc. the violence of Somalia and Yugoslavia increase the risk and diminish the confidence of doing business in these countries. for example the seizure of Union Carbide's assets after the Bhopal disaster in India. which affects capital investment includes joint venturing insistence and repatriation of funds. one has to assess what would happen if the scheme was withdrawn once the capital had been committed. Yugoslavia has shown it is not entirely so. International relations: In general international relations have improved over the last twenty years. Other government activity. or overcome say poor local skills. The current uncertainty in Liberia and Rwanda. the Government may relax its conditions as it sees the benefits. Nationalism can lead to expropriation of foreign held assets. It may occur for a number of reasons. for example. including the desire to retain national assets.Nationalism: Much was said about nationalism in the previous section. Over time. If the government mainly wishes to attract the mobile investor. as a "hostage" situation in international disputes. Expropriation Expropriation is an extreme form of political action. violence and cultural divisions based on language or other factors can lead to a very uncertain environment in which to conduct business. Incentives Many countries try to reduce perceived risk by promoting inward investment through the provision of tax breaks. If expropriation is a real possibility then the investor should seek to minimise risk by: i) relatively rapid depreciation of assets and repatriation of funds by manipulated transfer prices ii) establish a local supply infrastructure so that any adverse action damages the host economy iii) raise as much investment capital in the country as possible iv) retain control of critical inputs and minimise local stocks of these. has entered into partnership with Olivine industries. Similarly if . Whilst. The development of GATT. NATO and the EU have gone a long way to reduce the element of "foreigness". the multinational food agent. HJ Heinz. primarily a phenomenon of the developing countries..

patents and trademarks. oil?  Is the product a critical input for other it high profile say via advertising?  Host country's political situation  Company behaviour . Marketing implications Political factors give rise to a number of marketing implications.the bigger the more vulnerable  Visibility of firm . Depending on the answers to these checkpoints. employment  Localisation of operations  Subsidiary dependence. real or perceived. Such a checklist should include the following:  The firm's own country's relations with other countries  Sensitivity of the product or industry  Size and location of operation . the answers to these questions will enable the marketer to assess the degree to which the product being marketed has to be priced and it a good corporate citizen?  Contribution to host country. The following touches on a number of these issues and in particular the import/export regulations (terms of access). say. for example. The legal environment As indicated in the introduction to this section. for example. antitrust. so as to either avoid or reduce the risk of expropriation or other political reactions. adequacy of supply. can be assessed and fed into the investment discussion. International law . the international legal framework is somewhat confused. embargoed nations. Most controls or regulations revolve around export and import controls. transfer pricing. taxes.viability depends on incentives rather than real return on investment. the amount of risk. cement?  Is the product socially or politically sensitive. is the venture really worth it? Assessing political vulnerability Political vulnerability should be assessed by using a systematic checklist. food?  Is the product of national defence significance?  Is the product taking a disproportional amount of capital repayment?  Is the product leading to the locus of control being held outside of the host country? Again. expropriation and distribution of equity. for example. for example. regulation of corrupt practices. These include the following:  Is the product ever subject to political debate regarding. the question is.

financing. particularly international sales and payments. b) IMF and GATT already discussed in the previous section and concerned with member nations international trade restrictions and dumping. chemical. Commerce and Navigation) and Tax Treaties primarily US based and concerned with giving protection of trading rights and avoiding double taxation. However. and contains technical committees working on uniform standards. are not technical law but important. Some of the most widely used are the International Chamber of Commerce. The most important patent agreement is the International Convention for the Protection of Industrial Property. employment and industrial relations. Here a number of international disputes may be taken for ultimate adjudication. Works with international chambers of commerce and Governments. Member countries produce guidelines for multinational enterprises covering aspects of general policy. packaging. the filee will be afforded the date of the first filing for priority purposes. commercial arbitration and shipping legislation. ICAA (International Civil Aviation Authority) and ITU (International Telecommunication Company). taxation. competition. A patent cooperation treaty (PCT) and a European Patent Convention are also in effect. c) UNCITRAL (UN) international trade law commission set up with the intent to provide a uniform commercial code for the whole world. The treaty provides that if a filee files in a signatory country within one year of the first filing. warranty . the American Arbitration Association. like those in the OECP. WHO etc. e) Patents and trademarks there is no such thing as international patent. the supreme body is the International Court of Justice. The PCT has 39 countries including the USA. performance. Japan and Brazil.To many. The EU convention covers 15 countries and gives patent protection in all 15 if signified in one. labelling. a series of other bodies and legislation exists.physical. the London Court of Arbitration and the Liverpool Cotton Exchange. h) Recourse arbitration is an attempt to reduce disputes by consultation. disclosure of information. g) Codes of conduct. Holland. The principle ones are as follows:  Product decisions . situated in The Hague. Marketing implications The implications of international law on marketing operations are legion. first signed in 1983 and now honoured by 45 countries. d) ISO (International Standards Organisation) often works with ILO. a) FCN (Friendship. safety. f) Air transport is covered mainly by IATA (International Air Transport Authority).

so the rest of this section will be given over to a discussion of these.collection. resale price maintenance. and the granting of preferential access to industrial country markets to companies based in less-developed countries.price controls. Pricing decisions . The phrase "terms of access" refers to all the conditions that apply to the importation of goods from a foreign country. applicable to different countries or groups of countries. GATT prohibits the use of preferential tariffs with the major exceptions of historical preference schemes. product restriction. price freezes. Under GATT. with some substantial exceptions. Tariffs are usually grouped into two classifications: Single-column tariff: The single-column tariff is the simplest type of tariff and consists of a schedule of duties in which the rate applies to imports from all countries on the same basis. value added systems and taxation  Distribution . sales promotion and. for example those agreed upon by "convention". The conventional rates. import restrictions or quotas. the initial single column of duties is supplemented by a second column of "conventional" duties which show reduced rates agreed through tariff negotiations with other countries. such as free-trade areas or common markets. Two-column tariff: Under the two-column tariff. Tariff systems Tariff systems provide either a single rate of duty for each item applicable to all countries. Preferential tariff A preferential tariff is a reduced tariff rate applied to imports from certain countries. . storage and transmission of data. The major instruments covered by this phrase include import duties. such as the British Commonwealth preferences and similar arrangements that existed before the GATT convention. Terms of access One particular area where legal/political effects are felt by international marketers is in the terms of access. are supplied to all countries enjoying MFN (most favoured nation) treatment within the framework of GATT.advertising codes of practice. insurance  Promotion .  Market research . foreign exchange regulations and preference arrangements. Other areas affected are obviously in currency and payments but these will be dealt with in later sections. physical distribution. or two or more rates. nations agree to apply their most favourable tariff or lowest tariff rate to all nations who are signatories to GATT. preference schemes that are part of a formal economic integration treaty.contracts for agents and distribution.

most countries have introduced legislation providing for the imposition of antidumping duties if injury is caused to domestic producers. which uses CIF value. Specific duties: These duties are expressed as a specific amount of currency per unit of weight. Other import charges Variable import levies: Several countries. the customs value is landed CIF cost at the port of entry. . Major trading nations that are not members of the Brussels convention on customs valuation are the USA and Canada. A uniform basis for the valuation of goods for customs purposes was elaborated by the Customs Cooperation Council in Brussels and was adopted in 1953. including Sweden and the European Union. for example. must be multiplied by an established conversion factor to obtain the corresponding amount of escudos. Specific duties are usually expressed in the currency of the importing country. To offset the impact of dumping. This cost should reflect the arm's-length price of the goods at the time the duty becomes payable. the applicable rate is the one that yields the higher amount of duty. In the Chilean tariff. Compound or mixed duties: These duties provide for specific plus ad valorem rates to be levied on the same articles. and Japan. volume. Normally. The objective of these levies is to raise the price of imported products to the domestic price level. particularly in countries that have experienced sustained inflation. which use FOB costs as the basis of valuation. Ad valorem duties: This duty is expressed as a percentage of the value of goods. which usually refers to the price paid by consumers in the exporting countries. one dollar per pair. rates are given in gold pesos and. Therefore an exporter is well advised to secure information about the valuation practices applied to his product in the country of destination. but there are exceptions. or as a percentage of the value of the goods or ad valorem.Types of duty Customs duties are of two different types. Anti-dumping dunes: The term dumping refers to the sale of a product at a price lower than that normally charged in a domestic market or country of origin. The definition of customs value varies from country to country. fifty US cents per pound. therefore. although there are cases where the lower is specified. Alternative duties: In this case both ad valorem and specific duties are set out in the custom tariff for a given product. Anti-dumping duties are almost invariably applied to articles that are produced in the importing country. twenty-five cents per square yard. Such duties take the form of special additional import charges designed to cover the difference between the export price and the "normal" price. They are calculated either as a specific amount per unit or specific duty. length or number of other units of measurements. In countries adhering to the Brussels convention on customs valuation. or as a combination of both of these methods. apply a system of variable import levies to their imports of various agricultural products.

Temporary import surcharges: Temporary surcharges have been introduced from time to time by certain countries. At the conclusion of the Kennedy Round negotiations. .7 percent in Japan. For example.averaged slightly more than 35 percent and covered about $20 billion of trade. such as the UK and the USA. such as value-added taxes and sales taxes. the so called Uruguay Round. During these negotiations. representing approximately $40 billion in world trade annually. 1968 and the last on January 1. was long held up over subsidy wranglings between the EU and the USA. In practice. The latest GATT round. a Jaguar car made in the UK and sold in Japan would be three times its UK value. to provide additional protection for local industry and. Tariff reductions under the agreement took place in five equal instalments. EU imposition of a tax on imported horticultural products. in particular. On agricultural products.9 percent in the USA. 10. which were still under way in 1979. For example. training and developing organisations to market the car in Japan. an agreement was concluded. excluding grains. according to GATT. 8.6 percent in the EEC. tariffs on dutiable nonagricultural products averaged 9. the UK.8 percent in the UK and 10. tariff concessions on nonagricultural products by the four largest industrial participants -the USA. Adaptation to meet local requirements: The impact of adaptation to conform to local safety and other requirements can be crippling. and the EEC . the average reduction by the major industrial countries amounted to about 20 percent and affected about one-half of the dutiable imports. Such "border tax adjustments" must not. However in early 1994. but is yet to be ratified by all signatories. Compensatory import taxes: In theory these taxes correspond with various international taxes. advertising and promotion. A second "Tokyo Round" of trade negotiations was undertaken by the 97 nation GATT in the 1970s. The first was concluded on January 1. popularly known as the "Kennedy Round". An alternative approach to the Japanese market would be to begin with the Japanese customer to identify the customer's wants and needs and to design a product for that market or to adapt the design to a world design that would fit the needs and wants in both the domestic and the Japanese markets. The Kennedy Round and the General Agreement on Tariffs and Trade (GATT) A major development of the 1960s was a series of agreements negotiated in the 1963-67 period. Over 60 thousand items were involved. Japan. one of the major tax inequities today is the fact that manufacturers in value-added tax (VAT) countries do not pay a value added tax on sales to non-VAT countries such as the USA while USA manufacturers who pay income taxes in the USA must also pay VAT taxes on sales in VAT countries. in response to balance of payments deficits. It would also involve significant expenditures in designing the car to appeal to the needs of the Japanese customer. amount to additional protection for domestic producers or to a subsidy for exports. The target in these negotiations. was to achieve another 35 percent tariff reduction. 1972. The implementation of such a program would involve major marketing investments by the Jaguar Motor Company in establishing distribution.

The deal also creates a powerful international bureaucracy. Asian Tigers Gain $3. Other fears are that Africa will lose out on agricultural prices but textiles will get a boast. helped focus the minds of the negotiators. only two days before the deadline. completion of the North American Free Trade Agreement (NAFTA) and the hints of the development of a similar trading block in the Asian-Pacific Region (APEC). . The new package. touches on more than four billion Sterling Pounds worth of International Trade. However. agriculture ($22 billion). gradually gone into other areas. The Kennedy Round introduced rules against dumping exports. nearly twenty times the size of UK's annual budget. over the years. $1. GATT basically stands to defuse trade tension between countries and smaller countries enjoy better access to larger countries' markets through GATT than they could if they had negotiated by themselves. Total gain $27 billion a year by 2002. the Tokyo Round made it harder for countries to manipulate technical standards.1 GATT who wins what 1. Whilst only 20 countries took part in the first round signed in Geneva in 1947.When the European Union and the USA agreed to bury their differences (primarily over subsidies and trade in television and films) on Tuesday 14 December 1992.1 billion overall gain. GATT has. Aerospace computer software. $7. US Largest number of world's 500 biggest global companies. Africa will be a net loser.8 billion in textiles. 2. manufacturing. The principal aim in the early days of GATT was to cut tariffs and to this end average tariffs have fallen from almost 40% to 4. and biggest services exporter ($2 billion benefit). 3. the way was cleared for the signing of the eighth General Agreement on Tariffs and Trade (GATT) in April 1994 in Morocco. Japan Set to gain from liberalisation in high tech goods. the World Trade Organisation (WTO) to police world trade and act as a bulwark against a return to the economic protectionism which proceeded war in the 1930s. Total gain: $36 billion a year by 2002. many thought the Uruguay round would never be concluded.7% and now it will be as little as 3% if the Uruguay round succeeds. The proposed effects are shown in figure 4.1 billion in services. Economists reckon that the Uruguay Round will add about $270 billion to world income within a decade and boost global trade by more than 12%. $1. But not all countries will gain.6 billion) sectors will also benefit.0 billion. After failing to meet two deadlines in 1990 and 1991. which covers ten times the value of the previous seven GATT Rounds put together.16 Figure 4. Loses $0.5 billion through textile liberalisation. agriculture ($9.3 billion) and textile ($21. the current round boasts 116 participants.3 through farm liberalisation. with Nigeria down by $1. import licences and customs regulations in order to keep imports out.

with Brazil on its own up $3. The main provisions of the 450 pages long document covering 28 separate agreements are according to "The Economist" (December 1993)1. India Set to gain $4. for example. manufacturing ($7. A framework would exist for the liberalisation. but also the $3 trillion worth of services that are provided domestically around the world insurance. South America Set to gain $8. Australia/New Zealand Large gains from liberalisation of agriculture ($1. Eastern Europe Textile services sectors likely to benefit.6 billion. Total gain $2 billion a year by 2002.0 billion). Total gain: $61. Agriculture to see income increase of $30 billion. China Set to gain $37 billion a year by 2002. Africa (excluding Egypt and Libya) The continent as a whole is set to lose $2. Morocco. 9. 5. and South Africa loses $0. services ($7 billion). textiles ($27. a written set of rules to cover trade in services.6 billion) all set to gain-but prospects differ in each country. EU World's biggest exporting block. 7. 8. Former Soviet Union set to gain by some $13 billion from liberalisation of services. textile ($1.0 billion. as follows:  For the first time. Total gain: $37 billion a year by 2002.4 billion.0 billion. with Nigeria alone down $1.3 billion a year by 2002. 10.4. Algeria and Tunisia together lose $0. especially on Africa and the Far East. . The modest progress sought in this round would supply a platform for more liberalisation on future rounds.6 billion.1 billion).6 billion a year by 2002. The estimates take no account of social costs arising from the structural adjustment of economies in the wake of trade liberalisation. not only of the $900 billion worth of services that cross borders.4 billion.2 billion). 6.

especially export subsidies.  Try to reform the rules against subsidies. farm trade. Special attention has been given to a few very high tariffs and to helping developing countries by cutting tariffs on tropical products. That would be good for developed countries.  Transform GATT from a provisional agreement (it was never ratified by America) into a full institution called the World Trade Organisation. including inspection. Whilst the multinationals in computers and electronics etc are definitely likely to gain most. Whilst opening up the world's . such as the requirement that foreign investors buy supplies locally.  Speed up the arbitration of disputes between GATT members. The cost of not agreeing a round will have been enormous. This is almost impossible. and cut subsidies. technical standards and rules of origin. for developing countries the principle effects are likely to be in farm products. including patents. but the principles are clear: replace quotas with tariffs.  Try to curb the misuse of rules on dumping. textiles and in the effect of services and intellectual property provision.  Tidy up rules on shipment. Protect all kinds of intellectual property.  Cut tariffs by at least a third.  Phase out trade-related investment measures. Tariffs imposed by the big economies on some important items will be eliminated altogether. which can collect higher royalties. import licensing. but some of the developing countries might lose. Developing countries should benefit. Suggestions are that it would cost the world economy some extra $213 .  Try to prevent the uses of voluntary export restraints-a sort of import quota which is operated by an exporter under pressure from an importing country. Countries will also find it harder to dissent from judgements. lead to a gradual erosion of the open trade mechanism. Tariffs will be cut. The details are unresolved.  Phase out over ten years of bilateral quotas which make up the multifibre arrangement for textiles and clothing.274 billion each year and worst of all.  Build on earlier agreements in government procurement and civil aircraft. copyright and trademarks.  Clarify raft of GATT rules. Protectionism would once more raise its head and the whole multilateral trading system would eventually seize up and fall apart. customs. This will be difficult to enforce.  Forge a comprehensive agreement in GATT's biggest exception.

will be cut. China is not included as it failed to convince the "big four" (USA. Japan and Canada) that it had opened up its economy enough. and subsidies. developing countries are likely to face fierce competition. public or private. It is expected that 50 more nations will eventually ratify the treaty and altogether some 155 states including Hong Kong and Macau will eventually sign up. . representing over 90% of international trade became founder members of the World Trade Organisation (WTO). the price mechanism is not allowed to operate. Discriminatory government and private procurement policies: These are the rules and regulations that discriminate against foreign supplies and are commonly referred to as "Buy British" or "Buy American" policies. often from each other. and so will have to operate at greater volumes with lower prices. In communist countries all commodities are monopolised. Significantly. Restrictive customs procedures The rules and regulations for classifying and valuing commodities as a basis for levying import duties can be administered in a way that makes compliance difficult and expensive. The new trade treaty came into force on 1 January malls for agriculture products. The good is simply unavailable at any price. but there are many examples of non-communist government monopolies: the Swedish government controls the import of all alcoholic beverages and tobacco products. which will absorb the 48 year old GATT over the duration of 1995. EU. that causes internationally traded goods and services to be allocated in such a way as to reduce potential real-world income. The trade distortion of a quota is even more severe than a tariff because once the quota has been filled. "State trading" refers to the practice of monopolising trade in certain commodities. Potential real-world income is the attainable level when resources are allocated in the most economically efficient manner. In January 1995. A non-tariff trade barrier is defined by economists as any measure. film. European Union and Canada. and the French government controls all imports of coal. Non-tariff barriers With the success of the Uruguay Round tariff negotiations. China and India may be the principle benefactors in textile products due to lower unit cost production structures. other than tariffs. Imported products like drugs. including the United States. box and television programmes are likely to be more expensive as manufacturers begin to apply the fine detail of the GATT services and intellectual property claims. In fact. The WTO will administer the new trade treaty and take its place along side the World Bank and the International Monetary Fund as the "third pillar" of the post World War II economic system. To the businessman a non-tariff barrier is any measure. attention has naturally turned to the remaining non-tariff obstacles to trade. What is sure is that tariffs will replace quotas. particularly export. that provides a barrier or obstacle to the sale of his products in a foreign market. Japan was the first country to ratify the agreement on 30 December 1994. 81 countries and territories. The major non-tariff trade barriers are as follows: Quotas and trade control: These are specific limits and controls.

However. The example illustrates how difficult it is to deal with non-tariff barriers to trade.Selective monetary controls and discriminatory exchange rate policies Discriminatory exchange rate policies distort trade in much the same way as selective import duties and export subsidies. wrote their own regulations. but the mechanism for hearing this case did not really exist. "The whole of Mexico feels stabbed in the back". Green tomatoes accounted for approximately 85 percent of the Florida tomato crop and only 10 percent of the Mexican crop. but the Florida growers who were competing with the Mexican growers. This can be seen in the following case 3: Case 4. In 1969 GATT published a 276 page report listing non-tariff barriers to trade. size regulations and safety and health regulations. an effect of the regulations. While US consumers saw prices rise as much as 30 percent. is already out of date. But the Mexicans pointed out that the regulations were more lenient on green than ripened tomatoes. Packaging or pesticide regulations often erect a hurdle for exports. many countries from time to time require importers to place on deposit at no interest an amount equal to the value of imported goods. Some of these regulations are intended to keep out foreign foods while others are directed towards legitimate domestic objectives. which listed such obscure items as an Italian sanitary tax on foreign snake poison. Mexican tomato farmers were outraged because the regulations barred almost 50 percent of their crop from the US market. The EU has strict hygiene requirements for imports of horticultural produce for Africa which require strict observance. Vine ripened tomatoes were required to measure at least 2-17/32" in diameter. These regulations in effect raise the price of foreign goods by the cost of money for the term of the required deposit. This report. Restrictive administrative and technical regulations These include anti-dumping regulations. The Mexican growers could influence . Mexican Tomatoes In 1969. Producers of restrictive administrative regulations are incredibly creative in establishing barriers to trade. president of the 20 thousand member Confederation of Agriculture Association. in effect. particularly on smaller foreign manufacturers. The regulations provided that mature green tomatoes (those that ripen after they are picked) could not be sold unless they measured more than 2-9/32" in diameter.2. the safety and pollution regulations being developed in the United States for automobiles are motivated almost entirely by legitimate concerns about highway safety and pollution. but not insurmountably so. For example. A strong case could be made for the harm done by these regulations to Mexican growers and US consumers. has been to make it so expensive to comply with US safety requirements that they have withdrawn from the market. For example. They maintained that the regulations worked for the benefit of everyone: growers on both sides of the border and the consumer. the US Department Of Agriculture put a set of minimum size restrictions on all tomatoes sold in the US market. was quoted in the "Wall Street Journal" as saying. Mexican tomato framers were enraged while they watched tons of their tomatoes being fed to cattle or simply rotting in heaps along the highway. Rod Batiz. Florida growers contended that the regulations were not discriminatory because they applied to both the Mexican and the US crops. The Mexicans could protest the decisions of the US Department of Agriculture. Selective monetary policies are definite barriers to trade.

however. When using international trade data. Even a tariff schedule of several thousand items cannot clearly describe every product that enters into international trade. particularly those in Europe and Latin America. Winds of change . An additional advantage of the BTN is its widespread use. The first is that exporters should seek the most favourable classification for their products in order to minimise the duty levied in the importing country. It is significant. Tariff classification Before World War II specific duties were widely used and the tariffs of many countries. were extremely complex. which in 1955 produced a convention that entered into force in 1959. The BTN groups articles mainly according to the material from which they are made. There are two important implications of this fact for export marketers. and there is no apparent social benefit for consumers. Tariff administration has been simplified by the adoption by a large number of countries of the Brussels nomenclature (BTN). it is both easy to use and applicable to the goods they produce. the task of administrating a tariff presents an enormous problem. The second is that the difficulties of classification raise serious questions about the accuracy of data on international trade patterns. that among major trading nations neither the USA nor Canada uses the BTN. This nomenclature was worked out by an international committee of experts under the sponsorship of the Customs Cooperation Council. An important test of a ruling or regulation is whether it has a greater impact on foreign producers. A common basis for the classification of goods facilitates comparison of duties applied by different countries and simplifies international tariff negotiations. Evidence of the inaccuracy of grade classification practices is provided by frequent failure of import and export figures of the same commodity to reconcile between two countries. two or more alternative classifications must be considered in assessing the rate on a particular article depending upon how it is used or its component material. it is important to bear in mind the enormous problems posed by classification and recognize that the numbers in trade reports may often reflect hasty and arbitrary classifications that distort the true picture of the trade flow. The classification of a product can make a substantial difference in the duty applied. The rules of this convention are now being applied by most GATT countries. In spite of the progress made in simplifying tariff procedures. the ruling is a non-tariff barrier. For less-developed countries. Some clever marketers seek to get their products reclassified in order to get a lower tariff structure. The constant flow of new products and new materials used in manufacturing processes introduces new problems.this decision by pressuring the US government through diplomatic channels. Often. or try to appeal directly to consumers and thereby influence legislative and administrative action in government. Approximately two-thirds of all world trade is now conducted under tariffs based on the BTN system. Since the war the trend has been toward the conversion to ad valorem duties. If this is the case.

Although minor in scale. Zimbabwe and Botswana. one needs not be "guilty" to be penalized for it. the most important "Environmental variables" are the political and legal aspects. Such non-tariff barriers may merely be devices to soften up foreign rivals and force them into regulatory voluntary restrictions on trade. and the increase of duties by 40% by the same country are hitting Zimbabwe's clothing exports there very hard. livestock and so on. Protectionist measures like these can reduce global opportunities in direct ways (imposition of quotas. Marketers are beholden to always keep a constant watch on changes which are and could occur in the legal/political environment. etc. fish. this excess led to downward pressure on prices which newly emerging nations may be better equipped to deal with if raw materials are banned in country. The legal/political system is a minefield. In effect free trade was reversed. who enjoy large beef quotas with the EU. attitudes to trade changed somewhat in the 1980s. Chapter Summary Probably. In order to circumvent protection. The imposition of a transport levy by the South Africans affected Zimbabwe's drought relief programme costs. can be affected overnight by a ban. The growth of economic unions like the EU which are limited multilateral organisations have undermined the strength of GATT agreements but only in so far as non-tariff barriers are concerned. On a number of occasions the EU has imposed a ban on beef exports from Zimbabwe because of a so called "foot and mouth" outbreak in Zimbabwe. The main non-tariff barriers of recent times have been countervailing duty and antidumping. They can be fined and therefore be driven away and as a result consumers will suffer. sugar. the rules are fairly well defined. Anti-dumping is the worst form of protection because anti-dumping creates uncertainty for producers and intermediaries. for many agricultural products and agribusinesses like timber. Laws regarding property rights and regulations regarding permissable and non permissable forms of cooperation and competition are possibly the greatest challenge facing multinational marketers when attempting to cross international boundaries. Anyone entering the industry after a charge of dumping against it will face the highest rate of levy. volume (voluntary restraints) and uncertainty ("proved" dumping cases) or they reduce opportunities by affecting the attractiveness of your offer to end users (cancelling out price advantages).The emergence of Japan in the 1970s and 80s. teaming up with local contacts. options include avoiding certain commodities or industries. . The Industry and Development Global Report (1988/89) made a series of observations showing that whilst expansion of demand was there. However. affect the attractiveness of marketing offers to intermediaries by affecting market price (tariffs). Coupled with schemes like the CAP of the EU (Common Agricultural Policy of the European Union) which produced "mountains" of butter. Health and Safety Standards. Thankfully. its consequences can be major for the industry. coupled with more trade between developing countries. Coupled with oil shocks and debt crises. it was patchy and therefore in some sectors excess occurred. with few international standards or regulations to fall back on. producing from inside the market or self regulation.. change can occur very quickly.). harmed the balance of payments of the Western economies. etc.

are so vital that often expert help is required to deal with them. in country. and rules and regulations regarding standards of quality. Why is it important for Government to have a regulatory framework? 2. 3. b) The framework gives: i) the basis for all production. 4. Taking any piece of legislation or example of your choice show how this has been used in either furthering or hindering international agricultural marketing. a) Framework states the political.Individual country policies. The most important rules are these: a) Defining. social and legal ground rules for doing business between and within countries. For any product or service of your choice. quantity and so on. Important to have a regulatory framework for the following reasons. exchange and distribution activities ii) gives rise to expectations and assurances about the actions of others and iii) gives order and stability to the means of doing business. show how the main provisions of the new GATT agreement (1995) will affect its trade internationally. is one of the most far reaching trade agreements to date and proposes to boost world trade considerably over the next decade. Review Questions Answers 1. allocating and enforcing property rights. operational from 1995 and effected by the newly constituted World Trade Organisation. Describe the major tariff/duties and non tariff barriers which can be used in international trade as barriers to entry. Give examples. tariff and non tariff barriers. terms of access. Key Terms Arbitration Ideology Quota Dumping Levy Tariff Duty Nationalism Terms of access Expropriation Review Questions 1. . The new GATT Round.

86 a pound in mid 1987 but had since fallen. anti-dumping. Country profile Thanks to remarkable increases in yields since a major crop failure in 1986/87. temporary. in which the firm could serve customers for its own account. b) Duties . What marketing strategies should be considered. compound. quality and size standards. Today's average spot price was $0. 3.1 Algodon International 1 It was November 4. 2.variable. fair trading etc). He knew that the first free trading season was also the time to establish a respectable market share against Latina's competitors as well as against cotton suppliers outside Latina.b) Establishing rules and conventions defining allowable and non allowable forms of cooperation and coordination (standards. . Exercise 4. Tariff barriers/duties (terms of access) a) Tariffs . two column. packaging standards. b) Discriminatory Government and private procurement policies. (See Annex 3). Latina has established itself as one of the growing producers in the region. the first week of LATINA's major export season of raw cotton (see Annex 1). d) Selective monetary control and discriminatory exchange rate policies. An excellent example would be the regulatory framework imposed by the EU on the import of horticultural produce from developing countries. rules of conduct. c) Restrictive customs procedures. specific. certificates of origin. compensatory. Pablo Funtanet. valorem. c) Import charges . Turkey. the United States (California and Arizona) and Pakistan which tended to flood the market at times. Students may be free to select any tariff on non tariff example or any other form. e) Restrictive administrative and technical regulations.single column. alternative. Non tariff barriers a) Quota and trade controls. (phyto sanitary requirements).55 a pound. and wondered how he could apply some new ideas he had learned. Cotton prices had shown a downward trend for over 12 months.2 million bales. partner and principal trader in the firm looked pensively out the 7th floor window of the Stock Exchange Building of Latina where the firm's office were located. Latina's principal shipping months corresponded with those of India. (See Annex 2). The country produced just over 8 million bales of 480 pounds each in 1987/88 with a forecast for 1988/89 of 11. They had peaked at $0. Mr. Trading positions had to be taken and risks calculated. This was the first private trading season for his firm since the government's new policy of deregulation on 1 July 1988. These include hygiene standards. He had just returned from a cotton trading seminar in Geneva.

But despite a substantial increase in domestic consumption. Rain grown or semi-irrigated areas yield less. All cotton is saw-ginned. Most of the cotton in Latina is fully irrigated.e.3/16" staple is grown. like Algodon International. which are due to a great variety in climate and distances from the various growing years Some cotton is harvested as early as October and as late as January with this production mainly moving to domestic mills.3/32". the country continued to produce more cotton than the local market could absorb.2 million in 1988. The State Bank of Latina announces daily the minimum export price . allowing private enterprises to export raw cotton side by side with the Corporation.1/16" to 1. Latina normally produces high grade crop with staple length of 1. In the Southern area cotton of 1. The task of exporting the surpluses to foreign markets increased therefore each year. Cotton were only allowed to act as export agents for the Corporation rather than acting as merchants which required much more trading skills. the domestic consumption also increased substantially from 5. Yields in such areas are around 2 bales per acre and more. On 28 January 1963. especially for those merchants.5/32" and 1.6 million bales in 1985 to 6. The nationalization of the cotton sector had affected the private sector seriously as its activity was drastically scaled down. The nationalization policy was a serious blow to the private sector. which over the years had concentrated on exporting. The increase in local consumption is due to vigorous expansion of textile spinning sector. With the increase in production.At the same time new strains and the installations of lint-cleaners have resulted in improvement in both staple and grade. The government from that date on assumed the responsibility of all the export marketing of cotton for which purpose the Cotton Export Corporation of Latina (i. "the Corporation") was created. The bulk of Latina cotton is still hand-picked but machine-picking is on the increase. the government has de-regulated the cotton export sector. However. Since 1 July 1988. (Case prepared by ITC/UNCTAD/GATT Training Manual on Cotton Trading Operation Geneva 1989) Latina benefits from extended planting and harvesting periods. Most available new lint crop in 1988/89 is rapidly being taken up by the domestic mills and stocks are not being accumulated. An active demand for longer cotton reflects the short supply of certain cotton qualities during the month of November 1988. The increase in production has been the result of an increase in sowing area as well as improvement in availability of fertilizers and pesticides and in farming techniques. all of which was exported. the government of Latina passed a decree centralizing all cotton marketing. The total exportable surplus during the year 1987/88 was 4 million bales. the decontrol has been done with the re-introduction of the Minimum Export Price and Compulsory Contract Registration.

The firm would provide customers with opinion on cotton quality and quantity availability. more precisely. Foreign customers wanted to stay informed about the availability of the Latina quantity and quality of cotton in order to be able to buy correctly. and on shipment periods. financing and most of all.. Algodon International has again redefined its business mission and is now acting as an export merchant. the business was simple and it merely resulted "in order taking and execution" on behalf of the Corporation. Besides providing its foreign clientele with information about the Latina cotton situation. the company switched and earned through the provision of buying services. transporting. By acting as a merchant. in order to calculate the base price. and profit and growth of the company was limited. Algodon International defined its mission as that of export selling for the Corporation since there was no other way of doing business. the knowledge gained in residence buying had given the company an added experience of knowing the requirements of cotton end-users. appropriate buying price levels. Since 1 July 1988. negotiations of prices. Never knowing what price movements are going to be. If. Before the de-regulation of the cotton export. More importantly. as long as the price is above government set minimum price. for instance Algodon International would recommend to buy a lot of Indian cotton. The bank. The international merchandising of cotton provides much more opportunity to increase profits than the previous commission based roles of export or buying agents. Problem areas for Algodon International in its trading operations . future trend prices.of the base cotton on FOB basis. as if it were a Latina transaction. Algodon International has to consider hedging operations combined with option trading. Export sales are only allowed to be consummated on the prevailing minimum export price of that day. If commissions were charged on foreign cotton. the firm buys for its own account and can price its cotton at what the market will bear. Instead of earning a commission through a selling service. Being a resident buyer provided the company with some additional autonomy and flexibility. the firm would act more as a consultant than as a buying agent. a growing demand has occurred in recent years to inform them on the world market developments. Algodon International The company was founded in 1959 and has been primarily involved with the trading of cotton. Algodon International would buy on behalf of foreign customers the type of cotton they desired. it would equally charge a commission. In order to boost profits the company entered the business of "resident buying". uses world averages of the previous day. i. spinners. paid by the Corporation. The minimum export price policy has been reintroduced in order to ensure that no one can export Latina cotton below the prevalent world level. Quite often. understanding the international cotton trade. including the interpretation of New York cotton figures. The company would take a standard commission.e. Resident buying forced the company also to pay close attention to the crop developments in Latina. The risk of a merchant is one of being the owner of the cotton with all the responsibilities of storing.

Since no training institute in international trade exists in Latina. unscrupulous foreign buyers have not respected agreed upon contracts by failing to perform when lower spot prices offered them large savings. The cotton business climate since 1 July 1988. has introduced. Instead. d) The minimum export price policy The introduction by the State Bank of Latina of the minimum export policy seriously limits price competition against foreign traders. especially for the small and medium size firms. Non-performers of contracts have to be explained to the State Bank of Latina where the contract was filed.Algodon International as a private trader is facing a number of problems. through the presence of the private sector. The bank can keep the exporter responsible for non-performance if the problem reoccurs. The daily price announced by the central bank is based on the previous day's averages. Some of them are temporary which could be phased out in due course. it will be difficult to penetrate new market segments. collateral security or financial structure of the organization. no immediate remedy to this problem can be envisaged. All credit requirements were met without any consideration of probability. the development process of professional staff has been sharply reduced. are not adequately available. Market penetration and Algodon International's competitive positioning will be severely handicapped due to the lack of knowledge people. Large amounts of credit are required for cotton operations. The difficulty of obtaining credit for the cotton traders. Although the minimum price is established on the basis of world parity. documentation and transportation. but some are likely to remain for some time. The exporter can resort to the Liverpool Cotton Exchange for technical arbitration but in some countries the implementation of the arbitration settlement has been disappointing. c) Problems of non-performance of cotton importers Increasingly. Sometimes Algodon International is able to provide collateral through equitable security or by pledging cotton stock. a large degree of risk which has to be assessed before it can extend credit. the commercial banks were financing the Corporation against government guarantees without hesitancy. has not been an exception for Algodon International. "yesterday's" average tends to lag with "today's" . The end result has been that the banks have also neglected to train professional staff who understand the international cotton business. the banks require collateral security or pledges the stock. The major problems can be summarised as follows a) Lack of experienced personnel Since the export trade of raw cotton has been centralized in one organisation for more than 15 years. It is a problem which can cause considerable losses for cotton exporters. Experienced personnel in the cotton business such as professionals who understand the trading in futures and options as well as marketing. As the price trend has been downwards since mid-1988. b) Bank credit Before de-regulation of the cotton export sector.

a competitive strategy would be to apply penetration pricing by cutting one's profit margin and set a price below the competitor's price level. The most indicative index would be his past sales performance as a cotton merchant. where the future is concentrated. One disadvantage of buying for the spinners was the shrinkage of the market size of the number of spinners. as he merely executed orders. The spinner made the decisions. Only through merchandising large volumes could his firm maintain its profit objectives. How .000 bales of 480 lbs each. As a resident buyer. The bigger spinners. Political changes were very likely through new allocation criteria brought about through the Multi-Fibre Agreement. The following elements had to be considered: market target. If Algodon International would target international merchants as its future clientele. Most of the clients Algodon International served as a resident buyer were in fact the smaller spinners who are most in need of commercial intelligence. channel mix.downward price trends. Various factors played a role in deciding on his purchasing needs. As potentially new customers tend to be slow to change supply sources. Japan and the USA. Customer profiles had been developed and computerized. the textile industry was going through a concentration and the number of spinners was declining every month. Funtanet realized that the formulation of a marketing strategy for his firm was one of his utmost priorities. When his firm operated as a resident buying agent. His most logical target would be the spinner. he would be fully exposed to all forces in the market place. changing demand and weather. pricing and promotion strategies. price competition rather than non-price competition would be the firm's pricing policy. including competition. Formulating a marketing strategy Mr. The international merchant buys primarily on price and very little loyalty can be gained. Being a newcomer in the trade he decided that as an objective he must sell at least last years' export volume of 130. Stock position A quantitative sales forecast should be the basis of judging his inventory requirements for the next shipping season. the objective of new merchant-entrants in the cotton trade is build up "market share" during the first years of operation. Further. Already some growing areas had started to ship and as a merchant he had to take a stock position or sell short. stock position. a network of spinners had been developed and his firm had become informed about the specific criteria each customer looked for. Market target and channel mix Mr Funtanet realized that he could buy cotton for different customers who may have different objectives for using the cotton. however. With the State Bank imposed pricing policy it would be difficult for Algodon International to build new clientele through the applying of a penetration pricing policy. As a merchant. his risk was very limited. Its profits objectives would have to be more modest as its mark-up would have to be halved. In Europe. His greatest concern was his financial position. London or Geneva. were served by the international merchants located in places such as New York. when his firm operated as a resident buyer.

The "missionary" type of selling activities would result in promoting his firm as a reliable future supplier. Using his own salesmen would require extensive training as very few knowledgeable commercial cotton people were left in Latina.20 below last year's (see Annex 5). He could match his own resources with another 25 per cent with credit. He figured that he could finance 25 per cent of his sales objective on his own. $0. How much should he buy on the spot and how much for future delivery? Further.much credit would his bank provide him? His bales position would have to be either "long" or "short".4525. He wondered if using sales agents would be appropriate for the initial sales push. If he utilized agents in the early stages. He realized a lot depended on the future cotton market conditions and the competitiveness of the services his firm could deliver. he had to expand his customer mix and try to gain acceptance from some large spinning mills. Cultivating new customers required a lot of time without sales guarantee. Mr. should he hedge and what advantages would there be in combining hedging with options trading? He started reading the November 3 cotton supply outlook (see Annex 4) to increase his understanding of future market conditions. he wondered how difficult it would be to terminate an agent agreement after some time.73 a pound compared to $0. This would give him time to train his sales people and switch to a push-pull strategy after the first trading cycle. The exporting season ran from August through January and on average he could anticipate to deliver 16 per cent of his sales forecast each month. With the provision of credit to his clientele his working capital turnover would most likely be on the low side and not exceed four. his eye caught an opinion about the state of the textile market abroad (see annex 7) and the futures and options closing for the day (see annexes 8 and 9). and that for 1987/88 crop remnants at $0. he also wondered if he could substitute a "sales pull" strategy of trade advertising during the take-off period of his firm.4825 and $0. The remaining questions pertained to his customer's delivery requirements. As a newcomer in the trade he felt that ample credit availability to his customers would be a competitive requirement. New York future prices in November showed a slight decrease compared with the quotations listed in the month of October.4750 per lb FOB.525 a year ago (see Annex 6). due to its recent reevaluation. Polyester prices had all increased over last year's with China (Taiwan Province) quoting. Funtanet noticed that CIF prices in Europe had increased over last week and over last month but were still almost $0. In order to guarantee availability of cotton to his foreign customers Mr. Pricing The minimum export price for 1988/89 crop lint was set by the State Bank on 4 November 1988 at $0. Instead of using the "sales push". Funtanet realized that if his firm continued to serve the spinners.46. When reflecting on the above statistics and calculating a pricing strategy. after initial confidence had been established. Promotion Mr. Funtanet realized that he had to "cover" his requirement. Sales agents might be more appropriate as "order takers". The respective values a week ago were $0. depending on the credit availability. .

4. 4th December 1993 2." University of Hall MBA notes. competitive.J. V. 1990. (Zimbabwe) January 19. economic. P. Smith. social. 1987. 1995. "Global Marketing Management. pp 25 3. 1993 pp 12." Prentice Hall International Edition. 6.Tasks a) In what business is Algodon International? b) What are Algodon International's operational objectives for implementing the mission during the next fiscal year? c) What political. 5. "The Economist". W. Keegan. technological. . demographic and ecological changes are taking place in the international cotton market. "International Marketing. "Business Herald". 1989. The Dryden Press. which would affect the mission and objectives of Algodon International? d) What are the strengths and weaknesses of Algodon International to implement its mission and objectives under changing market conditions? e) What is the conflict between Algodon International's combined mission and objectives and the conclusions reached in the environmental analysis and the company's audit? f) What strategic solutions are most appropriate for Algodon International to solve the principle problem? g) What actions must be considered in order to implement the strategic plan? References 1. "The Guardian". 4th ed. Terpstra. 15 December. "International Marketing".

the greater the perceived risk of success. this section is concerned with identifying market opportunities.agents. the export flower industry is heavily dependent on agents and contacts in the Netherlands who know the system. so it may be that Zimbabwe has to look further afield. for example. For many agricultural products which are exported from African countries much of this involves the use of "outsiders" . who know the foreign market opportunities. However. However. these are not substantial markets. Whilst SADC or PTA may offer export opportunities. The Kenyan horticultural industry was developed partly because of the Asians who had left Kenya and settled in Britain asking their Kenyan relatives to send produce to the UK. where major volumes can be obtained. these markets may change with changing political stances.Chapter 5: Identifying Market Opportunities Through Marketing Information Systems And Research Chapter Objectives Structure Of The Chapter Elements of the information system Sources of global information Chapter Summary Key Terms Review Question Review Question Answers References Having looked at the major elements in the international marketing environment. Structure Of The Chapter . more global opportunities will be sought out. Nearly 80% of Zimbabwe's exports are with South Africa and Europe. Chapter Objectives The objectives of this chapter are:  To give an understanding of the way a global information system can help reduce uncertainty in decision making  To describe the process of global marketing research  To show the problems associated with conducting global marketing research. as organisations mature in their international stance. In Zimbabwe. This will involve uncertainty because the more unfamiliar the new opportunities sought. as seen earlier.

General information includes data on the following: . getting it is quite another thing. How to market in target For each market. exchange rates. Data may be specific or general or both and used for decisions on whether to enter markets or not. markets government requirements and political stability. company experience Elements of the information system The following constitute the elements of the global information system. in view of local and remain domestic international competition. transport costs. what consequences these conditions when known may have for the firm. that is. When marketing domestically the system is fairly easy to learn. In helping to reduce uncertainty around decision making. local competition and the political situation. in what degree and what emphasis in terms of the marketing mix. competitive practice. and how these consequences may be expressed in relevant terms of goal fulfilment. Carlson (1975)1 also believes that uncertainty increases with the degree of "foreignness" of the place of outcome. Whilst searching for opportunities globally.The chapter starts with identifying the types and categories of information which are useful in marketing decision making on a global scale and discusses the two main ways of getting information by surveillance or by research.1 Specific information Marketing decision Marketing intelligence Go international or Assessment of global market and firm's potential share in it. international trade barriers. the cost of information and the learning effect. precise information is the key. The chapter then describes in some detail the process of global marketing research and highlights the dangers and pitfalls in the process. when entering a foreign market knowledge of it builds slowly. the conditions internal and external to the firm which will determine the consequences of a new alternative. This uncertainty gives rise to the need for information. the marketer is faced with a dilemma of having too much data and too little information. When crossing global boundaries the whole process is exaggerated by necessary paperwork. cash flows and transportation problems to name but a few. Table 5. usually by experience and its attendant uncertainty. markets media. compared to domestic opportunities. Uncertainty arises due to the time lapse between the decision and the outcome of the action decided on. How to enter target Size of markets. Uncertainty In international marketing. uncertainties will arise due to four main factors: lack of knowledge of the existence of possible new market alternatives. but often a lack of specific information on countries and markets. There is plenty of global data from sources like the World Bank. Details are given on some of the sources of information available to marketers. Which markets to enter A ranking of world markets according to market potential. distribution channels. buyer behaviour. local competition.

Social . effectiveness Media . stability. banks etc. capital. subculture  Political .availability. spending power.quality. manpower.2 Categories for a global intelligence system 1. Technology . culture.state.customs. regulations. money markets. joint ventures  Fiscal . Nl Political/Legal . business people Commodity exchanges Currency alterations and movements. repatriation of profits Spot. instability.inflation. acquisitions. materials (availability. attitudes. Market information Consumer attitudes and behaviour. development) 2.current.rate of growth. preferences economic blocs. effectiveness and cost Information sources . Environmental factors Economic factors Economic . per capita income Physical features . incomes  Social .funds Specific information may include the following (see table 5.type. cost.g. GNP. Economic . forward market Intervention by outside bodies e. tariffs.taxes. materials. availability and cost Resources . availability. level of inflation. mergers Management capability Foreign embassies. structure. Financial/Exchange Balance of payments Terms of access . culture. "climate". IMF or World Bank and their effect on policy Market statistics and potential The information required could be put into a subject agenda list with specific data requirements (see table 5. controls and regulations International competitors Taxes . conduct. human. operations. bankers.infrastructure. Competition .money markets  Managerial .laws. NGOs and other developmental thrust 3. structure. Channels of distribution . exchange rates  Institutions . duties etc Inflation rates Monetary and fiscal policy Expectations . rate of change. acquisitions. quality. Trading partner(s) programmes.2) Scanning modes: surveillance and search . infrastructure  Resources . strategy plans. attitudes to "foreigners"  Technology .type. GDP.people. demographics. (SADC).rate of growth of GNP.risk.quotas.1)1: Table 5. communications. dividends tax rules. trends development government ideology. investment.

Albaum et al3 (1989) describe an approach to the preliminary screening of foreign markets . a preliminary screen to assess basic alternatives. their main disadvantages are "complacency" and missed opportunities to competitors. However. prices etc. primarily due to time restraints. for example. Criteria can be self developed or using the methods like the Business Environment Risk Index (Haner. This will entail more detailed research on market size. This approach scans all markets. many writers suggest the process be split into two stages.the "expansive" and "contractible" methods. more detailed treatment. human resources or perceived sources. Wind and Douglas (1981)5 suggest that market attractiveness should be assessed at two levels . "Contractible" methods are more extensive in scope. A "portfolio" approach would be useful here. the burden of market acceptability rating and are less risky. . In surveillance the scanner is geared to collect relevant information which crosses his/her scanning attention field. of Zimbabwe may reveal an opportunity for imported South African wines. The outcome of the first phase (market screening) will serve to eliminate the two risk markets. Also the company should assess its own strengths and weaknesses and the risk/returns decisions should transcend the focus on absolute costs and look at opportunity costs of servicing this product market rather than other product markets. The most attractive are then subject to detailed analysis. "contractible" methods favour global strategies. Expansive methods have the advantage of flexibility. Hibbert (1985)2 calls the first phase an assessment of market ecology giving general data about a country . very resource intensive and a compromise may be worked out between the two methods. This assesses over forty countries on dimensions like political stability. Because detailed market scanning can be expensive. in search the scanner is deliberately seeking information either informally or formally.on a stand alone basis and in the light of other elements of the company's activities.Once the agenda has been set. then those which are selected after screening will be subjected to a product/market screening phase. once through this test. it will affect the global strategy adopted. 1972) 4. then. however. They are. The first gives a gradual expansion from those markets which approximate in cultural and geographic terms to one's own market. on a scale of 0 (unacceptable) to 4 (superior conditions). A micro assessment. This may lead to the avoidance of costly mistakes. Whichever method of data collection is employed. monetary inflation. then narrows them down through applying various criteria. trends. but the scope may be limited when one looks at the big picture of population and disposable income. Sources of global information Sources of information include documented sources. Most organisations collect information through surveillance. for example.its political and demographic stance for example. data collection or scanning can be done by two methods: surveillance or search. Contractible scanning methods are superior to expansive methods as they are less likely to overlook market opportunities and to employ standard evaluation instruments. legal system etc. (Attention is drawn to the reference section where general surveillance data is exemplified and specific information on products markets is given in an agricultural context).

An example of these are given below:  International Trade Centre (ITC) Geneva  COLEACP. There are excellent sources of overseas data.Documented sources In recent years there has been an information explosion.general statistics  ITC . trade missions  Commercial newspapers  Financial agencies . professional  Chambers of Commerce  Institute of Marketing  American Management Association  The Market Research Society iv) Foreign embassies. Netherlands . or "secondary" source area. especially in the documented. universities.Price Waterhouse  Kompass Register of companies  Economist Intelligence Unit (UK) v) Other  Libraries. in the horticultural industry. or Ministry of Commerce ii) International bodies  the UN Statistical Yearbook  World Bank . giving information on markets. Various sources of documented data are available including: i) Governments  Central office of information (UK)  Central Statistical Office (Zimbabwe)  EU documentation centres  Boards of trade. prices and produce required for those wishing to sell into Europe. Paris  Natural Resource Institute (NRI) UK  GTZ.general statistics  OECD . Germany  CBI. trade.Geneva (information service) iii) Business. (Primary data collection will be dealt with later). colleges.

hearing and smell. However the disadvantages are legion. and sales people. specific "look see" missions which are very important. in the UK they are measured on tax receipts plus household surveys and production sources. bimodalities are normal. therefore it may be incomplete. Sweden  Chambers of commerce  Food and Agriculture Organization of the United Nations Secondary data from such sources are relatively cheap to obtain and readily available. Human sources These include executives based abroad. sampling error. in Germany consumer expenditures are estimated largely on the basis of turnover tax receipts. ambiguous or out of context. discussions with importing organisations and participation in Government working parties can all be useful sources of data. Perception sources These are "sensory" sources of information.  Data may be compiled in different ways in different countries making comparability difficult. rather than society as a whole . if one heard of the construction of a new cold store at an airport. Participation in exhibitions. be treated with care and caution. Direct perception could be achieved by in country visits. wealth based on minerals). . intuition. trained workers. thus introducing bias. social organisations. and government officials. distributors. for example. Similarly with GNP measures. This information is "internal" to the firm as opposed to documentary sources which are generally external.  Data may be corrupted by methodological and interpretive problems. for example.  Data may be nonexistent. section error. customers. For example. IMPOD. it only reflects average health per head of population and not how it is dispersed. etc. Also infrastructure may reflect channelled funds. As seen earlier. say for tourism. touch. Most of the information is gathered on a face to face basis.typical of many African countries. GNP may be understated for political reasons and may not reflect education (i. it could mean that the industry which produces products for airport store is planning to export in quantity. taste.e.. definitional error.  The data may have been collected and manipulated for a specific use. language. therefore. suppliers. non response error. This could give rise to a market opportunity for another potential exporter of the same produce. where it would be possible to exercise all the sensory receptors sight. Often there is no substitute to "feeling out" a situation. unreliable or incomplete thus making inter country comparisons very difficult  Data may be inflated or deflated for political purposes Data from documented sources must.

In the latent demand situation it is a question of identifying opportunity and launching products rather than competitiveness.formally gathering longitudinal data on a continuous basis using panels of respondents Whilst there are differences in approach.served by existing supplies.demand which will emerge if present trends continue. telephone. specific data search  Research . It is on seeing the product that the market reacts. Assessing market opportunity requires a measure of both the overall size of a market and the competitive conditions in the market. This could be the case in say exotic fruit marketing to developed countries. or incipient . There is also the problem of assessing demand. . The skill is in assessing which demand type is current or about to break. latent -demand which would be expressed if a product was offered to customers at an acceptable price.mail. as in domestic research one has to be clear on the following: a) Objectives . interview.formally organized effort to acquire specific information  Continuous . There are three modes of search:  Investigation . for what purpose and what are the proposed sources b) Development of ideas or hunches on the procedure c) Hypothesis development d) Research designs. descriptive research e) Questionnaire design f) Data collection method .Marketing research Should secondary data be insufficient to meet all needs (it seldom is!!) then it may be necessary to conduct marketing research (the "search" scanning mode). In incipient demand situations it is a question of looking at the market and matching products to potential. which will be discussed shortly. observations. simulations. experiments. Market demand can be existing .why is the data being gathered.short term. observations g) Sample size and selection h) Data collection methodology and supervision i) Analysis and report writing We have already seen some of the difficulties associated with the comparability of data. In assessing existing demand it is a question of finding out a differential advantage for your product and marketing that differential.

b) Primary surveys In carrying out primary surveys it is essential to be familiar with the process involved. where can it be obtained. a) Basic rules Before beginning research ask some basic questions like what information is needed. observational or simulation. Unless trained staff can be found. why and at what cost? Start with desk research.The research process The research process has been covered comprehensively in the text on "marketing management" in this series. Personal interview allows the building of a . Attention has to be paid to length. and. Often. in translation. ease of response and method of questionnaire return. identifying the type of overseas sources. the nuances and differences of interpretation may make scaling techniques difficult to utilise. but in doing so. know where to look and do not assume that the information is comparable or accurate if secondary in nature. and the nuances of translation can be mastered. questionnaires can be "closed" or "open ended". Questionnaire design: Whilst in domestic research. Data collection method: Data collection can be done in a variety of ways including personal interview. especially in international research. when. therefore it is not necessary to repeat the detail here. translation. Covering letters should be succinct and written in the language and idiom of the country of destination. "closed" questionnaires are mainly the norm in international research. The form of data gathered by "closed" questionnaire is mainly of a behavioural or quantitative nature. it is all too easy to run up a large bill. The rate of return in international research is often as low as 6% as it is very difficult to give incentives to the respondent. international research is of a descriptive nature or observational. telephone and observation (either mechanical or human. Attention has to be paid to: The research design: The design can be descriptive. The ability to conduct simulations or experiments depends on the sophistication of the market and the research facilities available. Marketers can often use clever devices to increase the response rates. Of paramount importance are the time and cost elements. in international marketing research the following should be borne in mind. The form of data gatherered by "open ended" research is qualitative. Questionnaires may contain ranking and rating questions (scaled questionnaires) and these can only be used if the respondent is fully aware of what is being asked. experimental. mail. for example in France. However. a red dot on the envelope denotes an "official" letter.) Each method has its own merits and demerits. It may be very desirable to obtain data to the n'th degree.

With non random sampling techniques. Whilst quota sampling may be cheaper there is the possibility that bias may exist in the sample because of inaccurate prior assumptions concerning population or because the field workers select the respondents. rapid rural surveys are a well used method. The gathering of "motivational" or "qualitative" data by group discussions will depend to a large extent on the availability of trained interviewees in the researched country. which are basically a mix of the two sampling techniques. Sample size and selection: Samples can either be probabilistic or non probabilistic (random and non-random). With probabilistic samples it is possible to be more sophisticated in the analysis by using parametric methods of analysis or project results with greater statistical reliability. and allows the "explanation" and "showing". Mail methods allow a longer questionnaire with considered response. descriptive statistics are more appropriate. Again. In international research random sampling can be very expensive. This is particularly important when conducting group discussions or carrying out in depthresearch rather than one to one personal interviews. but generally mail and personal methods are the most widely used. The telephone is quick but expensive and in many countries getting to the respondent may be difficult due to lack of a telephone infrastructure. In agricultural marketing. the larger the sample size and more difficult it is to obtain (if randomly chosen) the higher the cost will be. time and cost elements often dictate the method.relationship between interviewer and interviewee. Random samples can either be simple non-random or multirandom (stratified). according to the actual population percentages. unwittingly. In the end. Non random samples include quotas. . in a biased way. So the final quota sample will be according to sex and age. selective or judgemental methods. Observation may not be always possible due to cultural blockages. Another important decision is the size of sample. For example if the quota was on a male/female age basis.000 Male 45% (9000) Female 55% (11000) 15% 10% 10% 15% 10% 40% 15% 10% 10% 15% 10% 40% Age 0-16 16-24 25-34 35-44 45-54 55+ Age 0-16 16-24 25-34 35-44 45-54 55+ Number 1350 900 900 1350 900 3600 Number 1650 1100 1100 1650 1100 4400 The sample would firstly include 45% male and 55% female. The male and female split will then be in proportion to the age groupings. it is possible to stratify and select the quota as follows: Population 20. but suffers from non response and interpretive problems. A quota sample is chosen by taking known characteristics of a universe and including in the sample respondents as they proportionately occur in the known universe.

It wishes the sample to be accurate to within 5% points and to be 95% confident of this accuracy. then. But. mode. the sample size may be calculated using: for accuracy at the 95% level. Then.e The firm requires to take a sample of. say.Suppose a seller of tractors wishes to measure a population with respect to the percentage. there are a number of other techniques which can be used in analysing market potential. (SE(p) must equal 5% (the level of accuracy required) i. "Usual" methods include univariate methods (mean. 340 (rounding up). It must first consider the standard error of a percentage given by the following formula It assumes on guessing. standard deviation). Generally. Analytical techniques for researching international market: Besides the usual descriptive data analysis methods. for percentages. that the likely percentage of ownership is 30%. bivariate methods (regression. cross . correlation. median.

using variables that either intuition or statistical analysis suggest can be closely correlated with the potential demand for the product under review.  Income elasticity measurements: Describe the relationship between demand for goods and changes in income. Statistics can be obtained from in country sources. Predictions are often made on market demand for products based on what would happen if GNP were increased. national . multiple factor indices and multidimensional scaling). very similar to the estimate of the stage in the international life cycle. say.  When it is difficult to obtain data. resourceful ways are needed to estimate demand.  Multiple Factor Indices: MFIs indirectly measure potential demand. if income rises. for example. However.  Regression analysis: A very useful and powerful tool.  Industrial growth patterns: may give an insight into market demand.subnational markets can be useful for estimating potential demand. As seen earlier. and multi variate methods (including multiple regression.tabulations). to compare Zambia and Tanzania. In theory. Often multiple regression is needed as a single variable will not do. intercompany.  Cluster analysis: Computer packages exist to cluster similarities and differences between countries which may show factors which could be common and therefore potential markets. for example. Variables should be restricted to those which relate to product demand and these may be GNP. cluster analysis. it should decline. and whether the difference between potential and actual demand (which could depend on other factors like price. the other by time series analysis.  Comparative analysis: Comparative analysis. It is not unreasonable. then the variable that accounts for the remaining variance etc. introduces a new form of tobacco drying. for example. whether technical or social developments have led to a leapfrogging of the product under consideration. In assessing the demand for coffee appliances. There are two ways of using this technique. These include whether the two countries can really be compared. This could. One of these methods is analogy. it is likely the other tobacco producing countries around it will do the same. The procedure selects the independent variable that accounts for the most variance in the dependent variable. One USA chemical company found that soup consumption was the only reliable index forecasting sales in Asia. an increase in GNP could be good for luxury or durable goods but not basic commodities. an index which includes coffee drinkers and type of coffee consumed would be useful. There are limitations to the analysis. adaptability etc. one is by cross sectional comparison. Time analysis is a similar technique but adds the time dimension. Such packages include multidimensional or clustering techniques.  Regional lead-lag analysis predicts what could happen to the pattern of demand in a considered country based on the pattern of demand in a leading country.) may subsume analogy. say between countries on intracompany. show what could happen to the demand for basic agricultural products. . If Zimbabwe. net national income or total population. Cross sectional analysis assumes that a factor which correlates with demand in country A could be translated to country B.

the better it is to locate the research in-country. Dutch. high export taxes and a controlled single channel marketing system. the collapse of the former USSR. In general the more "distant" the country. one of the major markets for Tanzania sisal fibre and changing world demand were the major factors. The decline in sisal production came in two stages. Sisal was brought into Tanzania by a German Agronomist.1 Tanzanian Sisal The once world leading Tanzanian Sisal Industry is a classic example of failure due to its inability to monitor market trends. However. Richard Hingdorf in 1892 and the first estates were established in Tanga and Morogoro regions. Production was around 200 000 . exotic high value horticultural produce. Tanzania remained the world's leader in both production and exports.6 Special problems in international marketing research As well as the difficulties associated with secondary data described earlier. in-country or "at home". although a number of Germans re-acquired their estates from 1926 onwards. An inability to pick up these changes in demand by the intelligence system was a major player in the industry collapse. Swiss. there are a number of other problems connected with obtaining data in the global context. the external factors in the two periods had the most significant effect and show clearly the consequences of an ill prepared intelligence system. These are as follows: . The following case shows what happened to the Tanzanian sisal industry due. In the second stage liquidity problems affected production. and the: disintegration of markets for sisal fibre in Eastern Europe due to that region's political crises. say. Both internal and external factors account for the decline. may be a good predictor of. In the early 60's sisal was Tanzania's largest export. during the 70's and 8Q's production dropped dramatically. by 1985 production was at 32 000 tonnes. In the initial stage.high GNP per capita. most estates were sold to Greeks.230 000 tonnes per annum. through lack of an adequate intelligence system. it failed to take account of the shrink in demand for sisal fibre in Western Europe. the internal factors included the nationalisation of some of the sisal estates in the late 1960's.9% of the world's sisal fibre exports and is in fourth place behind Brazil. Many sisal mills were being dosed because of the fact that they were old and labour intensive (hence uneconomic). However. out of season produce or technological advanced agricultural machinery. in part. Tanzania sisal could make a comeback. British and Asians. After World War I. In the second stage of the 1990's onwards. Since then production has stagnated at around 30 000 . Surveillance techniques could. These factors led to low investment in replanting. in 1979 it was 81000 tonnes. to the lack of a global intelligence facility. an overvalued exchange rate. Case 5. up to and after World War I. an initial stage up to 1987 and then 1990 onwards. Location of research facility It is always a burning question as to where to locate the research. on the other hand. Dr. there is a ray of hope with a new swing worldwide to more "greener" and more environmentally friendly products. be mainly conducted at home. tobacco and cashewnuts. in-country problems. Needless to say Tanzania has long since ceased to be the number one world producer and its export earnings fallen well behind that of coffee. Basically. In 1970's production was at 202 000 tonnes. From that time. Morocco and Kenya. cotton tea.33 000 tonnes per annum. Since 1985 Tanzania has been producing 7 . cheap synthetic fibre -polypropylene twines. a drop of 87% from the peak of 230 000 tonnes in 1964. accounting for over a quarter of foreign exchange. In the initial stage up to 1987 Tanzania experienced declining world prices of sisal fibre and the introduction of a substitute. leaf transport facilities and factory machines at the estate level. However. as well as many.

respondent locations and. roads. taking into account cost and time considerations. legal constraints on data collection/transmission. cheating. a lot of them can be ingeniously overcome. transport. without it the marketer would be planning in the dark. availability of data and research services  Many markets are small and do not reflect the cost of obtaining data for such a small potential  Methodological difficulties may be encountered like nuances of language. costs versus benefits have to be considered carefully. data analysis difficulties (lack of computer technology)  Infrastructure difficulties . invaluable to the strategy formulation process. each giving data of a general or specific kind. Multiple markets need to be considered each with unique characteristics. organisations will most certainly founder. Whether the organisation obtains information itself or through the help of outside agencies. It is often cheaper and less time consuming to use already available published data. In all decisions whether to obtain data or not. The two most important modes of scanning are surveillance and search. sample type. Many of these facets apply more to developing than developed countries. involving decisions on the research design. However using a variety of methods. difficulty of fieldwork supervision. Chapter Summary Such is the uncertainty surrounding doing business globally.lack of telephones. that without some form of intelligence system.reluctance to talk to strangers. In this case primary data collection may be required. Collecting intelligence data internationally can be fraught with hidden dangers including lack of access to respondents and misinterpretation due to cultural differences. it must first determine the purpose for which the information is to be used. dated and not in the form required. and size and method of analysis. but this can be too general. outlined in the section.  Cultural difficulties . inability to talk to women or children. Key Terms Cluster analysis Comparative analysis Demand pattern analysis Income elasticity measurements Information system Search Multiple factor indices Secondary data Primary data Surveillance Regression analysis . Whilst the gathering of information in the international context is fraught with difficulties. method of data collection. interpretation. then how it is to be collected and analysed.

assessing potential . consistency. GNP/capita. economic situation. Pitfalls and problems ii) Data problems .e. Describe fully the process involved in attempting to assess the market potential and developing a marketing strategy for that product/market in any country of your choice. iv) Data collection form . promotion. methods of reporting. political framework.questionnaire v) Sample and sample size vi) Data collection method . telephone. currency. The tutor should look for the following in the students' answers: i) Understanding of the global research process ii) Application to assessing the potential and developing the marketing strategy for the product/market/country choice and. primary (human. transport etc. population size. culture.product. mail). completeness. description.e. misinterpretation . legal requirements. incomes and so on. distribution system and other market or institutional factors including finance. price.basis for choice of target market (s) and marketing mix . people. availability. Review Question Answers This question is an attempt to assess the student's ability to synthesize all the elements involved in international marketing research into a coherent marketing proposal. Marketing strategy . b) Application . Particular attention should be paid to the "environmental" factors i.observation vii) A data analysis technique (s) viii) Report.secondary (published). place.validity. then a description of primary sources are needed viz: iii) Survey methodology experiment.either by inference or observation and the basis on which the potential assessment is put forward i. Take a product/market of your choice. credit. observation. . a) Research process i) Definition of objectives ii) Sources of information . The product maybe an import or an export.Review Question 1.interview (personal. iii) Pitfalls and problems in the process. insurance. perceptive) If secondary sources cannot give the answer.

v) Infrastructural difficulties . interpretation etc.lack of telephones. Suggest actual market/countries which may be potential for Zimtra exports. distribution and product as required by them? iii) How to ensure supply? iv) How to organise the Zimtra industry to be geared up to meet the export challenge? NB. some 200. by the year 2000.ii) Unique characteristics of markets and problems of self reference and perceptions iii) Costs and time in collection of data.1 Zimtra horticulture In 19x1/19x2. promotion. increase Vegetables 2879 45 800 Dried fruit 61 7. supporting and ancillary institutions viii) Problems of reaching target market with marketing mix i. transport and other logistics.804 202.e.50 9000 Various studies had indicated that the potential export tonnage was. excerpts of horticulture produce statistics from Zimtra were as follows: Tonnes 19X1/19X2 % Value (ZIMD mil) Projected % vol. setting up the marketing plan and carrying it out iv Methodological difficulties . roads etc vi) Cultural differences and difficulties vii) Availability or otherwise of marketing institutions. lack of media. This increase was predicted on a massive increase in the hectarage given over citrus fruit in particular and increases in flower and off season vegetables production from the small scale farming sector.000 tonnes. Exports are primarily to the Dutch flower auction and the EU. .language. Exercise 5. Task Devise a research design that would answer the following questions: i) How to identify potential markets for the increased exports? ii) How to reach these markets with the price.50 5000 Tropical fruit 842 20 600 Citrus 6300 50 2000 Flowers 3722 80 600 TOTAL 13.

1989.P. "Global Marketing Management". Duerr. 9. Wind.J. "The Principles and Practice of Export Marketing". R. 6. Journal of International Business Studies. Moyer. E. 4th ed. p226 8. Addison-Wesley. 5. E. S." International Portfolio Analysis and Strategy: The Challenge of the -80s". J. Keegan. Strandskov.. Studia Oeconomiae Negotiorum. 7. 1985. W. and Dowd. "In International Marketing"." International Market Analysis". Ngirwa. 4. S. S. . 1987. L" International Marketing and Export Management". Paliwoda Heinneman. 1986. W. 1989. Carlson. November. Albaum. Journal of Marketing Research. Haner. 3. 1968.References 1. "How Foreign Is Foreign Trade? A Problem in International Business Research". G. Terpstra. 12 all). The Dryden Press. 2. Heinneman." International Marketing". ACTA Universitatis Upsalinsis. 1975. "Sisal Marketing in Tanzania: Current Constraints and possible solutions" December 1994 pp1-9. Prentice Hall International Edition. Hibbert.J. 4th ed. V. Vol. Y.. pp 69-82. and Douglas.

for example. Zimbabwe as a market "challenger. Whilst Kenya may have been a market "leader" with the appropriate strategy to go with it. be aware how the nature of competition can guide its strategy. are very exclusive in the sense that few companies dominate. Whilst easy to say. The Kenya flower industry. and moreover. As we saw earlier. Chapter Objectives The objectives of this chapter are:  To describe and give an understanding of the different ways of analysing competition  To show how to develop strategies based on competitive analysis and  To give examples to ensure understanding of the techniques. Other industries. Structure Of The Chapter . the most famous being De Beers. to go with a "niche" strategy as a counteraction. are very reluctant to give away their "trade" secrets. more in the future. in practice it is not easy to do. despite all the intelligence techniques that may be available to get information.Chapter 6: A Competitive Analysis And Strategy Chapter Objectives Structure Of The Chapter Competition Industry analysis Competitive strategy Sourcing Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Successful marketers are those who can steer their organisations through the turbulent marketing environment. this certainly was the case with Kenyan vegetables. any successful organisation has to look at the competition. The Kenyan flower industry is facing increasingly stiff competition from Zimbabwe. Its response has to be rapid in order to preserve its stance. like the diamond industry. Many competitive industries and organisations are very difficult to penetrate. whilst willing to give general information on their production and marketing." may have made Kenya now to think. Despite this. and do it better than competitors.

with products being able to replace others as technology and tastes have changed. Now Uganda is hitting back by resurrecting its shattered industry and strongly marketing its product to Malawi's detriment. devastated by the war. In 1990. Examples are given to reinforce the theory and the chapter finishes by looking at "outsourcing" as an important competitive strategy. why some nations were more competitive than others. Industry analysis One way to look at competition is by industry analysis. Competition drives down rates of return on invested capital.1 shows the four forces influencing competition.including Norsk Hydro. new entrants and substitutes (see figure 6. If the rate is "competitive" it will encourage investment. Pannar and Cargil seeds. We can examine this further by looking at the application of the above theory in the food industry. including the seminal work by Michael Porter on industry analysis. it will discourage competition. saw Malawi. In this analysis.The chapter opens with a discussion on the nature of competition and then looks at a number of competitive analyses. buyers. Unfortunately. Figure 6. To successfully launch an international challenge he identified four "home" prerequisites .the maximum use of endowed resources (natural and human) the forming of domestic networks to fully exploit these resources. Uganda was a world supplier of chilies. if not. In the fertiliser industry for example. Competition Competition in most global product/markets is intense. "macro" factors like changes in technology and social factors and "micro" factors like customers' or buyers' changing needs. so has brand competition. Thankfully this is not the case in other LDC's. the Malawian and Ugandan Birds Eye chili example is a good case. (a new entrant) take over its position.2 Elements of industry structure . an industry and environmental structure (the latter provided by Government) in order that these forces can thrive. threat of new entrants. Product type competition has become intense also. Figure 6. Figure 6. few companies dominate . Porter2 hypothesised in his text "The Competitive Advantage of Nations". for example Israel's CARMEL and South Africa's OUTSPAN. Porter1 (1980) and (1985) looked at the forces influencing competition in an industry and the elements of industry structure. for example. As well as being able to successfully manoeuvre through the environment he identified that the foundation of success lay in the "diamond" of "home" advantage. Uganda. the first stage only has been reached and even then much of the added value is exported.2). in many developing nations. Substitute competition has also become an increasingly bitter battleground. threat of substitute products. domestic demand (which may involve the invitation to world class players to help develop these resources in country) and finally.1 Forces influencing competition in the industry Porter further postulated that the elements of industry structure are suppliers.

image. extension. relationship building. communications. elasticities Terms of access and trade. promotion. Similarly in food systems. climate. complementary supply may not be a competitive strategy per-se. physical and social infrastructure (roads. These factors are primarily related to the size and patterns of food demand (shaped by incomes. labour).).A food system. market research. and these are summarised in table 6.1. soils. market or natural resource endowment factors go towards making up competitive advantage. to be competitive."off season". efficiencies of management. work patterns. tastes. and social infrastructure Micro marketing relationships Vector Income. suppliers. c) in export oriented agriculture it is essential to recognise a third potential source of competitive advantage that of: d) complementary supply .e. Whilst Porter concentrates on two factors in the control of manufacturing industries i. handling.quality. . microeconomics and sector policies (rate of inflation. must have two requisites. experience Transport. credit coordination. Porter would refer to this as "competitive advantage" or "international competitiveness". selling. risk analysis. in the long term. production. meeting production shortfalls because of weather. because a supplier must still look at itself as a low cost or product differentiated supplier. tariff and non tariff barriers Geological resources. management). Table 6. Many of these factors have actually been discussed. technical. labour. many technological. However. natural resources and human capital endowments (weather. many factors go into making up the comparative or competitive advantage of a supplier. As in industrial products. post harvest facilities Quality control. Firstly it must be competitive with other agricultural systems or any other system for that matter (say wildlife management) in attracting resources. tastes. telephones. and secondly it must be absolutely competitive against similar commodity systems or industries in other countries. power system) and micro-marketing relationship (quality/price relationships. resources and strengths of competing. price.leading to underpricing over competition b) differentiation of product . marketing extension. disease and so on. investment policies.: a) lower cost of production and delivery . price policies.buying. marketing. The commodity system may have to compete against those industries in international markets or be threatened by them in its domestic markets. services. technological developments etc. ports.1 Factors affecting international competitiveness for products/commodities 1 Factor Market research Macroeconomics and sector policies Natural resources and human capital Physical. credit. market information. population clusters. fiscal and monetary policies.

standard laws. against nearly all the odds. packaging. standards. through low cost of production and product differentiation it has been able to maintain its international competitiveness. but with the establishment of "barriers" internationally the Commonwealth preference System. Germany and the US. grades and rules defining property rights. processing and distribution functions .In Porter's3 analysis industry competitors can be "threatened" by new or potential entrants and substitutes. CASE 6. In food marketing systems. and other environmental factors like World War II. tank. These barriers can be related to technical characteristics of commodities. rules and standards . It had always exported salted meet and later chilled beef. use of accredited pesticides. not low Shift in source/strategy of competitive advantage Important Brazil frozen Production concentrated orange juice One of the remarkable success stories.2 give an example of a number of sources of competitive advantage for selected worldwide products. Argentina's international beef market contracted and so it standardised the domestic market. Conversely these factors can also be "standardised" by Government or other market intermediaries and players to make the "threat" of new entrants even more real. Argentina's beef consumption per capita is almost four times that of Western Europe (70-80 kgs compared to 15-25 kgs) Despite its domestic orientation recently.hygiene requirements.1 Argentina Beef Beef has been a tradition in Argentina for two centuries.small scale producers incurring higher transport costs. Table 6. barriers to new entrants can exist. brand name. as well as barriers to international competitiveness. tailor made Bulk transport. has been that of Argentina beef. spot or contact trading. farm distribution Low cost to differentiated supplier Commodity supplier to niche and technology supported product Product differentiation Broad range Off season Historically. Argentina is stilt the world's third largest beef producer and fourth in exporting terms behind Australia. production characteristics . size. unusual brand marks or reputations. waxcoating. rules and regulations phytosanitary requirements. mechanical handling. sizing. standard channels of distribution and so on. It is an example of how. its traditional export markets for lower value products (boned and manufactured -beef) has been lost to subsidised EU supplies and because of . grading.economies of scale. and laws. Table 6. dissemination of information to producers. These include standard technological measures like containerisation. permissable forms of cooperation and competition.2 Sources of competitive advantage for selected commodity systems Commodity Kenya vegetables Thailand tuna Taiwan food processing Israel fresh and processed citrus Low cost advantage Production Processing Tailor made. perishability. production support systems. phytosanitary systems. bulkiness. All these can help facilitate the entry of a newcomer and make the incumbent be particularly on guard and responsive. high quality Broad range.

c) Innovations in beef distribution domestically (butcher chain stores. the citrus subsector grew rapidly. However it has maintained or increased its export of high value products (boneless cute. Its export value is now near the $800 million mark although only 10% of its total agricultural exports. b) well developed. d) development of new: international market outlets. These included:a) rapid cost inflation in the mid 1980's. and the threat of new entrants. and. potential uncertainty and increased competition from substitute products internationally and from the Argentine cereals subsector which was clamouring for more resources. c) a significant rise in international shipping costs in the early 1980's. Israel found itself unable to compete internationally with its citrus products. Argentina beef is now back in profit and. (Mid East).2 Israel Fresh Citrus Fruit By the early 1950's. The 1980's saw a major decline in international competitiveness and profitability with more than 20% of its planted citrus area uprooted. b) the strength of the USD vis a vis European currencies. d) financial crisis within Israel's agricultural settlements. currency overevaluation. But this is not limited to LDC's alone. it increasingly found Itself with excess supply and a product which was less in demand.other developed country protection measures. With recent measures to make the industry viable again. CASE 6. heavy taxation. The once powerful Citrus Marketing Board's monopoly was rescinded in 1991. away from Israeli Shamuti (Jaffa) orange and white grapefruit. . canned beef. The CMB's unit of accounting was USD. Consumer tastes had shifted to "easy peeling" oranges and tangerines and sweeter red grapefruit. bargaining seller to a marketer" naturing new demand patterns. Several factors led to Israel's decline. This success was not necessarily built on favourable trading conditions but its ability to maintain international competitiveness through rampant inflation. but found a new way to remain competitive internationally. including capacity rationalisation. but survived. Morocco and Cyprus and changing consumer tastes led to a levelling off of demand. flexible and transparent livestock marketing system. is exporting a little more now Many more examples exist of less developed countries taking advantage of the low cost of production and product differentiation to make an international success. e) debt rescheduling by banks for livestock and trading enterprises. frozen beef) which now account for over 80% of export value. vacuum packing). by the late 1970's stiff competition from Spain. "supplier power") Israel oranges and grapefruit dominated many markets. Whilst it succeeded in some of its promotion and utilisation campaigns. Hectarage rose from 14 000 to over 40 000 hectares. Citrus Marketing Board found it had to shift its orientation from powerful. However. With the well respected "Jaffa" label and the Citrus Marketing Board as the Only exporter (in Porter's term's giving huge. pack houses mothballed and volume levels falling to 1930's levels. fuelled by mass immigration and large capital investments. The Argentina beef industry faced all the "macro* forces described by Porter internally and externally. Its success was sustained by a) low cost production of quality beef (climate and extensive grasslands). and the once powerful.

g) inability of the Citrus Marketing Board (CMB) to reposition itself to maintain competitiveness. The first relates to the configuration of marketing. Evaluating resources is difficult. A second role relates to the coordination of activities across countries to gain leverage say. Competition analysis In order to know how best to compete.e) improper export product mix. In 1990 a few cooperatives and processors began processing fruit. marketing. their strategy to date. purchase the competitor's product and take it apart. Good competitors can absorb demand fluctuations. A third critical role of marketing is its role in tapping opportunities for upstream advantage in the value chain. although Florida and Brazil are doing the same. especially in demanded products for example Spain. it is possible to guess the future. of know how. f) conflict of interest in the subsector giving weakened incentives for product innovations and quality. take part in trade fairs. Other ways are to have competitive personnel. On the basis of these first three. However. interviews and the trade press. Export of processed citrus products (concentrates. or indulge in "espionage". It may be advantageous to concentrate some marketing activities in one or a few countries. their major strengths and weaknesses and likely future strategy. expand the market. one needs to know the way competitors measure themselves. Israel responded. Competitive strategy Value chain analysis espouses three roles for marketing in a global competitive strategy. However. Technological advances and the ability to tailor make to niches has ensured international competitiveness. Competitors had a better product and lower costs and a product that was now demanded. the greatest potential. without one country wishing to be too aggressive. These directly substituted for the Israeli product. In the first of these . as well as the analysis given above. bases. Not all competitors are necessarily bad. Bargaining power by the CMD shifted from supplier to the buyer. essential oils etc) first exceeded its value of fresh fruit in 1984 and are now double the export of fresh fruits. room for all developing countries to take a share in most world markets in commodities. despite the unsuitably of the product in many cases.knowing the way competitors see themselves . It is essential to look at their production. There is.much can be learned from public accounts. increase motivation. In identifying the competitor's strategy to date. and were able to absorb one million tons of fresh fruit product. and act responsively to the industry. The Israeli citrus industry experienced all the problems envisaged by Porter In maintaining industry competitiveness. looks like in the supply of root stock to other producers and processors. it is not enough to believe what they say but to reconstruct their strategy. and. for example. More will be said about value chain analysis in later chapters. h) Quality and supply of competitors. financial and management resources. Generic approaches .

This is the case of television sets and many fruit products. Strategies for success Success can be achieved in industries by identifying growth segments within an overall market. CARMEL and OUTSPAN successfully created a perceived quality advantage. for example. then the firm has more price leeway.vacuum packing policy. say. We shall see this later in the case of Thailand's tuna industry. then expand as opportunities arise. Successful strategies start with a firm base in one region or country. market challenger or market follower. In the poultry and beef cattle industry. In market leadership the firm must work at maintaining its position. These opportunities have to be explored alongside careful analysis of the life cycle stage in one or another country. enhancing quality and stressing operating efficiencies. transport systems In the market challenger category. bulk transport  Infrastructural development . then the lowest cost firms will get the advantage. In fragmented industries success can be achieved by the creation of economies of scale. whereas the firm may be under the impression it is still there.low cost of production  Customer knowledge . The life cycle As indicated in chapter one. by being very responsive to market needs.According to Porter1 (1980) there are three generic approaches to outperforming others in an industry . differentiation and focus (see figure 6. having got there through. product innovation or promotion. However the follower may be able to service segments on a more personal level than the leader and hence maintain an industry position. as have Cadbury and Nestle. The three types of positioning strategy are market leader. Failure to do so may mean that the opportunity has passed. A good example of this is the Dutch flower auction or Gerber baby foods. cost advantage or innovation.3 Generic competitive advantage If there are few perceived differences between products and their uses are widespread. We saw in the case of Argentina's beef and Brazil's frozen concentrated orange juice that success was built on:  Economies of scale . Figure 6. an organisation may publicly announce its intention to take over the number one position either by price advantage. .shifting the product mix to meet changing demand  Technological innovation . successful global strategists have also to be cognisant of the international life cycle. The market follower is "allowed" to stay in the market only if the leader chooses to maintain a price umbrella and not maximize share. Focus strategies concentrate on serving a particular segment better than anyone else. Another way of overcoming fragmentation is by "positioning" which must be consistent.supermarkets.3). this means feed lots and intensive rearing.overall cost leadership. If there is a large perceived difference created.

such as that gathered by the process described in chapter five. One can see agricultural land implements. In the cut flower industry. In marketing vegetables to the UK. but did not achieve success because the cocoa was the wrong type and the product could not be absorbed into the world market. until recently. . In analysing a value chain the organisation may find it much cheaper or easier to source certain components of the chain from outside of the country it is operating in. Sourcing A different approach to gaining competitive advantage may be through "out sourcing" from a number or countries. roses. adaptations of well known marques. Too often developing countries attempt to gain entry into the international market without knowledge of the industry or competitors. where the local populace may simply not have the income to afford the real thing. The "copy adapt" strategy is a relatively well tried strategy in which an organisation may seek to copy a successful product/market strategy pioneered by another organisation and adapt it to local conditions or other markets. that global sourcing can occur effectively. is an essential prerequisite to designing a strategy. Intelligence. it is the high value types which are giving the returns now . with economic reform.carnations. ox carts and many other cheaper. prior to 1990. "As illustration of the above discussion. orchids . Continuing with the Zimbabwean example. Typical examples exist in all countries but none more so than in India. security and safety and transportation costs  Country's infrastructure  Political risk  Market access  Foreign exchange  Technological capability. Malaysia attempted to break into the cocoa industry. therefore. for example. The electronics and some other components are incapable of being sourced locally because of the technical sophistication required in the production process. or through out sourcing in country as in the case of Kenya vegetables. take the assembly of tractors in Zimbabwe. Now it is somewhat changing. The competitive position of the industry is very important to the would be global marketer. tractors. the International Harvester and the Indian Mahindra tractor "look alike".rather than the low value ones. This is often called the "make or buy" decision. was a recipe for disaster. The criteria for the "out" sourcing decision are:  Factor costs and availability  Logistics: time required to fill orders. to be imported. it is impossible for the country to be highly outsource orientated and find cheaper labour factor countries to manufacture products because. there was insufficient foreign exchange to pay for them. It is only when all the factors listed above are in place.a classical Japanese approach. The need to properly assess the market and devise a strategy on the assessment is a must to succeed. this situation is now rapidly changing. any other route but through buying agents.Other strategies include "market flanking" . Many examples of this strategy exist in LDCs. These components have. Since 1990.

Describe. Comparative advantage is the ability of one country to achieve a lower production ratio. Competitive advantage is based on lower production costs and/or quality of market factor differentiation between one country or industry and another in like products.Outsourcing is a well established global strategy. Key Terms Competitive strategy Competition Sourcing Competitive advantage Marketing positioning Review Questions 1.adapt strategy. compared to that commodity in another country. market follower. this is what competitive strategy is all about". global marketers have to decide how they are to compete in their chosen market. According to Porter. All these strategies require information on competitors as well as on "environmental" conditions. What is the difference between "comparative advantage" and "competitive advantage"? 2. There are other strategies available to marketers other than low cost. It is uncommon for global organisations like Ford and Toyota to source components and end products from a variety of countries or to shift global production to the most cost competitive economies. in one commodity. Should countries not be able to obtain a cost advantage. market challenger. What are the sources of "competitive advantage" in a food marketing system? 3. under total specialisation. a market leader. This is a very common phenomenon of developed countries. 2. these include market leadership. but may have to work hard to obtain the latter. with examples. the principal sources of competitive advantage are lower costs of production and a differentiated product offering. it does take careful coordination and setting up if it is to be successful. Essentially. Chapter Summary As with domestic marketing. Lesser developed countries usually have the former. However. one possible option is to "outsource" production. Sources of competitive advantage are: . market challenger or market flanking. market flanker and copy . World markets are a stage on which a player must choose or find his unique part. Review Question Answers 1.

Prentice Hall International Edition. and Trout. 7.through cost or innovation advantage (Argentine beef). 2. 1993. Porter. W.adapt . Sept-Oct 1980.through price umbrella or share (Zimbabwe beef) Market flanker . and Silk. New York: The Free Press. M. New York: The Free Press. 10.E. 1990. Hall. Porter. S. Porter. W. 9. pp 75-85. Porter.G. Harvard Business Review.J.through taking up market interstices (Thailand tuna) Copy .through price or product innovation/promotion (Spanish easy peeler citrus) Market follower . 1980. J.K. Keegan. "Competitive Strategy".B.through advertising known technology/products (Mahindra tractors) References 1. lower costs of production  quality or market factor differentiations  supplementary supply patterns Tutors are advised to ask students to give examples of these later. "How to Compete in Stagnant Industries".E. Boston: Harvard Business School Press. Ries. 3. R. 6. 1981. 8. 1986. "Survival Strategies in a Hostile Environment".E. McGraw Hill. Harvard Business Review. Market challenger . "Winning the Marketing War". Such examples include Brazil frozen concentrated orange juice (lower costs) Kenyan vegetables (product range) or Chile tomato pastes (supply patterns) 3. "Exporting High Value Food Commodities". A. Bibliography 4. M. pp 161-168. World Bank Discussion pp 198. "Competition in Global Industries". either from the text or from general reading. Hammermesh. M. "The Competitive Advantage of Nations". Duro. R. New York: The Free Press. John Wiley and Sons. . Jaffee S. "Positioning: The Battle for Your Mind".B. 1985. 4th ed. 1989. M. 5. "Competitive Advantage". "Global Marketing Management". Sept-Oct 1979. 1989.E. Market leader .

Chapter 7: Market Entry Strategies Chapter Objectives Structure Of The Chapter Entry strategies Special features of commodity trade Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography When an organisation has made a decision to enter an overseas market. and then concludes by looking at the special features of commodity trading with its "close coupling" between production and marketing. in the case of the former. These will be expanded on later. or export processing zones. in the case of the latter. whilst not excluding these. rely more heavily on more sophisticated forms of access. risk and the degree of control which can be exercised over them. or countertrade. More complex forms include truly global operations which may involve joint ventures. whereas processed materials. distributors or involve Government. Having decided on the form of export strategy. Many agricultural products of a raw or commodity nature use agents. which is very prevalent in global marketing. It then goes on to describe the different forms of entry strategy. Basic issues An organisation wishing to "go international" faces three major issues: . The chapter gives specific details on "countertrade". there are a variety of options open to it. both direct and indirect exporting and foreign production. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent. decisions have to be made on the specific channels. Chapter Objectives The objectives of the chapter are: Structure Of The Chapter The chapter begins by looking at the concept of market entry strategies within the control of a chosen marketing mix. and the advantages and disadvantages connected with each method. These options vary with cost.

Market information 2.literature .Promotion .Agents commissions . The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated. freight .Credit authorisation . Inventory support . Product support .Production control . global partner.Parts supply .1 lists the detail required1.air.Product testing .1 The value chain -marketing function detail In making international marketing decisions on the marketing mix more attention to detail is required than in domestic marketing.Product sourcing . with what information? ii) Sourcing . acquisition? Decisions in the marketing area focus on the value chain (see figure 7.Direct mail .Competitive information .Inventory management .Warehousing .whether to obtain products.1). Promotion/selling support .joint venture. make or buy? iii) Investment and control .Distribution and maintenance of pricelists .Printing .with intermediaries or directly.Establishment of prices .Match existing products to markets . Price support .Advertising .which countries.Labelling . trade shows .i) Marketing . which segments.New products .Product management . how to manage and implement marketing effort.Manufacturing specifications . Table 7.Sale or returns 4.Training of agents/customers 3. road.Discounts .Packaging .Distribution . Figure 7. how to enter .Sales force .1 Examples of elements included in the export marketing mix 1. rail.Exhibitions.Selling (direct) . Table 7. sea.

Market information/intelligence . . The degree of risk involved. catalogues literature .Arbitration 6.Freight forwarding .5. quality and quantity problems.modifications to existing products iii) Availability and security strategy .Tax services .Funds provision .Planning.Billing. attitudes and the ability to achieve objectives in the target markets are important facets in the decision on whether to license. Concerning investment and control.Export preparation and documentation . collecting invoices .Sales reports.Translation 7.After sales . in the export of cotton and other commodities. say.Order processing .Quotes processing . This is true. Distribution support .Warranties/claims . scheduling budget data . currency.Auditing Details on the sourcing element have already been covered in the chapter on competitive analysis and strategy.Merchandising .penetration price and. Service support .Technical aid assistance . the question really is how far the company wishes to control its own fate.perceived and demonstrable superior products ii) Product adaptation strategy .Budgets .Guarantees . In marketing products from less developed countries to developed countries point iii) poses major problems.Insurance .overcome transport risks by countering perceived risks iv) Low price strategy .Data processing systems .foreign producer gives a straight copy.Raising of capital .Insurance .Hire. Financial support .Customer care . Cunningham1 (1986) identified five strategies used by firms for entry into new foreign markets: i) Technical innovation strategy . v) Total adaptation and conformity strategy . joint venture or get involved in direct investment. rentals .Legal services . Buyers in the interested foreign country are usually very careful as they perceive transport.

the entire system can behave like a single firm. entry strategies are often marked by "lumpy investments". This can be seen in the case of the Citrus Marketing Board of Israel. Good examples of this include the building of port facilities or food processing or freezing facilities. language barriers. Moreover. In the latter the attempt is made to "globalise" the offering and the organisation to match it. may make the owner very vulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options. geographical development or both. the road can be put to other uses. the equipment may not be able to be used for other processes. so the asset specific equipment.Because. regulating the mix and quality of products going to different markets and negotiating with transporters and buyers. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. effort and money. production and marketing are interlinked. Brand names do not appear overnight. Normal ways of expanding the markets are by expansion of product line. in the drive for public good utilities. Whilst the building of a new road may assist the speedy and expeditious transport of vegetables. This is true of organisations like Coca Cola and MacDonald's. and from. Zimfreeze. Costs include search and bargaining costs. Whilst these Boards can experience economies of scale and absorb many of the risks listed above. Moreover. long before the full utilisation of the investment comes. Huge investments may have to be undertaken. Zimbabwe is experiencing such problems. in fact it may be better to concentrate on a few geographic areas and do things well. They then result in giving reduced production incentives and cease to be demand or market orientated. these factors are important when considering a market entry strategy. It built a large freezing plant for vegetables but found itself without a contract. New market opportunities may be made available by expansion but the risks may outweigh the advantages. but also to help the "public good". Large investments in promotion campaigns are needed. in most agricultural commodities. to accept sub optional volume product materials just in order to keep the plant ticking over. they can shield producers from information about. logistics costs and risk limit the direct monitoring of trade partners. With a monopoly export marketing board. often get involved in commodity systems. for example. Physical distance. the infrastructure. Global strategies include "country centred" . and thus aid in their marketing. which is detrimental to producers. locked into a specific use. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. It may get involved not just to support a specific commodity. information and other resources required for building market entry can be enormous. Ways to concentrate include concentrating on geographic areas. In fact these factors may be so costly and risky that Governments. reducing operational variety (more standard products) or making the organisational form more appropriate. This is typical of the horticultural industry of Kenya and Zimbabwe. buyers. They can also become the "fiefdoms" of vested interests and become political in nature. In building a market entry strategy. time is a crucial factor. at the moment. so Government may get involved. The building of an intelligence system and creating an image through promotion takes time. It is important to note that the more the product line and/or the geographic area is expanded the greater will be the managerial complexity. rather than private individuals. It has been forced. with the investor paying a high risk price. Traditionally these have concentrated on European markets where the markets are well known. Also. Sometimes this is way beyond the scope of private organisations.

Global approaches give economies of scale and the sharing of costs and risks between markets. organisations are being encouraged to export. promotion. including product. price. Passiveness versus aggressiveness depends on the motivation to export. which have embarked on structural adjustment programmes. They distinguished between firms whose marketing efforts were characterized by no activity. Those firms who are aggressive have clearly defined plans and strategy. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country. an aggressive exporter develops marketing strategies which provide a broad and clear picture of what the firm intends to do in the foreign market. and the need to repay debts incurred by the borrowings to finance the programmes. significant investments in marketing are required. it is less risky than overseas based  gives an opportunity to "learn" overseas markets before investing in bricks and mortar  reduces the potential risks of operating overseas. Exporting Exporting is the most traditional and well established form of operating in foreign markets.2). A passive exporter awaits orders or comes across them by chance. Pavord and Bogart2 (1975) found significant differences with regard to the severity of exporting problems in motivating pressures between seekers and nonseekers of export opportunities. however. Figure 7. Entry strategies There are a variety of ways in which organisations can enter foreign markets. The type of export response is dependent on how the pressures . the agents and Dutch flower auctions are in a position to dictate to producers. this does not negate the need for a detailed marketing strategy. saturated domestic markets. Whilst no direct manufacturing is required in an overseas country.strategies (highly decentralised and limited international coordination). A distinction has to be drawn between passive and aggressive exporting. For example. motivated by foreign exchange earnings potential. "local market approaches" (the marketing mix developed with the specific local (foreign) market in mind) or the "lead market approach" (develop a market which will be a best predictor of other markets). In countries like Tanzania and Zambia.2 Methods of foreign market entry The advantages of exporting are:  manufacturing is home based thus. growth and expansion objectives. distribution and research elements. minor activity and aggressive activity. The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of control has to be weighed against the advantages. The three main ways are by direct or indirect export or production in a foreign country (see figure 7. in the exporting of African horticultural products. Exporting can be defined as the marketing of goods produced in one country into another.

or the lack of it.this process of incremental involvement is called "creeping commitment" (see figure 7. Without these four coordinating activities the risk of failure is increased. Control. the Grain Marketing Board in Zimbabwe. is a major problem which often results in decisions on pricing. but the risks of failure in the early stages are high. exporters are price takers as produce is sourced also from the Caribbean and Eastern countries. A typical coordinated marketing channel for the export of Kenyan horticultural produce is given in figure 7. producers are better supplying to local food processors. or act via a Government agency. find a representative or agent. is a Government agency. In this case the exporters can also be growers and in the low season both these and other exporters may send produce to food processors which is also exported.are perceived by the decision maker. The Government. Figure 7. distributor. In effect. being commercialised but still having Government control. The key is to learn how to minimise risks associated with the initial stages of market entry and commitment .3 Aggressive and passive export paths Exporting methods include direct or indirect export.4. importer. or overseas subsidiary. If the firm achieves initial success at exporting quickly all to the good. Figure 7. the phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting very demanding. . whether the motivations were as a result of active or aggressive behaviour based on the firm's internal situation (endogenous) or as a result of reactive environmental changes (exogenous). As such. are the only permitted maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya may be merely a promotional body. In the European winter prices are much better. so prices are low. Piercy (1982)3 highlights the fact that the degree of involvement in foreign operations depends on "endogenous versus exogenous" motivating factors. According to Collett4 (1991)) exporting requires a partnership between exporter. set up the physical distribution and documentation. The exporter's task is to choose a market. that is. particularly giving approval (like HCDA does) to all export documents. Europe is "on season" because it can grow its own produce. but product competition remains.4 The export marketing channel for Kenyan horticultural products. dealing with advertising. Similarly. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation. Certainly. In the months June to September. certification and promotion being in the hands of others.3). information flows and so on. via the Board. government and transport. Contracts between buyer and seller are a must. promote and price the product. In direct exporting the organisation may use an agent. In direct exporting the major problem is that of market information. The "learning effect" in exporting is usually very quick. or it may be active in exporting itself.

including Lonrho and Press Farming. the full potential of these countries was hampered by internal difficulties. especially 'if it is of high value added produce. Payment arrangements may be different for the two transactions. in its passive mode. has. In some cases a mixture of direct and indirect exporting may be achieved with mixed results. with inferior products. Towards the end of 1978 Nali chilies were in great demand. However. due to the lack of information. so has the lack of a clear Government policy and the lack of financing for traders. began an aggressive exporting policy. For example. with their superior product.18 tonnes of horticultural produce and 12 000 tonnes of citrus at a total value of about US$ 22 016. and Papua New Guinea were major exporters. 4 678. started to grow and export. has damaged the Malawian chili reputation. Uganda in particular. The latter only serves to emphasise the point made by Collett. not only do organisations need to be . since the early 1970s. using their overseas legations as commercial propagandists. growers and exporters. For example in 1992/93 Zimbabwe exported 5 338. However. Nali was able to grow into a successful commercial enterprise. yet still the company. The entry of a number of new Malawian growers. Nali products of Malawi gives an interesting example of a "passive to active" exporting mode.Exporting can be very lucrative.1 Nali Producers . CASE 7. the firm did not realise that Uganda. Its major success has been the growing and exporting of Birdseye chilies. Again. or may sell it to a relief agency like the United Nations. did not fully appreciate the competitive implications of the business until a number of firms. However it is being now hampered by a number of important "exogenous" factors. Nali had to respond with a more formal and active marketing operation. a product of its passivity. for feeding the Mozambican refugees in Malawi. the Grain Marketing Board of Zimbabwe may export grain directly to Zambia. with the end of the internal problems. been engaged in the growing and exporting of spices.56 million.38 tonnes of flowers. Spices are also used in the production of a variety of sauces for both the local and export market. In the early days knowledge of the market was scanty and thus the company was obtaining ridiculously low prices.Malawi Nali group.

except contracts are not legal and it is not covered by GATT. but countertrade accounts for about 20-30% of world trade. could piggyback with the South Africans who both import potassium from outside their respective countries. Normally these would be geographically adjacent or able to be served. for example. Growing trading blocs like the EU or EFTA means that the establishing of subsidiaries may be one of the only means forward in future. The fertilizer manufacturers of Zimbabwe. It is interesting to note that Korey5 1986 warned that direct modes of market entry may be less and less available in the future. soya. Countertrade By far the largest indirect method of exporting is countertrade. It is interesting to note that Korey (1986) warns that direct modes of market entry may be less and less available in the future. involving some 90 nations and between US $100-150 billion in value. Indirect methods of exporting include the use of trading companies (very much used for commodities like cotton. cocoa). Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Countertrade can also be used to stimulate home industries or where raw materials are in short supply. Growing trading blocks like the EU or EFTA means that the establishment of subsidiaries may be one of the only ways forward in future. but currency again is a problem. for payment by deliveries of goods and/or services in addition to. Indirect methods offer a number of advantages including:  Contracts . also. The UN defines countertrade as "commercial transactions in which provisions are made. countries may wish to trade in spite of the degree of competition. say. Estimates vary. they also need to enlist the support of Government and importers. In this situation the organisation may expand operations by operating in markets where competition is less intense but currency based exchange is not possible. . or in place of. export management companies.aggressive. Countertrade is the modem form of barter. piggybacking and countertrade. It can be used to circumvent import quotas. Also. financial settlement". It the operating market or worldwide  Commission sates give high motivation (not necessarily loyalty)  Manufacturer/exporter needs little expertise  Credit acceptance takes burden from manufacturer. on an air route. Competitive intensity means more and more investment in marketing. The method means that organisations with little exporting skill may use the services of one that has. in one of a series of related contracts. Piggybacking Piggybacking is an interesting development. give a basis for reciprocal trade.

Generally. Usually contracts for no more than one year are concluded. bilateral clearing accounts or simply bilateral clearing. There is a broad agreement that countertrade can take various forms of exchange like barter. however. payment of a previously specified penalty or payment of the difference in hard currency. and the length of time for completing the transaction. counter purchase. provisions are included to handle exchange ratio fluctuations when world prices change. tomato juice and chrome ore in exchange for a contract to build a US $60 million fertilizer and methanol complex. Shadow prices are approximated for products flowing in either direction. Basically two separate contracts are involved. Trading specialists have also initiated the practice of buying clearing dollars at a discount for the purpose of using them to purchase saleable products. The contract sets forth the goods to be exchanged. For example. Simple barter is the least complex and oldest form of bilateral. imbalances are settled by one of the following approaches: credit against the following year. so a currency is used to underpin the item's value. each party agrees in a single contract to purchase a specified and usually equal value of goods and services. one for the delivery of and payment for the goods supplied and the other for the purchase of and payment for the goods imported. also termed clearing agreements. Clearing account barter. In this form of barter. switch trading and compensation (buyback). The duration of these transactions is commonly one year.Countertrade can take many forms. is where the principle is for the trades to balance without either party having to acquire hard currency. the trader may forfeit a portion of the discount to sell these products for hard currency on the international market. acceptance of unwanted goods. Information on potential exchange can be obtained from embassies. Often it is called "straight". Barter is the direct exchange of one good for another. No money is involved and risks related to product quality are significantly reduced. The contract's value is expressed in non-convertible. Barter trade can take a number of formats. Barter is a direct exchange of goods and services between two parties. non-monetarised trade. trade missions or the EU trading desks. In turn. although occasionally they may extend over a longer time period. Limited export or import surpluses may be accumulated by either party for short periods. "classical" or "pure" barter. clearing arrangements. although valuation of respective commodities is difficult. clearing account units (also termed clearing dollars) that effectively represent a line of credit in the central bank of the country with no money involved. Generally no middlemen are involved. after one year's time. if for longer life spans. Clearing account units are universally accepted for the accounting of trade between countries and parties whose commercial relationships are based on bilateral agreements. The performance of one contract is not contingent on the other although the seller is in effect accepting products and services from the importing country in partial or total settlement for his exports. Closed end barter deals are modifications of straight barter in that a buyer is found for goods taken in barter before the contract is signed by the two trading parties. the rates of exchange. . in 1986 Albania began offering items like spring water.

marketing. Khoury6 (1984) categorises countertrade as follows (see figure 7. For example. or buyback. and output over an agreed period of time or agreed volume of produce is exported to the builder until the period has elapsed. Countertrade has disadvantages:  Not covered by GATT so "dumping" may occur  Quality is not of international standard so costly to the customer and trader  Variety is tow so marketing of wkat is limited  Difficult to set prices and service quality  Inconsistency of delivery and specification. These are ever growing in size. usually at a discounted price.5): One problem is the marketability of products received in countertrade. will provide trade related services like transportation. if exchange is being organised at national government level then the seller agrees to purchase compensatory goods from an unrelated organisation up to a prespecified value (offset deal).Compared with simple barter.5 Classification of countertrade Shipley and Neale7 (1988) therefore suggest the following: . This is called a switch deal. Figure 7. Compensation (buy-backs) is where the supplier agrees to take the output of the facility over a specified period of time or to a specified volume as payment. This problem can be reduced by the use of specialised trading companies which. credit quality may decline further and therefore product is harder to market. Alternatively. for a fee ranging between 1 and 5% of the value of the transaction. clearing accounts offer greater flexibility in the length of time for drawdown on the lines of credit and the types of products exchanged. to a third party. Where the seller has no need for the item bought he may sell the produce on. In the past a number of tractors have been brought into Zimbabwe from East European countries by switch deals. is where the customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (compensatory products).  Difficult to revert to currency trading . The difference between the two is that contractual obligations related to counter purchase can extend over a longer period of time and the contract requires each party to the deal to settle most or all of their account with currency or trade credits to an agreed currency value. an overseas company may agree to build a plant in Zambia. financing. Counter purchase. The plant then becomes the property of Zambia. etc.

 Ensure that any compensation goods received as payment are not subject to import controls. Coca Cola is an excellent example of licensing. ownership and participation in export processing zones or free trade zones. Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing. specific product. Despite these problems countertrade is likely "to grow as a major indirect entry method. contract length of agreement. know-how or some other skill provided by the licensor". other market entry strategies include licensing. joint ventures. Licensing gives the following advantages:  Good way to start in foreign operations and open the door to low risk manufacturing relationships  Linkage of parent and receiving partner interests means both get most out of marketing effort  Capital not tied up in foreign operation and  Options to buy into partner exist or provision to take royalties in stock.if possible inspect the goods for specifications  Include all transactions and other costs involved in countertrade in the nominal value specified for the goods being sold  Avoid the possibility of error of exploitation by first gaining a thorough understanding of the customer's buying systems. The only cost is signing the agreement and policing its implementation. It is quite similar to the "franchise" operation. United Bottlers have the licence to make Coke. Ensure the benefits outweigh the disadvantages  Try to minimise the ratio of compensation goods to cash . Licensing involves little expense and involvement. trademark. Foreign production Besides exporting. regulations and politics. process or trademark  Potential returns from marketing and manufacturing may be lost  Partner develops know-how and so licence is short . processing. especially in developing countries. In Zimbabwe. The disadvantages are:  Limited form of participation .

The more unstable the environment the less likely is the ownership pathway an option. Those who decide to license ought to keep the options open for extending market participation. joint ventures or ownership. Joint ventures Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation".overcome by having cross technology transfer deals and  Requires considerable fact finding. licensing. Anderson and Coughlan8 (1987) summarise the entry mode as a choice between company owned or controlled methods "integrated" channels . However. are on a continuum rather than discrete and can take many formats. repatriation of earnings and capital has to be carefully monitored. investigation and interpretation. These forms of participation: exporting. as mentioned earlier. If the partners carefully map out in advance what they expect to achieve and how. This can be done through joint ventures with the licensee. Joint ventures give the following advantages:  Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process  Joint financial strength  May be only means of entry and  May be the source of supply for a third country. They also have disadvantages:  Partners do not have full control of management  May be impossible to recover capital if need be  Disagreement on third party markets to serve and  Partners may have different views on expected benefits. In Zimbabwe. Integrated channels offer the . Ownership: The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. then many problems can be overcome. planning. Licensees become competitors . Olivine industries has a joint venture agreement with HJ Heinz in food processing. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing.or "independent" channels. Joint ventures are a more extensive form of participation than either exporting or licensing.

behind stage two is decentralisation as far as possible to local operators and behind stage three is an integration which seeks to synthesize inputs from world and regional headquarters and the country organisation. Export processing zones (EPZ) Whilst not strictly speaking an entry-strategy. companies have to decide on a strategy for expansion.The roots of success can be seen on the supply. food. In setting up the export processing zone the Mauritian government displayed a number of characteristics which in hindsight. 78. often unfounded. Other activities include country and market segment concentration typical of Coca Cola or Gerber baby strategy (corresponds with geocentric orientation). risks. On the institutional side positive schemes were put in place. One of the best examples is the Mauritian EPZ 12. Once in a market. greater coordinating and control difficulties and motivational difficulties. demand and institutional sides. and faster market penetration. and finally country and segment diversification. The disadvantages are that they incur many costs (especially marketing). This has often led to a "rebellion" against the operations of multinationals. including finance from the Development Bank and the cutting of red tape. less capital. Export earnings have tripled from 1981 to 1986 and the added value has been significant. One may be to concentrate on a few segments in a few countries . flow of information. CASE 7. watches. some may be more effective than others (due to culture) and in some cases their credibility amongst locals may be lower than that of controlled independents. Independent channels offer lower performance costs.typical are cashewnuts from Tanzania and horticultural exports from Zimbabwe and Kenya . as at 1987. France. The basic philosophy behind stage one is extension of programmes and products. they have within them organisations which are in stage three. high local knowledge and credibility. On the supply side the most critical factor has been the generous financial and other incentives. and are a visible sign of commitment. And plastics. In job employment the results have been startling.  The government intelligently sought a development strategy in an apolitical manner  It stuck to its strategy in the long run rather than reverse course at the first sign of trouble . the risks are high. In addition they may not be willing to spend money on market development and selection of good intermediaries may be difficult as good ones are usually taken up anyway.2 The Mauritian Export Processing Zone Since its inception over 400 firms have established themselves in sectors as diverse as textiles. were crucial to its success. stage two . founded in the 1970s.000 were employed in the EPZ.multinational (strategies correspond to ethnocentric and polycentric orientations respectively) and stage three . Whilst most developing countries are hardly in stage one.advantages of planning and control of resources. Another way of looking at it is by identifying three basic business strategies: stage one international. on the demand side. India and Hong Kong was very tempting to investors. access to the EU. EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. Disadvantages include less market information flow.or concentrate on one country and diversify into segments.

 It encouraged market incentives rather than undermined them  It showed a good deal of adaptability, meeting each challenge with creative solutions rather than maintaining the status quo  It adjusted the general export promotion programme to suit its own particular needs and characteristics.  It consciously guarded against the creation of an unwieldy bureaucratic structure.

Organisations are faced with a number of strategy alternatives when deciding to enter foreign markets. Each one has to be carefully weighed in order to make the most appropriate choice. Every approach requires careful attention to marketing, risk, matters of control and management. A systematic assessment of the different entry methods can be achieved through the use of a matrix (see table 7.2). Table 7.2 Matrix for comparing alternative methods of market entry
Entry mode Marketing Counter Licensing Joint subsidiary trade venture

Evaluation criteria a) Company goals b) Size of company c) Resources d) Product e) Remittance f) Competition g) Middlemen characteristics h) Environmental characteristics i) Number of markets j) Market k) Market feedback l) International market learning m) Control n) Marketing costs o) Profits p) Investment q) Administration personnel r) Foreign problems

Indirect export

Direct export

Wholly owned operation


s) Flexibility t) Risk

Details of channel management will appear in a later chapter.

Special features of commodity trade
As has been pointed out time and again in this text, the international marketing of agricultural products is a "close coupled" affair between production and marketing and end user. Certain characteristics can be identified in market entry strategies which are different from the marketing of say cars or television sets. These refer specifically to the institutional arrangements linking producers and processors/exporters and those between exporters and foreign buyers/agents. Institutional links between producers and processors/exporters One of the most important factors is contract coordination. Whilst many of the details vary, most contracts contain the supply of credit/production inputs, specifications regarding quantity, quality and timing of producer deliveries and a formula or price mechanism. Such arrangements have improved the flow of money, information and technologies, and very importantly, shared the risk between producers and exporters. Most arrangements include some form of vertical integration between producers and downstream activities. Often processors enter into contracted outgrower arrangements or supply raw inputs. This institutional arrangement has now, incidentally, spilled over into the domestic market where firms are wishing to target higher quality, higher priced segments. Producer trade associations, boards or cooperatives have played a significant part in the entry strategies of many exporting countries. They act as a contact point between suppliers and buyers, obtain vital market information, liaise with Governments over quotas etc. and provide information, or even get involved in quality standards. Some are very active, witness the Horticultural Crops Development Authority (HCDA) of Kenya and the Citrus Marketing Board (CMD) of Israel, the latter being a Government agency which specifically got involved in supply quotas. An example of the institutional arrangements 13 involved is given in table 7.3. Table 7.3 Institutional arrangements linking producers with processors/exporters
Commodity Market coordination X X Contract Ownership Association Government cointeraction cocoordination ordination ordination X X X X Marketing risk reduction X X

Kenya vegetables Zimbabwe horticulture Israel fresh fruits Thailand tuna Argentina beef





XX = Dominant linkage Institutional links between exporters and foreign buyers/agents Linkages between exporters and foreign buyers are often dominated by open market trade or spot market sales or sales on consignment. The physical distances involved are also very significant. Most contracts are of a seasonal, annual or other nature. Some products are handled by multinationals, others by formal integration by processors, building up import/distribution firms. In the case of Kenyan fresh vegetables familial ties are very important between exporters and importers. These linkages have been very important in maintaining market excess, penetrating expanding markets and in obtaining market and product change information, thus reducing considerably the risks of doing business. In some cases, Government gets involved in negotiating deals with foreign countries, either through trade agreements or other mechanisms. Zimbabwe's imports of Namibian mackerel were the result of such a Government negotiated deal. Table 7.413 gives examples of linkages between exporters and foreign buyers/agents. Table 7.4 Linkages between exporters and foreign buyers/agents.
Commodity Market Contract cocoordination ordination X X X X X XX X XX X XX XX X X Ownership interaction X Association Government Marketing risk cocoreduction ordination ordination X X X X X X X

Kenya vegetables Zimbabwe horticulture Israel fresh fruits Thailand tuna Argentina beef


XX = Dominant linkage Once again, it can not be over-emphasized that the smooth flow between producers, marketers and end users is essential. However it must also be noted that unless strong relationships or contracts are built up and product qualities maintained, the smooth flow can be interrupted should a more competitive supplier enter the market. This also can occur by Government decree, or by the erection of non-tariff barriers to trade. By improving strict hygiene standards a marketing chain can be broken, however strong the link, by say, Government. This, however, should not occur, if the link involves the close monitoring and action by the various players in the system, who are aware, through market intelligence, of any possible changes.

Chapter Summary
Having done all the preparatory planning work (no mean task in itself!), the prospective global marketer has then to decide on a market entry strategy and a marketing mix. These

are two main ways of foreign market entryeither by entering from a home market base, via direct or indirect exporting, or by foreign based production. Within these two possibilities, marketers can adopt an "aggressive" or "passive" export path. Entry from the home base (direct) includes the use of agents, distributors, Government and overseas subsidiaries and (indirect) includes the use of trading companies, export management companies, piggybacking or countertrade. Entry from a foreign base includes licensing, joint ventures, contract manufacture, ownership and export processing zones. Each method has its peculiar advantages and disadvantages which the marketer must carefully consider before making a choice.

Key Terms
Aggressive exporter Exporting Licensing Barter Export processing zones Market entry Countertrade Joint ventures Passive exporter

Review Questions
1. Review the general problems encountered when building market entry strategies for agricultural commodities. Give examples. 2. Describe briefly the different methods of foreign market entry. 3. What are the advantages and disadvantages of barter, countertrade, licensing, joint venture and export processing zones as market entry strategies?

Review Question Answers
1. General problems: i) Interlinking of production and marketing means private investment alone may not be possible, so Government intervention may be needed also e.g. to build infrastructure e.g. Israeli fresh fruit. ii) Licensing Definition: Method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, knowhow or some other skill by the licensor. ii) "Lumpy investment" building capacity long before it may be currently utilised e.g. port facilities Advantages:

 entry point with risk reduction,  benefits to both parties,  capital not tied up,  opportunities to buy into partner or royalties on the stock. iii) Time - processing, transport and storage - so credit is needed e.g. Argentina beef. iv) Transaction costs - logistics, market information, regulatory enforcement. Disadvantages:  limited form or participation,  potential returns from marketing and manufacturing may be lost,  partner develops knowhow and so license is short,  partner becomes competitor,  requires a lot of planning beforehand. v) Risk - business, non-business iv) Joint ventures Definition: An enterprise in which two or more investors share ownership and control over property rights and operation. vi) Building of relationships and infrastructural developments "correct formats" 2. Different methods These are either "direct", "indirect" or "foreign" based. Advantages:  sharing of risk and knowhow,  may be only means of entry,  may be source of supply for third country. Direct - Agent, distributor, Government, overseas subsidiary Disadvantages:  partners do not have full control or management,  may be impossible to recover capital,  disagreement between purchasers or third party - served markets,  partners have different views on exported benefits.

Indirect - Trading company, export management company, piggyback, countertrade v) Export processing zones Definition: A zone within a country, exempt from tax and duties, for the processing or reprocessing of goods for export Foreign - Licensing, joint venture, contract manufacture, ownership, export processing zone. Students should give a definition and expand on each of these methods. Advantages:  host country obtains knowhow,  capital, technology, employment opportunities;  foreign exchange earnings;  "reputation", "internationalisation". 3i) BarterDefinition: Direct exchange of one good for another. (may be straight or closed or clearing account method) Disadvantages:  short term investments,  capital movements,  employment movements,  transaction costs and benefits,  not part of economy so alienisation,  labour laws may be different,  bureaucracy creation. Advantages:  simple to administer,  no currency,  commodity based valuation or currency based valuation. Disadvantages:

A. M.P.1 Market entry strategies Take a major non-traditional crop or agricultural product which your country produces with sales potential overseas. In D.  poor quality. Exercise 7. References 1.T. Devise a market entry strategy for the product. variety differences. Turnbull and J.  marketability of products.  difficult to set price and service quality. risk of non delivery.) Croom Helm 1986. "Strategies for International Industrial Marketing".  risk of commodity price rise thus losing out on an increased valuation. Pavord and Bogart. p 9. Disadvantages:  not covered by GATT. Valla (eds.  difficult to revert to currency trading. .  usuality differences.  inconsistency of delivery and specification. "Quoted in The Export Marketing Decision" S.  unfulfilled quantities. Cunningham. ii) Countertrade Definition: Customer agrees to buy goods on condition that the seller buys some of the customer's own products in return (may be time.W.  technological obsolescence. 2. Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa 1991. clearly showing which you would use and justify your choice indicating why the method chosen would give benefits to your country and the intended importing country(s). Carter (Ed) "Export Procedures".  so dumping may occur.  method of breaking into a "closed" market.  depressed valuation. balance of compensation or pertinence of compensating product based) Advantages:  method of obtaining sales by seller and getting a slice of the order. Hara in S. method of financing.

1993. August 1991. "Global Marketing Management". E. 7. Pitfalls and Negotiation Requisites". Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa. 20. M.) "Horticultural Marketing".P. Carter (ed. Khoury. "The Experience and Problems in Exporting Spices". Journal of Marketing. 4th ed. W. Motives. . 10. Basche. C. Vol. Vol. 1971. Anderson. p4. 1991. January 1987. 1989. 7.O. Vol. N. R. and Neale.D. Shipley. "Company Internationalisation: Active and Reactive Exporting". J. Mauritius: "A Case Study of the Export Processing Zone. Jr. 5. Vol. 1982. "Export Marketing Services and Costs". Jaffee S. European Journal of Marketing. 6. 3. Journal of Business Research. "World Bank Discussion Paper" pp 198. A. 12. No. Bibliography 9. 1986. Korey. Vol. 1984. Prentice Hall International Editions. 51. Collett. No. 1989. 13. pp 34-42. No. "International Transport and Handling of Horticultural Produce" in S. G.3. 8. In Successful African Development". "Successful Countertrading. W. A. 11. "Exporting High Value Food Commodities". Khoromana. Carter (ed. 12.J "Countertrade: Forms. EDI Development Policy Case Series. 1. D.T. New York: The Conference Board.R. Management Decision". European Journal of Marketing.J. and Coughlan. and Shapiro.E. pp 97-127. pp 71-82. No. S. Bheenich. pp 49-52. Keegan. "International Market Entry and Expansion via Independent or Integrated Channels of Distribution". 15. pp 257-270. In S. 1.) Export Procedures Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa. 4.W. Piercy. 26. pp 26-40. "Multilateral Perspectives in International Marketing Dynamics".

Unfortunately. most developing countries are likely to be exporting raw materials or basic and high value agricultural produce for some time to come. the organisation's own product portfolio. Quality. price. for example large horsepower tractors may be totally unsuitable for areas where small scale farming exists and where incomes are low. its strengths and weaknesses and its global objectives. is often the major letdown. It can be argued that product decisions are probably the most crucial as the product is the very epitome of marketing planning. As indicated earlier. most developing countries are in no position to compete on the world stage with many manufactured value-added products. and the attempt to sell products into a country without cognisance of cultural adaptation needs. Chapter Objectives The objectives of this chapter are  To examine the basic concepts of "the product" and the importance of this concept in marketing  To give an understanding of the features of product design and the factors which shape the "standardisation" versus "adaptation" decisions  To describe the production process and how value can be added in the process . Many product decisions lie between these two extremes. or lack of it. These can include the imposition of a global standardised product where it is inapplicable. devolving decisions to affiliated countries which may let quality slip. Errors in product decisions are legion. promotion and distribution channels are decisions on the elements of the "marketing mix". The decision whether to sell globally standardised or adapted products is too simplistic for today's market place. Cognisance has also to be taken of the stage in the international life cycle.Chapter 8: Product Decisions Chapter Objectives Structure Of The Chapter Basic concepts Product design Production decisions Branding and trademarks Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Decisions regarding the product.

however. This opens up a wealth of new marketing opportunities for producers. with many agricultural cash and food crops its form may stay the same (standard). for example an orange. It may have to be "Antarctic" in source. Quality. . Structure Of The Chapter The chapter starts by examining the basic concepts of the "product" including its physical (or objective) features and its image (or subjective) features. They can be convenience or shopping goods or durables and nondurables. As cited earlier. The chapter concludes by looking at the different types of product strategies.seen as having extension potential into other markets. Basic concepts A product can be defined as a collection of physical. an avocado pear is similar the world over in terms of physical characteristics. service and symbolic attributes which yield satisfaction or benefits to a user or buyer. for example. or it may be adapted (frozen orange juice) to meet different market needs and conditions. and subjective attributes say image or "quality". then a decision has to be made on its form either globally standardised or adapted to local conditions. Of course. and flavoured. one can classify products according to their degree of potential for global marketing: i) local products . the product's physical properties are enhanced by the image CARMEL creates. A failure to maintain these will lead to consumer dissatisfaction. as a prerequisite to export marketing. So. ii) international products .producing situations. This may involve organisations producing symbolic offerings represented by meaning laden products that chase stimulation-loving consumers who seek experience . To describe the major product strategies. but once the label CARMEL.products adapted to the perceived unique characteristics of national markets. It is becoming increasingly important to maintain quality products based on the ISO 9000 standard. is put on it. varying from a global approach to a micro-marketing approach at national level. In "postmodernisation" it is increasingly important that the product fulfills the image which the producer is wishing to project. method of operation or use and maintenance (if necessary) are catchwords in international marketing. Once the product is put into the design stage based on consumer research. A customer purchases on both dimensions. for example. iii) multinational products . size and shape. This is typified by agricultural machinery where the lack of spares and/or foreign exchange can lead to lengthy downtimes.seen as only suitable in one single market. selling mineral water may not be enough. A product's physical properties are characterised the same the world over. iv) global products . A product is a combination of physical attributes say.products designed to meet global segments.

Mexicans are loathe to take products from Brazil. in soups. but in India and Africa it may be essential equipment. World brands in agriculture are legion. In order to burn the abundant wood and move the prairie debris. packaging or labelling. In some cases "foreign made" gives advantage over domestic products. the more adaptation is necessary. provided the products are manufactured elsewhere even though its company maybe Brazilian. Most products fall in between the spectrum of "standardisation" to "adaptation" extremes. Changes in design are also subject to cultural pressures. in chemicals. Massey Ferguson. hence raising the opportunity to enter deeper into this market. therefore. the UK market is not yet. Factors encouraging standardisation are: i) economies of scale in production and marketing ii) consumer mobility . Whilst France has long been saturated by avocadoes. over the accompanying costs. the same item is a status symbol and. large smoke stacks and cowcatchers were necessary. The latter can be a factor both to aid or to hinder global marketing development. in tractors. for example food.the more consumers travel the more is the demand iii) technology iv) image. Few world brands. and this. say. The application the product is put to also affects the design. World brands are based on the same strategic principles. railway engines were designed from the outset to be sophisticated because of the degree of competition. In some markets product saturation has been reached. By putting a "made in elsewhere" label on the product this can be overcome. yet surprisingly the same product may not have reached saturation in other similar markets. Factors encouraging adaptation are: . Nagashima1 (1977) found the "made in USA" image has lost ground to the "made in Japan" image. Product design Changes in design are largely dictated by whether they would improve the prospects of greater sales. attempts are made to disguise or hide the fact through. have originated from developing countries. In Zimbabwe one sees many advertisements for "imported". Heinz. As stated earlier "perceptions" of the product's benefits may also dictate the design. kept in the kitchen or the bar. In Mexico. This is hardly surprising given the lack of resources. These world brand names have been built up over the years with great investments in marketing and production. for example "Japanese". same positioning and same marketing mix but there may be changes in message or other image. in tobacco. In the UK. A refrigerator in Africa is a very necessary and functional item. If the foreign source is negative in effect. "made in". however. kept in the living room. but in the US this was not the case. Bayer. which gives the product advertised a perceived advantage over domestic products. brands like Norsk Hydro are universal. Often a price premium is charged to reinforce the "imported means quality" image.Consumer beliefs or perceptions also affect the "world brand" concept. In fertilizers. BAT. In agricultural implements a mechanised cultivator may be a convenience item in a UK garden. The more culture-bound the product is.

v) Financial considerations. iv) History. perishability and supply and demand have to be taken into consideration. non tariff barriers. kapenta fish can be used as a relish. iii) Government . Maize. can we ensure continuity of supply? In manufactured products this may include decisions on the type of manufacturing process . branding. health requirements. These may be due to climate. the tea industry is a colonial legacy. it is essential that any supplier or any of his "outgrower" (sub-contractor) can supply what he says he can. For example. The main elements to consider are the production process itself. in horticulture. Sometimes.1 gives a checklist of questions on product requirements for horticultural products as an example6 . as a result of colonialism.i) Differing usage conditions. Production decisions In decisions on producing or providing products and services in the international market it is essential that the production of the product or service is well planned and coordinated. These facilities have long been adapted to local conditions. who successfully got the US Department of Agriculture to issue regulations establishing a minimum size of tomatoes marketed in the United States. Production process The key question is. production facilities have been established overseas. but wilt always be eaten as a "starter" to a meal in the developed countries. the physical product. culture. on or off the cob. job. tastes etc. both within and with other functional area of the firm. Eastern and Southern Africa is littered with examples. Sometimes. at restricting or eliminating competition. ii) General market factors . Some non-tariff barriers may be legitimate attempts to protect the consumer. culture or physical conditions.taxation. vi) Pressure. as failure to supply could incur large penalties. specifications. Canned asparagus may be very affordable in the developed world. In Kenya. It is only eaten whole. as in the case of the EU. The effect of this was to eliminate the Mexican tomato industry which grew a tomato that fell under the minimum size specified. particularly marketing. for example the ever stricter restrictions on horticultural produce insecticides and pesticides use may cause African growers a headache. In Zimbabwe. flow line or group technology. labelling. However in many agricultural commodities factors like seasonality. suppliers are forced to adapt to the rules and regulations imposed on them if they wish to enter into the market. In order to maximise sales or profits the organisation may have no choice but to adapt its products to local conditions. as is the sugar industry of Zimbabwe and the coffee industry of Malawi. labelling. would never sell in Europe rolled and milled as in Africa. A good example of this is the Florida tomato growers. but may not sell well in the developing world. batch. This is especially vital when contracts for supply are finalised. packaging. level of literacy. skills. import quotas. warranty and service. cited earlier. despite their supposed impartiality. Table 8.incomes.artisanal. for example. Non tariff barriers are an attempt. but they are deemed to be for the public good.

language and material . effect of packed separately or jumble-packed? different quality standards on price? *state of ripeness and should produce of the Problems with existing suppliers and produce? same ripeness be packed together? Volumes sold daily. best day and arrival time on market? Transport arrangements. labeling. if any? Potential and techniques for developing sales? Existing sources of supply Quantity and quality of horticultural crops are affected by a number of things. aesthetics. are sold at 55 dinars per box.Table 8. whilst not so attractive Iranian greens are sold for 28 dinars per box. Maritim (1991) 2. In Africa. that there are no consistent standards for product quality and grading. presence of stalks. Specifications are often set by the customer. but agents. sowing dates. day of arrival in market? Budget gross and net prices? Is the crop stored. generally. peak season and Type and size of packaging material? end of season? Packaging specifications. In one example French red apples. e. Some markets will not take produce unless it is within their specification. Many of these items will be catered for in the contract of supply. if so where and by whom? Volumes required? Frequency of shipment. product range and investment advice. Religion. *whether different sized produce should be average price. standard authorities (like the EU or ITC Geneva) and trade associations can be useful sources. Quality requirements often vary considerably. whose responsibility is it to arrange transport? Storage arrangements. values. maximum and minimum prices. well boxed. special festivals.g. monthly. variety. physical characteristics and marketing have to adapt to the cultural requirements when necessary. variety (choice). making it difficult to do international trade regionally. Culture Product packaging. weather. In export the quality standards are set by the importer. weight of produce per Grading and quality standards: packaging unit. start of season.1 Checklist of questions on product requirements by market Recommendations for new suppliers. or increased supply Current important suppliers? Best period of supply? Seasonality of supply. annually? *acceptable level of blemishes? Popularity trend? *important appearance characteristics such as Types of buyers and consumers? colour. e. These include input supplies (or lack of them). Use of crop? bunch size? Factors affecting sales. red apples are preferred over green apples.g. shape. type of packaging? Grading and quality standards? *acceptable size ranges? Prices obtained and net profit returned to farmer. Specification Specification is very important in agricultural products. In the Middle East. finance and credit availability. found.

labelling and packaging. Size. In fish products. whilst for products like pineapples a sea container may suffice. Physical characteristics include range. would ever pass the hygiene laws if sold internationally. quality. Again labelling is expensive. ones where production techniques may not be standardised. It protects the product from damage which could be incurred in handling and transportation and also has a promotional aspect. Again a number of these characteristics is governed by the customer or agent. the Japanese demand more "exotic" types than. self image. for sea cargo containers are often the best form. None of the dried fish products produced by the Zambians on Lake Kariba. For example. strawberries and so less in demanded. especially if the product is a world brand. size. unit type. Tanzania). for example . In sophisticated markets like seeds. Labels may have to be multilingual. but may be promotional (symbols for example Cashel Valley Zimbabwe. color. Effects of culture on production decisions have been dealt with already in chapter three. cognisance has to be taken of cost and country legal requirements. in beef products sold to the EU there are very strict quality requirements to be observed. say. would be sold in the UK. the variety and range is so large that constant watch has to be kept on the new strains and varieties in order to be competitive. Packaging Packaging serves many purposes. Government labelling regulations vary from country to country. Physical product The physical product is made up of a variety of elements. reusable packaging is now the order of the day. This could be very demanding for producers. The EU is now putting very stringent regulations in force on labelling. especially small scale. quantity and compatibility. the developed countries often demand blister packs for mangetouts. even to the degree that the pesticides and insecticides used on horticultural produce have to be listed. and in promotion terms non-standard labels are more expensive than standard ones. Increasingly. The customer may also decide the best form of packaging. and sold into the Lusaka market. Bio-degradable. It can be very expensive. In manufacturing or selling produce. In horticultural produce. For aircraft cargo the package needs to be light but strong. environmental aspects are coming into play. beans. Consumers are looking for benefits and these must be conveyed in the total product package.plastic. HJ Heinz. Translation could be a problem with many words being translated with difficulty.culture all affect production decisions. This can be both expensive and demanding for many developing countries. Subjective attributes are determined by advertising. Labelling Labelling not only serves to express the contents of the product. weight and volume are very important in packaging. These elements include the physical product and the subjective image of the product. Packaging which is nondegradable . recyclable. shape. Bar codes are not widespread in Africa. but do assist in stock control. . Africafe. Costs of packaging have always to be weighed against the advantage gained by it.

fans and card clothing. Warranty Many large value agricultural products like machinery require warranties. The consequences are damage in the blowroom and carding and danger of fire. unless all countries are members of a convention. It is common practice in Africa that if the original equipment has not been bought through an authorised dealer in the country. are automated and are of a precision for constant quality provision. that is they can usually switch to a variety of yarn requirements. Now. strength. that dealer refuses to honour the warranty. it also actually builds up consumer resistance to the dealer. colour and trash content. There are strict process controls and built . for international transportation will be dealt with later under documentation.1 Cotton Production/Marketing Interface Spinners Machines are highly flexible. As well as the demands of modem machinery. For example when new dealers spring up. Poor raw material. picking and ginning is of a very high standard. Brand "piracy" is widespread in many developing countries. Spinners require raw cotton which is free of trash. . This is unfortunate. fineness. Other aspects of branding include the promotional aspects. the reticent. Case 8. efficiency of weaving and knitting and the efficient running of the spinning plant. for one. and hence enhance the "subjective" product characteristics. A family brand of products under the Zeneca (ex ICI) label or Sterling Health are likely to be recognised worldwide. damages opening mills. grid knives. Branding and trademarks As mentioned in chapter four. bark and foreign fibres and. The machines are geared to high production. especially when contaminated with metal particles. dealer will suffer. dust. When the consumer is eventually offered a choice. Cotton grading The Liverpool Cotton exchange. Further requirements are a certain length (could be short. the growers have to ensure that the production. Previous devices employed to remove these (magnets) are becoming less effective. because not only may the equipment have been legitimately bought overseas. maturity and a certain elongation and colour. relied on the skills of its experts to manually classify raw fibre purchases for its clients. will not nep the cloth. sugar and honey dew contamination. etc. seed coats. it is difficult to protect a trademark or brand. Suppliers In order to meet these high quality demands. the lack of standardised measuring and cotton classification procedures has resulted in commercial conflict and legal disputes about the true nature of traded cotton. It still holds the "standards" for length.). Unfortunately not everyone upholds them. uniformity of length. medium or long). Quality is therefore defined as properties of the end use (clothing quality control.Requirements for crate labelling.

Good original equipment manufacturers will insist on training and updating as part of the agency agreement. which make obtaining spare parts difficult. Service In agricultural machinery. In 1990/91. These include length and length uniformity. Manufacturers include SPINLAR INC.communications adaptation . distributor or dealer in the foreign country. Product communications extension This strategy is very low cost and merely takes the same product and communication strategy into other markets. service is a prerequisite. Product strategies There are five major product strategies in international marketing. cotton can be used as an example. of Knoxville.000 tonnes were sold overseas at a value of Zim$ 238 million. Also today's spinning equipment is highly technical and the spinner wishes to avoid costly breakdowns by all means. leaf and colour. Many organisations attempt to get around this by insisting that a Third World buyer purchases a percentage of parts on order with the original items. particularly those in the export market. this is no fault of the agent. It did not work. For cotton exporters the system offers the following advantages:  enhanced objectivity in classification  improve communication if similar systems are used by sellers or buyers  reduced conflict and need for arbitration  enhanced competitiveness against synthetic fibres  improved integration with modern spinning machines  reduced costs on training of experts and in measuring time. Allied to this problem is the poor quality of service due to insufficient training. In order to illustrate the above points. For example CPC International believed the US consumer would take to dry soups. However it can be risky if misjudgments are made. processing equipment and other items which are of substantial value and technology. As the spinners. Extended product . The system can handle large numbers of bales. In selling to many developing countries. Often. The system can process 2000 bales per day and give a printout on the seven parameters of grading. which dominate the European market. USA. Cotton is a major foreign exchange earner for Zimbabwe. are in a highly competitive industry. strength and elongation. but due to exchange regulations. it is essential that the raw material is as clean as possible. reduce variation in classification and the need for highly trained bate classifiers. micronaire or fineness. manufacturers have found their negotiations at stake due to the poor back-up service. based high volume instrument listing systems of raw cotton (HVI systems) are available.

the preferences of the potential customers and the ability to buy the product in question. This is very much a strategy which could be ideal in a Third World situation. Table 8.000 tons. In 1980 world canned tuna imports stood at some 110.2. and the costs of adaptation and manufacture to the company considering these product . Japan and Europe.communications adaptation Both product and communication strategies need attention to fit the peculiar need of the market. but different product functions have to be identified and a suitable communications mix developed. world tuna imports quadrupled to 437.communications approaches. The development costs may be high. The choice of strategy will depend on the most appropriate product/market analysis and is a function of the product itself defined in terms of the function or need it serves.2 International strategic alternatives Product strategy 1 Extension 2 Extension 3 Adaptation 4 Adaptation 5 Invention Communications strategy Extension Adaptation Extension Adaptation New Product/functions Conditions of Met product use Same Same Different Same Same Different Different Same Different Examples Pepsi Soups Agriculture chemicals Farm implements Tyson turbine water pump Thailand tuna CASE 8. Product invention This needs a totally new idea to fit the exclusive conditions of the market. Product adaptation .If the product basically fits the different needs or segments of a market it may need an adjustment in marketing communications only. Thailand Tuna The case of Thai Tuna is a good example of the fifth product strategy alternative. but the advantages are also very high.2 summarises the strategic alternatives with examples4. Again this is a low cost strategy. the market defined in terms of the conditions under which the product is used. prices depressed and rising operating costs were leading to the closure of the tuna processing facilities in the US. up to 1990. However. Table 8. Product adaptation . The assumption is that the product will serve the same function in foreign markets under different usage conditions. world consumption was stagnant.000 tons with large scale canning operations .communications extension The product is adapted to fit usage conditions but the communication stays the same.

Historically the eastern Atlantic and Pacific were the most important areas but in the 1970s. On the other hand. but a significant drop in prices accompanied this increase. Mr. The case of Sunsplash Zimbabwe is an example. As well as the above. In 1990. Product decisions epitomise marketing planning and are the manifestation of marketing strategy. The reason for this was the shift in fishing patterns.7 million tons in 1980 to 2. Comparative analysis is a very useful technique also for new product introduction. the international life cycle can work against domestic producers. In 1980 it did not export one single can. strengths and weaknesses. US vessels began to exploit the tuna shoals of the Western Pacific and European vessels the Indian Ocean. adding that the Sunsplash range of fruit juices would be available over the next four months until remaining stocks had been exhausted. The end consumer and channel considerations have to be taken into account and the product extended or adapted accordingly. The Thai industry development was rapid and interesting because it was based on imported raw materials. The idea behind this concept is that if underlying conditions existing in one country are similar to those in another then there is a likelihood of a product being successfully introduced. This was basically an "invention" product strategy. In launching new products into international markets. Michael Willmore said production ceased at the end of last month. Thailand was in a position to capitalise on these new low cost suppliers and in the early to mid 1980s several fruit and vegetable canners and other entrepreneurs invested in large modern processing facilities specially for fish. low cost labour. The result was the increase of landings from 1. backward integration into production and the efficient use of by products from processing. Sunsplash. Thailand's largest processor look over the third largest tuna canner in the US.000 tons.3 Imported Juice Helps To Kill Off Sunsplash A fruit juice processor. enabling it to take advantage of the llatter's exclusive distribution network and well-established brand names.5 million tons in 1988. since its establishment in 1984. The factory had. The introduction of a second country product into a first country which has had a "closed economy" can sometimes kill off local production if that local producer cannot respond to the imported product's competitiveness. leaving 15 people without employment.000 tons (51% of world market share) with a gross value in 1989 of US$ 537 million. Willmore said high transport costs as well as competition from imported products had affected the . whilst its imports of foreign tuna (mostly skipjack) has increased past the 250. No country experienced the dramatic development more than Thailand. These decisions are not to be taken lightly. the international product life cycle concept is crucial. again as indicated in chapter one. Latter. Their operating costs were kept low by efficient management. has stopped production of juices following declining business.shifting to several lower cost developing countries. In order to gain access to and capitalise on the expanding markets in the US and Europe (except France which favoured Francophone African suppliers) Thai canners entered into packaging arrangements with American and European firms. Tuna landings by Thai vessels rarely exceeded 30. Company director Mr. processed a variety of fruit juices for the Zimbabwean market. Case 8. Thailand exported 225. organisations have also to consider the international product life cycle (described in section one) and the "fit" of the strategy into the company's portfolio.000 ton mark.

a technology which enables fruit juices to be processed without the use of chemical preservatives white providing an unrefrigerated shell life of six months. an adaptation strategy. By simple statement of fact. adaptation. that is. promotion and people decisions. which is the means by which an organisation reaches its target market." He also criticised the lack of incentives in Masvingo. The innovation would have greatly enhanced the product and provided export potential. added that the demise of Sunsplash was more complicated than more proximity to major markets. specification. This results in the evolution of five basic strategic alternatives . Willmore. combined with high interest rates. Mr.8 million investment unviable". He said incentives such as lax exemptions offered at growth points and Export Processing Zones (EPZ) would he more ideal for Masvingo because it was well located from the Mozambican port of Beira as well as South Africa. Chapter Summary The marketing mix. adaptation. Product decisions are based on how much the organisation has to adjust the product on the standardisation . communications strategy and Invention at the other end of the continuum. Sunsplash was not viable on the reduced volume. which had been established in Masvingo in response to Government calls for industry to decentralise. extension.viability of the company. both central government and local municipal authorities will have to offer industries more attractive incentives to invest En Masvingo". he said. This made the town an ideal location for EPZs. *In my opinion. The more adaptive the policy the more costly it will be for the organisation.adaptation continuum to differing market conditions. distribution. "The introduction of (imported) products into the Zimbabwean market rapidly eroded our market share from over 1 million litres to a mere 450 000 litres annually. made the $5.) and product line management. adaptation and invention. is made up of product. style. however. pricing. Product decisions revolve around decisions regarding the physical product (size. Extension is the nearest to a standardised product.extension. particularly for new investors. "The company desperately needed to make me transition to aseptic packaging. but regrettably. Key Terms Adaptation Global products Local products Product strategies Multinational products Standardisation . cashflow constraints within our holding company (Afdis). etc. These are usually shortened to the anacronym "5P's". extension.

Market factors .Advertising .g. farm implements  Product invention.International products Product - Review Questions 1.g.Technology . e.Service 3. Pepsi  Extended product.g. regulations 2.History e. advertising . Describe. colonialism . e. communications extension.g.taxation. communications adaptation. agrochemicals  Product adaptation. Thai tuna .Differing usage conditions . communications adaptation. 3. Product strategies  Product communications extension e.g. shape.Labelling . Product Specification. with examples. Image.g.Government .Image. e. quality standards. e. .Economies of scale . Review Question Answers 1. e.Pressure. Describe the principle elements of "the product".Warranty .Trademark .Consumer mobility . the five major product strategies available to global marketers. colour.Financial considerations . "Made in Japan" b) Adaptation . What factors are important in the standardisation versus adaptation product decision process? 2.g. style. e.g.g. Give examples. Factors a) Standardisation .g. e. soups  Product adaptation.Branding .Production and Marketing . quotas etc. e.

pp. Washington 5. January 19 1995 Bibliography 6. "Business Herald". 187-127.. A comparative "Made . Carter (Ed) "Horticultural Marketing. pp 31-53.B. 3. Bischofberger. J. 7... International Trade Centre UNCTAD/GATT." Global Marketing Management". Sunsplash. Keegan. Proceedings of the Sound Regional Workshop on Horticultural Marketing" 1991. 1989. Dixie. . the World Bank. Prentice Hall. 95-100. FAO Agricultural Services Bulletin 76. "Horticultural Marketing".. Geneva. "What Spinners Want. (1993) "Exporting High Value Added Commodities". G. Jaffee S. "World Bank Discussion Paper" 198. "Post Harvest Handling Produce in Eastern and Southern Africa" in S. In Training Manual on Cotton Trading Operations". July 1977 pp.R. W. 4.References 1. Maritim H.. 2.1989.J. Thursdays. 1989.In Product Image Survey Among Japanese Dimension Sound of Marketing". Nagashima A.

money has to be raised. If it is not sufficient to cover the whole of the production. then the system is in trouble. Chapter Objectives The objectives of this chapter are:  To describe the elements of the International Financial System  To give an understanding of the sources of funds available to finance operations and their impact on prices  To examine the elements involved in the pricing of products and services . The cost of capital has to be included in the price as well as the possible effect of changes in exchange rates if the capital is raised internationally. The money may be raised locally. part of the surplus may be sold on the international market. say by the issue of bills. and the foreign exchange rate is an important determinant of a company's cost of production. This scenario has indeed been the case in many African nations in a number of commodity fields. the export of maize. for example. Price is.Export Credit Guarantee System Pre.and Post-Shipment Support Facility Currency transactions Option Concluding comments Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Pricing products or services in international marketing is not an easy decision.Chapter 9: Pricing And Financing Chapter Objectives Structure Of The Chapter The international financial system Pricing products Global pricing Financing of exports Malawi . When the maize is bought. financing and marketing costs. or administered by a Board. a function of cost. When borrowing capital to do business the cost of that capital can be very influential in the price decision. Firstly the crop has to be bought from the producers. or on the international market. If we assume that the system is state owned. Take. in part.

Price is a function of cost in part. The main elements were fiscal exchange rates for all currencies. but also the cost of capital. donations and security for financial obligations. Foreign exchange rates. Its allocation is based on a formula which takes into account factors such as share of world trade and can be used to help balance of payments situations or settle financial obligations like swaps. directly impact on the production quality and effectiveness of a company's marketing effort. the Allies met at Bretton Woods to create an international monetary framework that would support post war construction and economic growth. important as these are. reflected in the price and intangible attributes of the product. not only has the material and labour to be considered. . The chapter. The international financial system When conducting business across international boundaries. tight bands of fluctuation around the pegged rates. Post war Europe In 1944. In 1971 the gold system collapsed because of the US balance of payments deficit. a dollar defined in gold equivalent and controlled adjustment in fixed exchange values. Subsequently two organisations developed. and dealing with foreign exchange. Customers buy value. Structure Of The Chapter The chapter begins with a brief description of the international financial system and then describes the methods of pricing. the International Bank for Reconstruction and Development (IBRD or World Bank) which was chartered to help war-torn countries' economic reconstruction and the International Monetary Fund (IMF) which was chartered to oversee the management of the international financial system. the risks rise enormously. therefore. Today's system What emerged from the collapse was a managed dirty float (due to supply and demand) with special drawing rights (SDR). both internal and external. the Third World was accumulating dollars and they far exceeded the US supply of gold. goes into detail on the issues of funds. In order to mark up prices. So the chapter concludes with a detailed analysis of options. Particularly. and foreign exchange affects the cost position. An increasing feature of global marketing is the futures market. Foreign exchange is the way business can be conducted across national boundaries. "Dirty" refers to actions by governments participating in exchange rates to influence rates. hedges and futures. "managed" refers to the effort by governments to influence exchange rates with fiscal or monetary policy instruments. To look in detail at the options. therefore. SDRs were created by the IMF to supplement the dollar and gold reserves. hedges and futures markets  To show the interrelatedness of all the above in pricing decisions. and particularly on pricing strategy. especially the impact on financial resources and decisions.

If prices in local currency rise faster or more slowly than prices in the rest of the world. its currency value will rise and vice versa. In forecasting foreign exchange rates it is important to take account of purchasing power parity (PPP). New York and Tokyo are the major markets with a turnover worldwide in excess of US$ 200 billion per day. speculative purchases and sales distort the picture. provides temporary balance of payment assistance and technical assistance.Most countries of the world are members of the IMF which. this can lead to an official or unofficial black market. Foreign exchange Foreign exchange is currency bought or sold in the foreign exchange market. The lower the level of inflation. one unit of currency should buy the same amount of goods and services as it bought in an equilibrium period. The "market" is the total of persons who buy and sell and involves various financial and other institutions. exercises surveillance over exchange rate policies of members. the greater will be the PPP effect. amongst its many functions. The principal players are the banks (interbank market) and others including the London International Futures Exchange (LIFE). manages the SDR. The formula to calculate the PPP impact and exchange rate is: where . In Africa. Often they get involved in extensive trading to stem the rise in currency value so exports are not harmed. The "spot" market is for the immediate delivery. short and long term capital flows. If foreign exchange rates were set simply by money exchanged for goods and services then forecasting exchange rates would be easy. However. therefore. If a country sells more than it buys. an equal adjustment of the exchange value of the currency in the opposite direction will restore equilibrium to relative price levels. a continuation of economic analysis and judgement. The forward market is for future delivery. The demand for one currency may be due to consumers wishing to buy from overseas or a belief that one country's currency is stronger than another's. where exchange controls occur in some countries. Forecasting exchange rates Exchange rates are very difficult to forecast due to a multitude of factors. that is. Governments intervene to dampen fluctuation in exchange rates. Also currency allocation is a feature which tends to slow down business or hinder its development. The price of one currency in any other currency is the result of forces of supply and demand in the foreign exchange market. Forecasts are. The foreign exchange market is very dynamic. London. or in the interbank market within two business days. of foreign exchange. despite differential rates of inflation.

Other factors affect the foreign rate of exchange other than just PPP. The index is a trade weighted index (based on world trade share). the exchange rate after one year is (UK home country): Sti=0. or minimum price. dumping problems. inflation. Pricing products Three basic factors determine the boundaries of the pricing decision .expectations. the price ceiling or maximum price. forward market prices. monetary and fiscal policy. One of the issues in analysing a country's competitive position is the critical adjustment of the exchange value of a country's currency.08 or UK£ = Zim$ 1 or UK£ 1 = Zim$ 12. the PPP is not a very reliable forecasting technique. middlemen and so on.balance of payments. etc. elections  psychological factors . and that the rate of inflation in Zimbabwe is 30% per annum. real and nominal interest rates. government controls and incentives. For example assume that the exchange rate between Zimbabwe and the UK is Zim$ 10 = UK£ 1. In addition. Assume that the rate of inflation in the UK is 5% per annum. a function of demand and the cost of supplying the product. Applying the above formula. transportation costs.5 Unfortunately as levels of inflation are difficult to predict and foreign exchange transactions are other than solely for purchasing goods and services. bounded by competition and the market and the optimum price. bounded by product cost. These are:  economic factors . taken of government tax policies.  political factors .S = the spot rate of exchange in the number of units of the home currency equal to one unit of the foreign currency in = the inflation rate in the home country ir = the inflation rate in the foreign country t = the base period or the present time t+1 = the future time period as defined. Whilst many agricultural products are at the mercy of the market (price takers) others are . Indices are issued by various bodies like the IMF.the price floor. in price setting cognisance must be. traders' attitudes. resale prices.philosophy of leaders.

In setting prices. development costs are high and demand is relatively inelastic. The three price policies are illustrated in figure 9. Market holding is a strategy intended to hold share. Export pricing . Three frequently encountered price polices are market penetration. these do not always do so. Here products are not based on straight exchange rates at current rates but on what the market can bear. crocodile products and hardwoods. These include high value added products like ostrich.1 Pricing policies The assumption behind all three pricing policies is that the underlying conditions governing supply and demand apply. where demand outstrips supply at present.1. Few organisations can now be pure profit maximisers . if indeed ever. Figure 9.there is hardly a sector of industry where competition. A high price (skimming) is used if the product is fairly unique. skimming and holding.not. In reality. it must be made clear what the objectives and policy are. A low price (penetration) is a volume policy. or potential competition is not prevalent.

the historical accounting cost method and the estimated future cost method. can be determined. However.a price governed by competition. despite all the problems associated with price fixing. In products of a raw commodity nature or those traded on the international market subject to world prices. Once these price levels have been established the base price. the price will be suppressed for all. if too many farmers grow it. Competitive pricing: Whilst costs are important they should be looked at alongside the prices of competitive products in the target markets. This involves four steps: i) estimation of demand schedules ii) estimation of incremental and full manufacturing and marketing costs to achieve projected sales volumes iii) selection of price which offers the highest contribution iv) inclusion of other elements of the marketing mix. At one time exotic produce like Malaysian starfruit and rambutans could command a high price due to their scarcity. often the producer has no alternative but to take the going price . as in Africa. These steps are by no means easy. with the Kenyan avocado market. more entrants are drawn into the market. an export crop fails. In other cases the product may be so unique that the company should capitalise on its rarity by charging a high price. encouraged by the profit margins.Actual pricing methods are usually cost. In reality. If. This was the case. If the supplier is one of a few. An Israeli crop failure gave an unprecedented boost to Kenya's price and production. The problem is. for example. Market pricing: In certain products one can charge "what the market can bear". especially on the supply side. the market may be able to bear a high price. costs may be a useful starting point but should never be used as a final arbiter. Costs are difficult to assess properly as are demand conditions. market. Cost plus pricing: There are basically two types under this heading. or price that the buyer will pay for the product. although tobacco prices internationally may be encouraging. or competition oriented. then other suppliers can take advantage of this to charge higher prices for a similar export crop. Estimated cost approaches are based on assumptions of production volume (depending on process) which will be a principal factor determining costs. In Malawi.1). . other factors come into play. in the international arena. Again difficulties may lie in trying to estimate production levels. The former includes direct and indirect costs and has the disadvantage of ignoring demand and competitive position in the target market. a few years ago. Price escalation One major feature of international pricing is the increase on the price due to the application of duties and so on (see table 9.

64 0. Actions to maintain margins are subject to government controls (a . Dumping Dumping.26 is less than the domestic price. Inflation Inflation is a world wide phenomenon. is the difference between the normal domestic price and the price at which the product leaves the exporting country. These price increases may be passed on to the customers.96 13. as defined by GATT. and requires periodic price adjustments.40 9. it can be negated by the higher price and costs induced by inboard goods and services which make up the export product. prices can be maintained if the competitive position is strong. Devaluation and revaluation Devaluation is the reduction and revaluation an increase in the value of one currency vis à vis other currencies.68 1. If the product is inelastic in demand. Under the floating exchange rate system devaluation and revaluation occur when currency values adjust in the exchange rate system in response to supply and demand. However. the revaluing country's prices are more expensive.1 Price escalation Target price in foreign markets Less 40% retail margin on selling price Retailer cost Less 75% importer/distributor marking up cost Distributor cost Less 12% value added tax on landed value and duty CIF value plus duty Less 9% duty on CIF value Landed CIF value Less ocean freight and insurance Required FOB price to achieve target price 25. In revaluation.Table 9. Inflation accounting methods attempt to deal with the phenomenon.00 15.96 10. A discussion on dumping has been given fully in chapter four. the firm has alternatives: i) forget about exporting ii) consider marginal pricing iii) shorten the distribution channel iv) modify or simplify product if possible v) find an alternative source of supply with lower cost.26 If 9. The idea behind devaluation is to make the domestic price more competitive and so more of the product can be bought for the same foreign currency. It is essential to retain gross and operating profit margins.40 11.04 1.00 10.00 1. absorbed or the domestic price may be reduced.

Prices may be unrealistic so this method is seldom used.  Transfer at an "arm's length": this is the price that would have been reached by unrelated parties in a similar transaction. Government controls. There are four basic approaches to transfer pricing.  Transfer at cost: few practise this. to work out an agreement in advance. The tax authorities' criteria of "arm's length" prices is probably the most appropriate for joint ventures. Harmonisation of tax rates worldwide may make the intricacies of transfer pricing obsolete. therefore. attitudes of governments and so on. like cash deposits on importers. provide divisional flexibility and also further corporate profit goals. Transfer pricing Transfer pricing is more appropriate to those organisations with decentralised profit centres. which recognises foreign affiliates contribute to profitability by operating domestic scale economies. forcing the price of its tranquilisers downwards. Transfer pricing is used to motivate profit centre managers. A low income tax creates a pressure to raise the transfer price to locate income in the low tax setting. Pricing at "arm's length" for differentiated products results not in a specific price but prices which fall in a predeterminable range. Profit transfer rules may apply which restrict the amount of profit transferred out of the country. Joint ventures These present an incentive to transfer price goods at a higher rate than one that would have been used in transfer pricing goods to their own wholly owned affiliates because the company's share of the joint venture earnings is less than 100 percent. Price adjustments may affect the demand for products. joint ventures.  Transfer at direct cost plus overheads and margin.  Transfer at a price derived from end market prices: very useful strategy in which market based transfer prices and foreign sourcing are used as devices to enter markets too small for supporting local manufacturers. . This gives a valuable foothold. Similar to that in transfer at cost. Other controls look at monopoly pricing like the case of the British Government against Hoffman-La Roche. The problem is identifying a point "arm's length" price for all products other than commodities.typical African situation is where governments use price or selective price controls rather than rooting out the underlying causes of inflation or foreign exchange shortages). Rates of duty encourage the size of the transfer price: the higher the duty rate the more desirable a lower transfer price. It is important. Many governments see transfer pricing as a tax evasion policy and have. Across national boundaries the system gets complicated by taxes. competitive behaviour and the market itself. looked more closely at company returns. give an incentive to minimise the price of the imported item. and this is the ultimate arbiter of price alterations. in recent years.

Sources of funds can be both internal and external to the organisation. A very simple method but does not respond to market sensitivity. Innovation A mix of a) and b). hire purchase export credit guarantee schemes etc. Financing of exports Financing exports is a major decision area and one of some considerable complexity. In addition it recognises the fact that headquarters price coordination is necessary in dealing with international accounts and arbitrage and it systematically seeks to embrace national experience. Transfers within group: May take the form of loans. dividends. It prevents problems of arbitrage when the disparities in local market prices exceed the transportation and duty costs separating markets. A discussion on sources of funds is appropriate in a chapter on pricing as it is a "cost" which affects the end price and must be accounted for in selling prices. Whilst transfers are a greater risk than internal subsidiary funding they are more flexible in dates of payment. Internal sources include subsidiaries and transfer within groups. Remittances back in interest. adaptation (polycentric) and invention (geocentric). investment capital. Adaptation Different prices in different markets. External sources . income levels and local marketing strategy. Extension The same global price. The only control is setting transfer prices within the corporate system. competition. This takes cognisance of any unique market factor (s) like costs. Internal sources The subsidiary: Self-funding obviates the need for currency transfers and avoids exchange rate fluctuations. direction (one subsidiary to another) and type and scale. will depend on tax liability operating in the host country (see previous sections). The major problem may be the lack of sufficient funding which requires parent contribution.Global pricing There are three possible global pricing policies . material and/or licences. External sources include the international money markets. etc. It also lessens the burden on the parent company.extension (ethnocentric). factoring. leasing.

In order to fulfill its export development function. certain risks and guarantee losses will be inevitable and will have to be accepted. The facility is expected to be financially self-supporting in the long run. leaving only excesses for exposure to transfer risk. Their know-how would support the new activities although it is not directly of the kind required to run the facility. A separate accounting system will support the reputation of RBM's role as a specific guarantee organisation. Currently the section employs five professional staff dealing with export payments. RBM and participating banks will establish an informal Consultative Group for the support of the operative staff to:  discuss on-going export credit and guarantee activities  provide guidance and recommendations to improve the performance of the facility. Export credit guarantee facility: The export credit guarantee (ECG) facility contributes to the growth and diversification of an export base by providing collateral support through guarantees to the banks extending pre. To strengthen the collaboration.or post-shipment financing to enterprises for nontraditional export production and sales. Export credit schemes and pre and post-shipment support facility: Zimbabwe does not have guarantee facility. Participating banks are expected to have an important role in the institutional set-up of the facility. so the schemes available are described in the following sections. The facility will maintain separate accounts from those of the RBM which would be annually audited. The immediate professional staffing needs of the facility include two senior officers one for supervision of activities and administration of the ECGF and the other for operations to process guarantee claim . however. Malawi's facility (below) serves as an example of an ECG scheme. which means that the guarantee fee income will have to cover administration costs and claim payments. Malawi . interest payments raised locally can be paid out of revenues.Export Credit Guarantee System Institutional set-up The implementing and managing agency of the facility would be the Reserve Bank of Malawi (RBM) which.Host country borrowing: Offers two advantages. They would not only extend financing to be guaranteed but also maintain suitable records on export credit and guarantee transactions for monitoring purposes and promote exporters to use the facility. The preliminary plan is that the facility be located in the export section of the Exchange Control Department of the RBM. Malawi is in the process of setting one up. will develop required administrative services and establish an Export Credit Guarantee Fund (ECGF) to meet claims and to be credited with guarantee fee payments by participating banks. Firstly it reduces the loss if expropriation occurs and secondly. The facility will help such exporters to secure financing and the facility will increase confidence among foreign buyers that exporters can fulfill their contractual commitments as reliable suppliers. Periodic management reports will be prepared on the operations of the facility.

. Their organisational and reporting positions should be designed to attract skilled and motivated individuals to run the facility. Therefore. 'it is possible that pre-shipment credit guarantee needs to be higher than the export price of the product. export traders have to prove that their products are locally manufactured with a value added as mentioned above. Pre-shipment credit guarantee: The pre-shipment credit guarantee is designed to provide collateral for bank credit of up to a maximum of 180 days. the facility will be available to all types of Malawi exporters of non-traditional products including not only industrial and agricultural producers but also export merchants and traders. The principal repayment source for a bank credit will be the export bill but it is the exporter's responsibility to repay the credit notwithstanding the foreign buyer's payment. that is. granted in an amount of up to the domestic production/processing costs. Post-Shipment credit guarantee: The post-shipment credit guarantee is designed to provide collateral to a bank credit that is granted to refinance the supplier credit extended by the exporter to his foreign buyer. The policies Risk covered: The RBM credit guarantees will cover the risk of non-payment of exporters to the participating banks. Eligibility The primary objective of the facility is to increase production for export.and post-shipment advances to the exporter who occasionally sells abroad (Individual credit guarantee). to be eligible for the guarantee of the facility manufacturers have to show that their export products contain at least 30% local value added. that is. Packing/individual credit guarantee: Under the above categories of pre. However. a guarantee limit is usually granted within which individual export transactions of the exporter are then financed and guaranteed (packing credit guarantee). Because the domestic costs may include refundable duties at shipment. A guarantee may also be provided without a pre-established limit against a specific export order to cover pre. The validity of the guarantee will always be in accordance with the production period. from the purchase of inputs until the date of shipment and equal to the duration of the credit. The maximum amount of credit to be guaranteed is the same as the supplier credit and the maximum guarantee period 180 days. exports will not be classified in this regard in order to widen the risk of spreading of the guarantee portfolio so as to strengthen the self-sustaining nature of the facility. It is expected that a guarantee for pre-shipment finance will be more often used than postshipment guarantees because the exporter is usually paid under a Letter of Credit. Similarly. Although the facility is designed to complement rather than substitute normal collateral. When this is the case the exporter will not need either post-shipment finance or guarantee coverage.applications.and postshipment credit guarantees.

5% per annum for pre-shipment stage and 0. However. However.and Post-Shipment Support Facility a) Pre-shipment credit scheme Objectives The objective of this facility is to support. The fee is charged on the highest amount outstanding at any time during the month. In addition to claims. Resource and assessment RBM will not require any counter-guarantee or collateral from the exporters. It would provide a cover for a guarantee portfolio of K40 million applying a risk ratio of 10 percent. It is therefore important that sufficient expertise be developed in RBM for its own risk assessment on exporters and their foreign transactions to minimise guarantee losses. guarantee fee income and interest received on investments of ECGF. As for determining its size. are potentially risky. Pre. based on the annual non-traditional exports volume (roughly K100 million) and assumptions on turnover and utilisation of bank advances it is estimated that K4 million will be sufficient. It is not expected that the fund would be immediately required for claims. the capital income of ECGF may be used for covering the operating cost in initial stages of exporter's development. through provision of finance:  exporters who import certain inputs in order to complete manufacture of their exports . foreign receivables will be usually transferred to the benefit of the bank or RBM. Export Credit Guarantee Fund The facility includes an export credit guarantee fund (ECGF) that is needed as a resource base to meet claims if and when they arise. ECGF is composed of the capital itself. In addition to risk assessment the size of the guarantee fee is also dependent on the operating cost of the facility. in their judgement. RBM reserves the right of recourse to the exporter to the extent that claims have been paid to a bank due to the default of the exporter.75 -1.Guarantee fee Depending on the risk assessment.24% for post-shipment. It is expected that the bank would be inclined to seek guarantees to cover clients who. The creation of the ECGF will also provide assurance that the RBM/Treasury is prepared to pay those claims. the guarantee fee may vary between 1 . because guarantee liabilities will accumulate slowly. the statistical base is vague because commercial banks do not separate advances to foreign and domestic production of their clients.1. The aim of a recourse to the exporter is to discourage a solvent exporter escaping his repayment obligations to the bank just because the bank has secured a guarantee cover for the credit.

all traders and exporters engaged in export business of any form should be eligible for assistance. In the case of Israeli citrus and Brazilian frozen concentrated orange juice. Subsequently these inputs may be produced locally though licensing or direct foreign supplier investment.). in a non-marketing sense. b) Post-shipment credit Objectives The objective of this scheme is to support. Donor agencies and foreign investors: Financial institutions like the World Bank. breeding stocks. . Credit from foreign distributors or direct foreign investment. Whilst "capital" in this situation primarily refers to monetary elements. the needs of the exporter during the period between shipment of goods and receipt of payment from abroad. Therefore. etc. marketing and/or transport infrastructure (irrigation. processing plant and so on. many agricultural products rely upon imported technologies in the form of seeds. bilateral and multilateral aid and direct foreign investment can all be useful sources of funds. for the purpose of purchasing raw materials. bilateral or multilateral development did contribute to the development of production. exporters who require working capital in order not to disrupt the production process while awaiting export proceeds that are due on credit terms. training and management skills are also important forms of "capital". The need for post-shipment credit will vary according to the method of payment and nature of goods. Because of the export nature of this finance it must be provided on terms more favourable than borrowings that are purely for domestic consumption. Table 9. through provision of finance. of firm export orders. or contributions from donor agencies in production and/or marketing facilities can all play a role in the "initial" take off of agricultural commodities. planting materials. particularly the non-traditional exporters. c) Eligibility Exporters/traders may be eligible for assistance in respect of the following:  all types of advances  packing credits  pre-shipment loans  post-shipment loans through discounting bills or letters of credit. manufacture.2 shows the amount of foreign capital and technology in selected commodity systems as an example. Projects executed by the Food and Agriculture Organization (FAO) and other donor agencies can provide "seed" capital or complete capital for agricultural projects which may yield goods and services for international marketing. processing. Similarly. technology. packaging etc. port facilities.

i) Overdrafts and loans The security for these is the documents of title to the goods. So the drawee receives and the drawee pays in their respective currencies. Government: As well as credit issuance schemes. banks will look at the exporter.2 The amount of foreign capital and technology in commodity system development. Acceptance and discount facilities are also available. Documentary bills for negotiation by banks which have a subsidiary or branch in the drawer's country may be claimed "exchange as per endorsement". such as those described in iii). For . When issuance drafts are called for. The negotiating bank pays the face amount of the bill to the drawer. a bank overseas. or to the order of. in the event of a default. and evidence that goods have been consigned to. ii) Negotiations of outward collections Financing by a bank of export documents is normally on the understanding that the transaction is with recourse to the exporter. By having a "red clause" inserted in a credit a beneficiary is able to receive advance payments. Until confidence is established. government may also operate an export reimbursing fund or retention scheme. Banks tend to ask for irrevocable authorisation enabling them to dispose of the goods and retain the sale proceeds. in the event of a default by an importer.Table 9. the normal practice is for the credit to contain terms to the effect that the drafts are to be negotiated to obtain payment as if the issuance drafts were at sight. say. Production input Finance of supplies production Kenya Seeds Minor direct vegetables investments Zimbabwe Root stock seeds Major and minor horticulture direct investments Israel fresh fruit Seedlings Some direct investments Thailand tuna Processing Fishing by foreign equipment vessels Argentina beef Breeding stock Direct investment Commodity Finance for processing Minor Other capital or technology transfer Private training Major in sectors Management training/extension Donor for irrigation and orchard rehabilitation Direct Management training investment Direct investment Banks: Banks provide a number of facilities for potential separators and current exporters. iii) Documentary letters of credit In some cases there may be provision for pre-shipment finance. the Bank of England. calculates the equivalent foreign currency amount due on maturity from the drawee. and endorses these details on.

example. Particularly for open account they provide finance of a short term nature. Leasing and hire purchase: Leasing or purchasing on hire often releases the burden of full payment in advance. if an industry earns foreign currency through exports. They can be borrowed in sizable amounts. Exporters are not in the business of currency speculation per se. Confirming houses (and export houses): Confirm to the exporter that payment will be made. and to the importer that delivery will be effected in accordance with the underlying contract. Foreign currency may be borrowed. Eurocurrency finance: Eurocurrencies are funds of major world currencies owned outside the relevant national boundaries. offering the exporter clearly defined funds. Sources of international money (excluding donor funding) Foreign currency finance: Professional exporters understand how to use foreign currencies in their costings and negotiations. The process is as follows: "Swaps comprise contracts to exchange cash flows relating to the debt obligations of the two counterparties to the agreement. These assist in debt collection and may also purchase accounts receivable. Currency swaps are a way to gain access to foreign capital at favourable rates. Rates of interest are on a fixed basis. It also gives the option or facility to buy later and/or to make sure the item is maintained at no cost. a proportion of the earnings may be available for importation of goods and services. Currency swaps: Negotiations of outward collections and documentary letters of credit may be open to some but not all firms as they may not have an international credit rating. International financial markets: Borrowing money outside national boundaries offers a number of advantages:  interest rates in a specific currency may be lower in some financial markets than in others  in country rates are too high or sums insufficiently large enough  exchange control barriers may exist in country. Although swaps are contracts between the two parties . or insurance taken out by covering forward. assuming complete responsibility. Interest rates are often lower than the borrowing rate for the same domestic currency. Forfeiting: This is normally for items of a capital nature or for commodities whose promissory notes or bills of exchange are availed of. including country risk. they eliminate much of the risk element inherent in open account trading. Swaps involve the exchange of debt from one currency to another. Factoring: Often done by specialist agencies. Therefore. This could be important where spare parts may be of concern. The forfeiting organisation will purchase the guaranteed debts.

although the swap is covered by contract. The swap document should clarify the rates of exchange that will be used. The Botswana company has to repay in Botswana pula. "The Botswana company has borrowed pula and the Zimbabwe company Zim dollars. another. the simplest basis being to do so at the spot price at the time of making the deal. They swap the currencies.. If many of its loans were at fixed interest rates and it was believed that interest rates would fall in the future. Normally one currency is recorded as the fixed principle amount. In fact each counter party is paying interest on the other's loan as if it were the borrower. "As can be seen. it would become worried if (sterling) was getting stronger against the currencies in which it was generating its earning. It might therefore attempt to swap some of it sterling debts into debts in other currencies. there is the possibility of a swap.. In restructuring the debts to balance its exchange rate exposure... . If there is a company in Botswana wishing to borrow Zim dollars but is unknown in Zimbabwe. the Zimbabwe company makes the appropriate amount of Bots pula available to the Botswana company by selling Zimbabwe dollars at the spot rate.. From an interest rate point of view it is better that the Botswana company borrows in Botswana pula and the Zimbabwe company borrows in Zim dollars. is to restructure the currency base of a company's liabilities. The Zimbabwe company pays the interest and eventually repays the Botswana loan and vice versa. with an agreed rate of exchange for calculating the amounts in the second currency.. The two companies then swap currencies and the payments related thereto. each party remains responsible for the original loan (principle) it has incurred in its own currency.they do not alter the direct responsibilities that each party has for the debt obligation it has personally incurred. "The simplest method of servicing the loans would be for the Zimbabwe company to pay the interest on the Botswana pula loan and for the Botswana company to pay the interest on the Zimbabwean dollar loan."1 The problem is that. again the easiest method is for the currency to change hands at the spot rate. therefore. "One of the objectives of the currency swap is to take advantage of lower interest rates. It would be attempting to reduce its risks due to exchange rate exposure. "Let us suppose a well respected Zimbabwe company wants to borrow Botswana pula but it is not well known in Botswana. a currency swap can be construed as a series of forward exchange contracts. Similarly the Botswana company would have to pay a relatively high interest rate on its borrowing in Zimbabwe. to get an idea what the balance on exchange might be at the outset and certainly to understand the counterpart. If the Zimbabwe company borrowed in Botswana pula it would have to pay a relatively high interest rate reflecting its poor credit rating. the company could also take the opportunity to alter the structure of its interest rate liabilities. When it comes to repayment. If a UK based multinational found that nearly all its borrowings were in sterling.. It is better. They are both in fact paying lower interest charges than if they themselves had borrowed the currencies they needed. it could at the same time as swapping currencies move from fixed rate obligations to floating rate commitments. The term (life) of currency swaps can vary.

Currency transactions
In every currency transaction there are risks which are the effects of currency exchange rate fluctuations on the realised value of such transfers. Shifts of rates up or down could lead to a bonus or a loss between sellers and buyers. The purpose of this section is to explore how the exposure to transaction risks affects prices and can be accounted for. Risks can be tackled at two levels - policy and individual level. Policy level Risks can be reduced by raising in-country finance, by use of internal sources and by anticipating currency moves, hence allowing the organisation to devise a pricing policy which will balance out wins and losses. By holding price for a longer period and by balancing out the value of products marketed in foreign countries with imports or other cash obligations, net exposure is reduced. However, it is difficult to achieve in practice. Individual transaction level In currency movements there are risks to buyer and seller. As a supplier there are advantages in operating in your own currency, because the customer bears the risk. As a buyer, purchasing in exporter's currency you can accept the transaction risk by waiting to buy the necessary foreign currency at the time of settlement or alternatively you can try to reduce the risk by entering a forward exchange deal (known as "money market" cover). These are explained further below. Pricing and the use of foreign currencies An organisation which is prepared to quote prices and invoice in the buyer's currency can obtain many advantages. In the first place it has a marketing attraction because it simplifies the whole transaction for the buyer, telling him immediately what the cost is to him, and it demonstrates the exporter's efficiency. Secondly, because most sales are made on credit terms, there is a possible extra profit available by selling the expected currency receipts on the forward exchange market. No operation in foreign currency need present any problems as the banks are fully equipped to provide all the information and facilities required. The London foreign exchange market is the most efficient and comprehensive in the world. Any foreign currency received in payment of exports can be readily sold through the exporter's bank. Forward market: Where credit terms have been given and goods have been sold at a price expressed in foreign currency, the risk of changes in the exchange rate can be covered by selling the expected currency forward. All that is necessary is for the exporter to inform his bank that he expects to receive a certain sum in a foreign currency on such a date and establish with the bank a "forward" contract. The bank will quote NOW a rate at which it will buy the currency on that date. The exporter thus knows exactly how much of his own currency he will receive when the payment is made.

The forward rates are quoted in the press daily for the principal currencies, usually for one, two, three and six months. For some of the major currencies it is possible to get quotations for up to two or three years and in the case of the US dollar a period of up to eight years has been arranged. The quotations are shown at a premium or discount to the spot rate. Where the exporter cannot be certain as to the exact date when he will receive payment an "option forward" contract can be arranged. The "option" is not whether to proceed or not but merely as to the date of delivery of the currency. Say, for example, an exporter has sold on 90 day terms but expects a little slippage, he can sell the currency forward for three months fixed option one further month. He may then deliver the currency any time from the end of three months up to the end of the fourth month. Exchange risk: London is by far the biggest money market in the world (480 authorised banks compared with 200 in the US and 100 in Frankfurt/Zurich). An exporter may see that a profitable deal at today's exchange rates would become unprofitable if there were a serious shift in the exchange rate before payment was received. Exporters are not in the business of exchange gambling, they have enough work making profits on exports anyway without running any additional risk by speculating in exchange. So how can the exporter eliminate the exchange risk? i) Invoice in domestic currency. This is the easy way out. Unfortunately all the exporter is doing is to transfer the exchange problem onto his customer. There may be occasions when it is better to invoice in sterling, however, and we need to be professional enough to identify these occasions. ii) Invoice in foreign currency having fixed the rate in advance with the bank. There is a free market in forward currency contracts. The exporter's bank will quote a price for the date when the export receipts are expected, and if the deal is worth £20,000 or more, the cost to the exporter for the quote is likely to be nothing. The bank makes its profit on the differential between its buying and selling prices. If a foreign currency is at a premium on the forward market, the forward contract with the bank will guarantee the exporter more sterling than at today's exchange rate. So if the exporter gets a quote from the bank, he knows how much extra sterling he is due to get when the foreign currency arrives and he can use this information to his advantage during the negotiation. So professional exporters are advised to keep their eyes on the forward market. iii) Invoice in foreign currency, fixing exchange rate on the invoice. Here, obviously the exporter has to take a view on what will happen to the exchange rate. At least if he uses the forward rate being quoted by the bank he may be no worse off than if he had contracted forward with the bank. However the customer may well not like this method. iv) Borrow foreign currency from a bank, sell in dollars, and repay the loan with the proceeds of the sale. The cost of this may be less than it would cost the exporter to sell forward a currency which is going to a discount.

v) Offset imports in one currency with exports in the same currency so avoiding the need to change currencies and risk exchange loss. Examples of forward rate calculations can be seen in the following case. Arbitrage: Investments in forward currency are usually financed by borrowing. This means that the decision to buy forward or to hold foreign currency on deposit will face the organisation with additional cost in terms of interest charges. It would seek to reduce the risk and reduce the cost of borrowing. This can be done by involving three currencies, say: BC = Buyer's currency SC = Seller's currency MC = Mediating currency (it is believed it will strengthen against SC in the period) If buying for settlement in the exporter's currency in three months' time i) Borrow on BC ii) Convert at spot rate into MC if you expect MC to strengthen against SC iii) Invest MC to earn interest iv) On the appropriate date, cash the MC investment (original sum + interest) v) Convert this into SC - pay the vendor vi) Apply the residual to meet borrowing and transaction charges (this may necessitate converting the residual from SC into BC). The dangers in this are the move into three currencies and the investment of MC. Currencies and investments may rise and fall.
Case 9.1 Forward Rate Calculation A British exporter has sold to Germany, on 26 August, goods on 90 day terms and asks his bank to arrange forward cover. The rate quoted by the bank will be calculated as follows: On 26 August the bank's spot rate for deutschmark is 4.0025 - 4.0125. 1 month forward is 1.75 - 1.25 pf. Premium 3 months forward is 4.50 - 4 pf. Premium The exporter will be selling DM to the bank, therefore the bank will apply its buying rate based on spot 4.0125. The payment is expected in three months time so the bank will calculate on the basis of the three months forward; rate. 4.50 - 4 pf. Premium. The forward rate is at a premium, i.e. dearer in the future, so the rate will be lower and the: premium deducted from the spot rate. However, the bank is buying, so it will wish to keep the rate as high as possible and will, therefore, deduct the smaller premium, i.e. 4 pf. The forward rate; quoted would therefore be 4.0125 less 4 pf = 3.9725.

If, on the other hand, the exporter is expecting payment some time during September/October and wishes to cover forward he will cover one month fixed, option one further month. The one month fixed takes him to 26 September and he can receive the benefit of the one month premium but, as payment may be received any time between 26 September and 25 October, he cannot receive the benefit of any extra premium for the I second month and so the rate will be 4.0125 less 0.125 pf. = 4.00. The exporter has also sold goods to Spain on 90 day terms and wishes to cover forward on 26 August. The bank rates on this date are 226.30-226.50, 1 month forward 3.18-4.25 c. disc, 3 months forward 11.25-13.65 c. disc. Again, the bank will base the calculation on the spot buying rate of 226.50 and the 3 months forward rate of 11.25-13.65 c. disc. In this case, however, the forward rate is a discount, i.e. cheaper forward, and therefore the rate will be high and the discount added to the spot. The bank, wishing to keep a buying rate as high as possible, will add the larger discount, i.e. 13.65 c. The forward rate would, therefore be 226.50 plus 13.65 = 240.15.1 If the exporter is expecting payment during September/October he can still only obtain a fixed forward rate for one month, i.e. to 26 September with an option for a further two months. As payment may be received any I time from 26 September to 25 October, i.e. three months, and as the forward rates are at a discount, the bank will take the maximum discount and apply the three month rate.

Currency baskets Organisations which have to trade in several currencies may seek to reduce transaction risk by adopting a portfolio or currency basket approach. There are two ways a) holding a basket of currencies or b) using a currency basket. For example, the UAPTA and the European ECU is a weighted average of member currencies and so fluctuates less than, say, between two currencies. Basket currencies sometimes reduce the accounting complexities faced when doing business in different currencies.

Options, hedging and futures market Whilst options have, to some extent, been covered in the above sections, appendix I goes into much more detail. The options and futures market is extremely complicated. The option writer is the one who bears the main risk in the event of negative exchange. The client is taking out a form of insurance and the commission charged by the option writer (which can be subtracted) is the premium to cover this. Details of the option and future markets are given in the appendix. It should be noted that few African countries are involved in options, hedging and future costs. Spot marketing trading Many market exchanges are done "on the spot". In such transactions, goods, services or money are transferred simultaneously between buyer and seller. Trade takes place on

goods which have already been produced and the going price acts as the source of contracts, incentives and other relevant information. Spot market transactions can occur across several types of markets, including auctions, private treaty, etc. Auctions act is a "price discovery" mechanism. They are very useful for standard products - flowers, beef and so on and can give a flexibility to the price mechanism where they may be updated on a regular basis. Auctions also have very low transaction costs. Spot market trading has many advantages: i) It puts constraints on the individual - budgetary and purchasing. ii) Prices can be adjusted to market conditions almost on the spot, thus giving great flexibility. iii) The market price system gives incentives - the price automatically adjusts to productive effort or non-production. If the spot price is high and attractive, new producers may enter the market and be rewarded. If there are supply differences then the price adjusts upwards also. Of course, the converse happens with gluts. iv) It gives information to economies with market prices "summarising" all, or most, of the information on transactions required to conduct trade. Spot market trading is not just an agricultural commodity phenomenon, but can also be seen in industrials like oil and metals.

Concluding comments
Pricing in international marketing is an extremely complex affair due to the political and economic risks involved. Yet astute handling of the elements of price can give the organisation an advantage in terms of currency gains, but this should not be the reason why organisations should get into foreign transactions. Many agricultural organisations, especially based in developing countries, are mainly price takers. However, when the added value process begins to gain momentum, then all the elements of international pricing need to be considered. In all cases it is often good policy to get help from international bodies like banks and finance houses.

Chapter Summary
The price of a good or service is the value society places on it to obtain it. Pricing decisions on the marketing mix are compounded when marketing across international boundaries. Prices are fixed, usually on the basis of cost, competitive or market considerations and may be pitched high or low, depending on supply/demand and intangible (image) factors. The process of price fixing is compounded by exchange rate considerations, currency fluctuations, inflation, devaluation or revaluation, transfer and price escalation considerations. Pre-financing in export is often essential as sellers have often to bear the

costs involved before obtaining the revenue from the sale. Sources vary, including internal and external sources. In order to make sure that the export system is supported and encouraged, many countries have an export credit guarantee system which helps reduce the financial risks involved. Other methods of obtaining revenue in a risk situation are by operating in the futures and options market. However, these are not as prevalent in less developed countries as in more developed ones.

Key Terms
Currency swaps Devaluation Exchange rate Export credit guarantee fund Foreign exchange Forward rates Future Hedging Inflation Market holding price Option Penetration price Price ceiling Price escalation Price floor Purchasing power parity Revaluation Skimming price Spot marketing Transfer pricing

Review Questions
1. Explain what is meant by "foreign exchange". 2. What are the main methods of export pricing? What are the dangers in attempting to set prices globally? 3. Describe the principle sources of funds available to an exporter. 4. What is the difference between an "option" and a "future"?

Review Question Answers
1. Foreign exchange b) External sources Foreign exchange is currency bought or sold in the foreign exchange market. It is very dynamic. The price of one currency in any other currency is the result of forces of supply and demand in the foreign exchange market. If a country sells more than it buys, its currency value will rise and vice versa.  Host country borrowing  Export credit schemes and pre and post shipment support  Banks - overdrafts and loans  Government 2. Methods of export pricing.

price escalation 4. at a specified price at or up to a specific date. Sources of funds a) Internal sources  Transfers within group  Subsidiary Exercise 9. Option An option is a bilateral contract giving its holder the right.  Devaluation and revaluation  Inflation  Dumping Future A legally binding contract to deliver/take delivery on a specific date of a given quality and quantity of a commodity at an agreed price. Difference lies in the degree of commitment to delivery and title.Pricing based on manufacturing and marketing costs but cognisant of demand and supply conditions.1 Exchange rates The following table provides spot exchange rates on three currencies.the historical accounting cost method and the estimated future cost method  Factoring  Forfeiting  Confirming house b) Competitive pricing . 3.  Leasing and hire purchase  International finance house c) Market pricing . Use this information to answer the questions set out below: The US dollar spot 10 July .a) Cost plus .pricing at "what the market can bear"  Students can give details of each source.  Dangers in price setting . but not the obligation to buy (sell) a specified asset.

what is the three month forward rate? References 1. has to pay its Swedish suppliers of paper Swedish Krone 500.4660 FF 7.000. If MPL.50 cents ($0. does MPL have a currency exposure problem? b) MPL has purchased a German printing machine.000. Bibliography . and has to pay for it in DM in three months' time. 1990.0350) against the pound. Saunders. when will you get value for your dollars? Exercise 9. and yen rates? f) If you sell DM spot for US dollars on 10 July.80 . Quoted in P.2. Smith. If by the 6 August. Hull University. and the three month forward rate on DM is at a discount of DM 0.000 for DM on 10 July how many DM would you get from the bank? e) What are the spreads on the DM.6540 for value on 6 August. the spot rate for dollars/sterling is $1.000 in two months' time on 6 August. Would the Finance Director of MPL have to buy or sell DM three months forward in order to eliminate any currency exposure? c) Assume you have entered into a forward contract with a bank to sell $1. will you have benefitted or not from using the forward contract? d) If a bank's spot (buying) rate for dollars against sterling is $1.0550 against the dollar. MBA notes. and the three month forward rate on the US dollar is at a premium of 3.7560. J. what is the actual three month forward rate? e) If a bank's spot (buying) rate for DM against the dollar is DM 2. how many dollars would you get from the bank? d) If you wish to sell US$ 1.4650 .3925 . p50.3975 Yen 237.5240.000 forward for sterling at a rate of $1.7.5650.90 a) What is the rate at which a bank will buy DM for dollars? b) What is the rate at which a bank will sell yen for dollars? c) If you wish to sell FF 1.237.2 Forward trading a) Let us assume that the date is 6 June. "International Marketing".DM 2. FF. whose domestic currency is pounds sterling.000.000 for US dollars on 10 July.

Geneva. Hull University. 4. 3. Geneva. pp 117-130. Osborn. I. In S. International Trade Centre UNCTAD/GATT. 1989. International Trade Centre UNCTAD/GATT. 4th ed. 5. International Institute for Cotton. M. In Manual on Cotton Trading Operations. Carter (ed. August. 1990. 1989. "Sources of Export Finance".2. "International Marketing". Straub. Chalanda. 1989. International Trade Centre UNCTAD/GATT. "Export Financing".) "Export Procedures" Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa. Smith. pp 170-180.S. In Manual on Cotton Trading Operations. W. 1989. 1991. 6. "Global Marketing Management". Liverpool. Prentice Hall. . In Manual on Cotton Trading Operations. A "Short Introduction to Exchange Traded Options". pp 113-117. "Futures and Hedging Trading in Cotton". W. pp 131146. Geneva. P. Keegan. MBA notes. 7.

merchants or other middlemen. Physical distribution aspects cover transport and warehousing. that these are sold on from the Dutch market to the Far East. exporters are in the hands of agents. the more likely that producer profits will be indirectly reduced. where the price commanded is much more than the original exporter price. the institutional and the physical. agents and so on. Whilst most agricultural exports from developing countries are either in a "primary" format (for example cotton. vegetables) increasing attention is being put on "processed" or "added value" formats. for example. the actual institutions (for example retailers.Chapter 10: Distribution Decisions Chapter Objectives The Structure Of The Chapter Channels Channel structure Cotton marketing Physical distribution East Africa horticulture marketing Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Distribution has two elements. and again. This is because the end product's price may be too expensive to sell in volume. This means that. the greater would be the return. These will be discussed briefly. It is a fact in flowers.) were not. maize) or "finished" format (for example flowers. If the original exporter could participate in this channel. in the latter much more needs to be understood of the channel itself. as country infrastructure requirements may dictate they being there. these will be briefly touched on. whereas in the former. sufficient for the producer to cover costs. Chapter Objectives The objectives of this chapter are:  To give an understanding of the institutional and physical aspects of channels of distribution in global marketing . The more is known about the end user and the channel to reach him/her the better equipped will be the exporter to understand and meet the needs and also to perhaps gain more of the exported added value. Yet cutting channel length may be impossible. The longer the channel. Whilst the modes of market entry were fully discussed in chapter seven.

complexity of product. The choice of which one is used depends on the requirements listed above. and personalised trading networks. Whilst for developing countries. two industries where channel management needs to be particularly well organised.  To illustrate the importance and role of channels of distribution by reference to two case studies on cotton and horticultural produce. their advantages and disadvantages.2 give a stylised channel alternative structure. Channels A channel is an institution through which goods and services are marketed. channels charge a margin. To describe the different channels of distribution and show their advantages and disadvantages and. The former tends to have a variety of formats. Figures 10. In deciding on channel design the following have to be considered carefully:  Market needs and preferences  The cost of channel service provision  Incentives for channel members and methods of payment  The size of the end market to be served  Product characteristics required. price. and as exporting becomes more and more necessary. as stated earlier.1 and 10. .whether they will push products or be passive  Market and channel concentration and organisation  Appropriate contractual agreements  Degree of control. In order to provide these and other services. perishability. whereas the latter is less complicated. this is not always the case. As seen in chapter seven. contractors. Channels are an integrative part of the marketer's activities and as such are very important. The Structure Of The Chapter The chapter starts by showing the importance of the institutional and physical channel of distribution in global marketing. The chapter ends by concentrating on two case studies cotton and horticulture. packaging  Middlemen characteristics . channels are almost given. the degree of control one has over a channel depends on the channel type which is employed. The longer the channel the more margins are added. It then discusses the different forms of channel. Particular attention is paid to the channel forms of relevance to global agricultural food marketing including brokers. it will not always be the case. Figure 10. Channels give place and time utilities to consumers. They also give a very vital information flow to the exporter.1 Consumer channel alternatives Channel structure Channel structure varies considerably according to whether the product is consumer or business to business oriented.

The Kenyan fresh vegetable industry is a classic example of personalised trading networks enabling international trade between Kenya suppliers and their familial (often Asian) buyers in the United Kingdom. Brokers have many advantages. These relationships reduce information.  They are better informed by buyers and or sellers.2 Business channel alternatives In many countries there is a move to vertical or horizontal integration within channels. monitoring and enforcement costs. especially in developed countries where large chains dominate. then trust develops which may become proxy for laws. Also there can be very thriving parallel market systems. small dukas (carrying less than 100 items and occupying no more than 506. Associations.  They are skilled socially to bargain and forge links between buyers and sellers. unwritten and informal understandings develop.Figure 10. availability and costs of channels.75 square feet of space) operate widely on a margin of 12% as opposed to the developed countries' average of 24% margin. Flexibility ensues which often means priorities or "favours" can be expedited. Whilst criticism of being "ripped off" is often made. They are commonly found in international markets and especially agricultural markets. Personalised trading networks Frequently. cooperatives . but both parties are aware the relationship can be undermined through opportunistic behaviour. Decisions on what channels and entry strategy to adopt depend heavily on the risks.  They stabilise market conditions for a supplier or buyer faced with many outlets and supply sources. not least of which is they can be less costly overall for suppliers and customers. bargaining. We can now look in detail. In East Africa. voluntary chains. at some important types of channel members relevant to agricultural marketing. as in the UK food retail trade. the loss caused by the shrinkage is less than that associated with more sophisticated channel forms. Most developing countries rely heavily on agents in distributing their products. Often.  They bring economies of scale by accumulating small suppliers and selling to many other parties. The converse is the scenario in many less developed countries. often difficult to track down. in which over time as confidence grows. Trust and reciprocity can enable trade to develop in unstable economic circumstances. Brokers Brokers do not take title to the goods traded but link suppliers and customers. for example. relationships may be built up between a buyer and a seller. as relationships build.  They bring the "personal touch" to parties who may not communicate with each other.

been a first stop for output. This is a typical . These involve commitments by buyers and sellers to sell and purchase a particular commodity over a stated period of time. primarily because of poor management.  They lower transaction costs of members through arbitration of disputes.  They can reduce or pool members' risks by bulk buying. ii) Forward resource/management contracts. These contracts exist between farmers and first handlers and exporters and importers. without the "instantaneous" of spot trading.Associations. In such a contract the exchange of raw material or commodity is made on condition that it involves the use of certain inputs or methods. protection of qualities and monitoring members' standards. The latter has been very successful in going into value added processing as well. who may even take over the distribution function. retailers. These arrangements combine forward market sale and purchase commitments with stipulations regarding the transfer and use of specific resources and/or managerial functions. pooling market prices and risk. exporters and processors who agree to act collectively to further their individual or joint interests. The two main types of contract are: i) Forward Markets. Contracting Contracting represents an intermediate institutional arrangement between spot market trading and vertical integration.  They can reduce marketing costs through the provision of promotion. advised by the buyer. the Bombay Milk Scheme in India is working very well. are now buying in such quantities that they are dictating terms to suppliers. wholesalers. However. Marketing and production contracts allow a degree of continuity over a season. volumes.  They can act as a countervailing power between buyers and producers. This is very important where supermarkets in the UK. financial ineptitude and over-reaching themselves. providing insurance and credits. provision of market information systems. Prices may be based on cost plus or negotiated. for example. standards and values. voluntary chains and cooperatives can be made up of producers. Members may have implicit or exclusive contracts. Specifications usually include weight. These forms of coordination have a number of advantages:  They counter the "lumpy investment" phenomenon by spreading the cost of investment among members. cycle or other period of time. Developing countries do not have a history of good cooperative development. membership terms and standard operating procedures.

Integration can bring a number of economies to food marketing systems. Integration Integration vertically involves the combination of two or more separate marketing or production components under common ownership or management.  Market imperfections: these can be "absorbed" often by vertically integrated organisations.Marks and Spencer arrangement. the seller reduces market risk. Lonrho and Anglo American provide excellent examples of vertically integrated organisations. information system streamlining and centralised decision making. Its international operation means it knows the Government tax. By creating forward markets. Anglo American is also in agriculture and provides an interesting case of vertical integration giving advantages. by internalising flows the organisation can eliminate the risk of variability in supplies. and inventories. is also in processing. Marks and Spencer is a very successful. distributor or marketing/management agreements and help to internalise many future product transactions. Also. and so can "negotiate" around or within this legal/monetary framework. In agriculture. Taxes. More direct control over assets may enable the firm to invest in processing and marketing facilities which further enable the development of economies of scale. transport facilities and gives credit and investment capabilities. amongst other things. citrus estates. perhaps. outlets. with its estates in Kenya. Lonrho. a group of retailers. other "trade" secrets.e. high quality and price retail operation in the UK Such arrangements are found in many franchising. If one takes the Anglo American operation in Zimbabwe. but processes and markets domestically and internationally. qualities and so on.  Risk bearing advantages: vertical integration can overcome risk and uncertainty. . Integration horizontally means the linking of marketing or production separables at the same level in the system. and the buyer ensures that he receives commodities to certain specifications. it owns. these include bargaining costs. for example. regulations. It not only grows. Both these forms of contract reduce the risks on both the buyers' and the sellers' side. prices and exchange controls and other regulations may be "absorbed" to give pecuniary gain. Production contracts to farmers are also a source of credit collateral. exchange controls and other measures very well. Forward/resource management contracts also have the advantage of the provision of credit. transport. It can involve investments "forward" or "backward" in existing activities or investments in interlinked activities. Typical examples include nuclear estates and outgrower schemes. i. market information and. Anglo owns training facilities. viz:  Production/logistical economies: integration can bring economies of bulk. In addition.  Transaction cost economies: integration brings cost economies because the firm may become the sole supplier of goods and services to itself. integration enables the firm to increase its market share and leverage with suppliers and customers.

utilities. The customer has a number of clearly defined needs including the following:  Availability . It may stabilise prices with price controls like floor or ceiling prices.on time. adapted from the ITC training manual (1989)1.FOB. even running.  Terms .on time and in steady supply  Quality . CFR etc. Government also has other roles to play like cooperating or providing services in defined markets.competitive at a given time. Deferred terms and payment in home currency are advantageous  Arbitration . substitution and penalties must be agreed . reduced taxes or export retention schemes. Cotton marketing Customer requirements In marketing cotton the basic question is. It can negotiate in either a bilateral or multilateral form. in a container. who is the customer? For cotton it may be an international merchant (large or small) or a local/regional merchant (large or small) or a spinning mill in the end user country.a system for rejection. no country damage and will pass the micro. Government can regulate the competitive position of markets by passing regulations which protect or promote a market structure.reliable. quantity controls and so on.these must be simple . It may force suppliers into Marketing Boards as the only outlet and so alter the whole competitive structure of industry. and be in tune with arrival/delivery schedules. clearly marked and direct to customer  Price . to facilitate a particular commodity transfer or arrange lower terms of access. free from foreign matter. It can provide credit or market information. Finally Government can "enable" suppliers through the introduction of export incentives. Both Marketing Boards and Marketing Orders can be used to control physical commodity flows. As an example of international channels decisions and management the following cotton example is given. training and extension. buffer stocks. enforce market quality standards and pool market risk. Government may provide an infrastructure which the private sector just cannot afford for example roads. Its relative value must be competitive versus synthetics quality and against the Liverpool index. PSI and GPT test values  Shipment . It can also define the rules for international trade and market entry.Government It has already been seen in chapter seven that Government can take a leading role in the distribution of goods and services via state-owned Marketing Boards. Government has the sovereign authority to provide the regulatory framework within which commodity or agricultural export systems can be developed.

country buyers/cooperatives. international or niche  Image . Figure 10.3 below gives a typical channel structure for cotton1.he can accept when he is wrong  Reports to few and knowledgeable people An international merchant acts as a bridge between producers and consumers. most aggressive.quality. Information . ginner. selling agent and end user. The typical value chain is seed merchants. In addition. International merchant/agent: A good merchant is characterised by the following characteristics. farmers. merchant.for goods and services (freight insurance)  Maintain presence in key markets  Image . contract performance and administrative excellence Merchant:  Margin level  Market share/key customers . Basically the choice comes down to two alternatives. time to buy.3 Cotton distribution Channel alternatives As can be seen from the above figure there are a possible number of alternatives for distributing cotton. the producer and merchant have needs and objectives: Producer:  Maximum inflow . Channel structure Figure 10. He performs the following functions:  Language . in comparison to the producer/seller selling direct:  Well informed  Well disciplined  Knows the detail of his business  Thinks in terms of probabilities and absolute terms (risk/reward)  Is concerned but not dogmatic . quality and customer service.conducts communications in suppliers' and consumers' preferred language .either big. the producer/seller selling direct or through an international merchant or agent.cheapest. At each stage value is added. who else buys and ranges of prices. buyer.advice on price developments.

provides financial information and technical assistance and offers a currency gap guarantee  Market risks . the choice of a merchant and/or agent has to be taken after careful consideration of the following criteria:  Knowledge . Space utility . offtake and supply deals and price guarantee contracts  Terminal exchanges .of local circumstances (political. . The services he can provide to a producer are as follows:  Up-to-date market information  Information on competitors and prices  Financing (producer and end user)  Buying of all exportable qualities  Buying on local terms  Prompt payment  Buying when producer can/wants to sell  Buying unfixed at seller's call and.covers large segment of end users  Finance .  Infrastructurally sound. and of textiles in particular).handles the cotton side of the deal  Quality .takes a long or short market basis position. business and general. with good communications and administration. Despite all these benefits.buys and sells in currencies required by sellers and buyers. handles quality option/basket contracts and shows quality alternatives and. As can be seen from this list the services offered are considerable.particularly on pricing and. does currency conversions.  Contract guarantee for proper fulfilment.he prepares the logistics function including sea and/or land transportation arrangements. give quality recommendations for information on quality available.handles and is a link between remote developing areas and highly advanced and sophisticated centres of the world.  Culture .cotton know-how  Market coverage .financing through own/banking facilities  Currency risks .financially sound and not dependent on sales to poor customers  Language ability . deals with hedging. documentation preparation and arrangements for insurance coverage  Time utility .avoid misunderstandings  Integrity .  Professionalism .provides a brokering service and fixations  Countertrade . options.

1 Comparison of international merchant and producer/seller Merchant Global presence Can choose to do nothing Flexible sourcing/selling Can offer client alternatives Staffing flexibility Currency/market risks Market information wide Handles prompt payments Quality guarantees Producer/seller Local/single market growth Forced to act Always long Limited assortment Local staff Currency risks Limited market information May have to wait for payment May not guarantee same quality Whilst experience with traders may lead to some unsatisfactory outcomes.Dangers to watch out for are:  Representation . world economic conditions. both external factors (macro-environmental) and internal factors (micro-environmental) have to be considered. the merchant/agent provides a number of services which are very powerful. Does he "think big" through looking at world supply/demand patterns. However. the question of control over distribution activities is the most telling argument as is the relationship which can be built up between producer and consumer.cotton or non-cotton -. Risk and reward are ultimate advisers. Think small can be triggered by questions like will West Texas produce low micronaire cotton? Will XYZ Spinners go bankrupt? Will I find freight from Buenos Aires to Lagos? Will the price go up or down tomorrow? Whilst trying to find an answer to this dilemma. Table 10. as can be seen from the previous section. money and courage and go broke. External factors .does agent handle other representations .does the agent ever try to change the price given by the principal? Whilst most of these factors are producer oriented criteria. Table 10. or does he "think small". the trader may run out of time. and how important and synergistic are they?  Pricing integrity .1 below summarises the main points of comparison. the textile industry in general. Producer/seller direct In comparing the direct producer seller channel versus the merchant/agent channel. Market strategy In designing a marketing strategy. fashion trends and currency movements. in the main merchants/agents in the long run offer a more convenient form of channel of distribution than direct dealings. the trader himself has a predicament.

Basically this has been free of influence for typical importing countries. A basis is defined as the difference to New York Futures. In Egypt. the CIS and Egypt have had ginning realisation. and/or is it to be a one off or steady seller. target price mechanisms.government influence here has been in minimum price legislation.Government has sought to promote its own cotton industry by certain measures. Other definitions include "buying basis the country basis" or "basis Liverpool Index". was a special deal as Zimbabwe usually provides for its own needs from its own production.the producer has to decide on what pricing strategy to follow . This is done through loans. Zimbabwe had to import lint in 1992/93 to keep its textile industry going. purely supply/demand oriented producer countries. The US cotton programme. In theory the free market principle of supply and demand is applicable but in practice the question is whether the market is supply or demand driven. but there are special ad hoc regulations for occasional imports. average on call. Basis trading has become more prevalent for traders/exporters and mills for a number of reasons:  the outright market position risk is too large (basis fluctuations are normally less than market hedging) . seeds and pesticides have been used. Added to the price equation is "basis" trading. special exchange rates.  Production .  Exports . speculative or the use of options. In general the role of government has increased over the years with few truly free.The principle factor to consider here is "government". This has led to a competitive edge by certain countries. origin. Internal factors: A clearly defined strategy is required. Syria. as it would be difficult to make it work universally. input subsidies on fertilizers. acreage reduction programmes. Primarily the producer has to decide whether it will sell pre-season or when the crop comes in. export credit facilities and export duties. inevitably. inventory reduction programmes and through the AWP (Average World Price). governments may pursue a specific policy for its cotton industry. is to provide a stimulus to produce more or less and/or make US cotton competitive. Buffer stocks in cotton are not very relevant. shortages/disasters all affect price. exports and imports. This. Because of the drought.  Pricing .  Imports . substitutes and the limits to cotton price elasticity.production. either on or off. hence limiting the price/supply option. for example. Sudan and Turkey. paid diversions. In most countries seed research has either been directly or indirectly funded by government. As well as these forms of intervention. The demand for cotton depends on so many factors -elasticity. Government has an effect on three areas .average fixed. Colombia and Pakistan have obtained credit at favourable terms.

international expertise through travel/congresses or low key and/or train staff. Basis versus New York is inherent in any cotton price. The basic technical aspects include:  choosing the correct month  right to fix  fixation deadlines  before delivery  after delivery (provision price)  rolling forward or backward  margin requirements in case of delayed fixation  giving fixation orders.  Buying New York futures against a sale or selling New York futures against a purchase or directly quoting a basis. administrators) . So on channels. or through merchants.  a producer/exporter has the opportunity to obtain more US dollars (or less). Marketing action In order to make the cotton flow work the following must be observed: . New York futures are a legitimate way to hedge a market position for a merchant although one must realise that it is not often a perfect hedge. However. rotation in the choice of staff and staffing (traders. A basis is established in the following way:  Using US cotton as a common denominator. Similarly. The US is a constant exporter. For a producer or mill it is a risky attempt to maximise the dollar return for his product or lower the price of his purchase. It is also an indirect way to play with the futures market where a direct involvement for certain reasons is impossible.a decision has to be made on whether to use the same staff. or use a combination or sell to any market or selected markets. it is often the only way a trader can enter a far forward buying or selling commitment. a decision has to be made whether to sell direct.  many conserve cash for margins. and. in cases of default the trader's risk is basis difference which is often smaller than the market. always in the market at any quality. classes.  a mill has the opportunity to obtain a lower (or higher) price.

These are very specialised areas of distribution and include different modes of transport . which provide a variety of services. on the one hand unemployment and on the other. air. in one way or another and will contribute to the success or failure of the industry. agents. Marketing . Horticulture. do not underestimate a first-class merchant's function. ensure feedback to producer. Tanzania and Zambia. the exporting company has to consider storage. reported by Collett (1991)2. lasting relationships build confidence. being a major employer of labour and as a provider of export a significant earner of foreign currency. have communication facilities and give prompt payment settlement  Staffing . namely. These include the International Cotton Advisory Committee (ICAC) which has government members and provides statistics and standards. warehousing and inventory management. The importance of these elements can be seen in the following case study of 1991 for the horticultural industry in Zimbabwe. built on trust. document yourself.transport. channel management includes services and physical elements . the Liverpool Cotton Exchange which does contracts and negotiation and the New York Cotton Exchange which deals in futures. documentation and transportation. and services offered by freight forwarders. seed merchants and logistics providers  Selling . look for standard terms with flexibility built in. Malawi. can contribute to easing both the employment and foreign currency situations. decide on a main focus (do not fragment). The most important player in this partnership is undoubtedly the government which controls most aspects of production and marketing. Physical distribution As well as the institutional elements of distribution. stick to your agents and . keep a customer file and be available at home  Administrative . The readings accompanying this chapter provide most of the detail. so here the modes of distribution are briefly covered.know the markets. the importer and the government consider the venture as a genuine partnership. especially in times of difficulty. a shortage of foreign currency. ITMF which is user oriented. insurance efficient. East Africa horticulture marketing In order to establish a successful horticultural export industry it is important that the producer. The cotton industry has a number of continuity of staff and provide training. customers and agents carefully. Most African countries face two main problems. travel and meet people. As well as negotiating all the paperwork and the quota or tariff agreements described earlier in this section. competition and customers.

has resulted in high prices and high returns for producers. particularly foreign currency and. quantity. and continuity has to be guaranteed. timing. technical skills  Transport options have to be considered  Financial arrangements have to be made. who stand the major risk. combined with the high cost of labour in the developed countries. Government  Create the right climate to allow exports to expand  Apply minimal regulatory requirements and ensure these are properly handled  Ensure sufficient air freight capacity  Maintain freight rates at acceptable levels for the industry as a whole  Grant work permits for essential skills  Make foreign currency available  Waive duties and taxes to assist the industry  Implement incentives  Allow importation of new chemicals tested elsewhere and. each has different roles as follows: Grower  Horticulture is a high risk. and product  Pay as soon as possible to ease cash flows  Offer support to the exporter when prices drop  Recommend new products and. but representation is essential from government and in particular. Agriculture and Transport.  Become a true partner to the grower. and employ if necessary.  Do everything possible to make the industry competitive in world markets. price.  At all times quality. the Ministries of Finance. high return industry requiring a very high standard of management  Growers have to obtain. Importer  Importer has to create and maintain trust  Provide information on demand.World demand for high quality horticulture products. Officials serving on the body must be in a position to take decisions and act in the interest of the industry. Major representation must come from producers. . Representative body It is essential to form a body to look after all the requirements of the industry. importer and government. Partnership In the partnership between grower.

the national carrier NAC flies twice weekly to London and Amsterdam.000 Tanzania 1. Zambia is currently served by BA. Final selection of crops to grow will depend on market demand. . Frankfurt and Lisbon. Cargo flights to Amsterdam. The following figures indicate the relative importance of horticulture in countries in the region: Kenya 50. as is happening in Kenya. London and Cologne as well as Brussels by the national cargo carrier and the three charter flights are also available. As far as air services go. It is hoped that by the end of 1991... Production Horticultural development already taking place is largely on commercial farms where capital. weekly flights. the small scale sector could produce very high quality. Urgent development of the horticultural export sector in the region is necessary.2. the sector must produce for the local market and change to export as skills are acquired. price and transport logistics. technical skills.Selection of crops Climatic conditions in each of the four countries varies from low lying hot to high altitude cool production areas capable of producing a very wide variety of crops. Amsterdam. Tanzania has 18 scheduled flights to Europe and the Middle East through Dar es Salaam. Zimbabwe has 15 scheduled flights (passenger) per week to London. capital etc.000 Zimbabwe 14.air International service (air): Export by air. The success of the commercial farming sector in producing export crops must be utilised to develop a parallel production system in the small scale sector.237 Zambia 3. tonnes are given in table 10. some of which also stop at Kilimanjaro. Aero Zambia and UTA with flights to London and Frankfurt. freight rates. Paris and Geneva will be added to the list of available destinations. Development in the small scale sector has been minimal due to the lack of capital etc. Tanzania is better served than any of the four countries visited. Initially. In addition. and the inability of the sector to raise credit without land title. irrigation and transport is on hand. It is highly probable that given the necessary training. Long road and rail haul will determine which crops can be produced for export by air and when they will have to go by sea.000 Malawi 200 South Africa +/-1 million tonnes tonnes tonnes tonnes tonnes tonnes Transport .

There is no doubt these values will improve as certain commodities are dropped and replaced. Destinations: Traditional links between the four countries are all with the UK and it is not surprising the most of the cargo goes to this destination. vegetables and flowers. without which growers could not export. In addition. Charter operations prefer to load some heavy cargo as well.000 per tonne CIF for produce and ZMD 11. Types of air services: Scheduled flights give preference to fruit and vegetables because of their heavy nature. Rate structures in the region are considerably higher than in West Africa. and a combination favoured in Zimbabwe is 90% flowers with 10% fruit and vegetables.20 1. South Africa.000 for flowers. The value per tonne of product produced for export must be high enough to meet the above criteria. These high costs have forced growers to concentrate on high value commodities such as flowers at the expense of lower value fruit and vegetables. Statistics: Accuracy of statistics has to be questioned and most efforts to collect these be improved and linked to information available from the individual airlines. to the region. Table 10. Malawi and Tanzania export little air freighted cargo.7 0. Freight rate levels have to be set to give the airline a fair return while allowing the grower sufficient margin to be viable.2 International air service comparisons Malawi Tanzania Zambia Zimbabwe FLIGHTS Passenger 4 17 6 15 Cargo 1 1 2 6 TOTAL 5 18 8 21 FREIGHT RATES > 500 kg Unlimited Per Palet > 1000 kg US$/kg 1. Angola and Mauritius and between Malawi and South Africa. have built up significant flower trade with Holland and their requirements are largely met by cargo flights. while charter services prefer to uplift flowers at the higher freight rate. Zimbabwe is currently receiving average prices of ZMD 8. Zambia has limited contact with Angola and Tanzania with Burundi. In addition. both of whom have been in the business for only five years.25) 1. Major exports now taking place are from Zimbabwe and Zambia.2. there is a weekly service by NAC offering 20 tonne capacity. but nevertheless have significant potential to export tropical.30 TONNES 32 400 Est 2642 7937 Regional services: Regional trade at this stage is very limited although air services are available significantly increase trade. Freight rates: Freight rates to international destinations vary considerably with Zimbabwe and Zambia the highest (see table 10.2).Malawi has services to Amsterdam. subtropical and temperate crops including fruit..20 . however. and Paris with five flights per week. The developing trend is for . A realistic return to the airline is essential to attract charters etc.50 (winter 1.90-1. Zambia and Zimbabwe.30-1. London. Existing trade is limited to between Zimbabwe.

Allowance of 48 to 72 hours is given for notification of cancelled bookings. Government has in its power to allow in as many flights as requested by international carriers. and efforts are made to sell direct to the end user.sea . there is more cargo coming into the central southern region of Africa than flies out. In general. Penalties: Zimbabwe has instituted a strictly controlled penalty system for growers/exporters who book space and then do not show up. phytosanitary certificates and applying to government for export incentives on behalf of exporters. who in addition to chartering extra cargo flights also provides cold stores at the airport. and if existing air services have no available cargo space. This new development is in addition to their normal services which include booking space. Tourism: Tourism plays a major part in deciding how many flights to allow in. This tough measure has brought a large degree of responsibility into the industry and firm plans and charter bookings can now be made with confidence. Air transport into any country will depend on demand. as both are dependent on available air services. Transport . and anyone who does not do this is fined the full cost of his cargo space. and as demand increases airlinks will provide the required services. but it also has an obligation to its own airline. Landing rights in all countries are granted by the authorities who sometimes limit these to airlines who are prepared to allocate them cargo space. and coordination is required to make maximum use of empty return flights. It is very much a chicken and egg situation. growers will produce crops in the hope that space will be made available. including passengers as well as cargo. and the fate of this industry is closely linked to that of horticultural exporting. Cargo operators also provide services where these are required. and where an open sky policy is not in the national interest. National cargo carrier: Each country is dependent on its own national airline and this service must be made full use of before resorting to outside service. documentation. these requests are turned down. Cargo to German destinations is increasing as exporters realise this market imports 70% of all flowers sold in Holland.scheduled flights to concentrate on fruit and vegetables into London and for charters and national cargo carriers to uplift flowers to Holland. Freight forwarders: A very important sector of Zimbabwe's horticultural export industry is the freight forwarder. Positive points starting to emerge in air transport include the following:  Full use of scheduled cargo capacity  75 to 90% total capacity utilisation of cargo flights  Realisation of the importance of cold chain and cold store facilities at airports  The role played by freight forwarders  Responsible approach by all sectors  Full government support  Growers building their own facilities inside airport perimeters.

Handling Horticultural exports from Africa to EC markets have to compete with high quality products from around the world. Present routes through Mozambique are seriously affected by pilferage and theft. Every farm must have its own cold store complex. A wide variation from the . Location of production areas and the distance from port will determine whether exporting by sea is viable or not. spacings. due to the longer time in transport. Quality coming out of the field cannot be improved on. deciduous fruit. but only maintained. products must be reduced in temperature to the ideal for the product as soon as possible. To ensure the most efficient cold chain conditions. Zimbabwe in 1990 suffered losses of USD 3. and it is essential in the first instance to produce high quality products. placing into containers that will not damage the product. fertilisation. while Swaziland has re-routed its sugar exports through Richards Bay in South Africa for the same reason. with extraordinary precautions having to be taken. many of which are produced in developed countries under modern cultural methods and strict quality control. Pineapples ex Dar es Salaam give the same FOB price for both air freight and sea freight. The more sophisticated grading sheds allow for the product to be packed into the airline containers in the dispatch cold store. The most sophisticated should have separate intake and dispatch cold stores. all of which are moved in considerable quantities. and so must the airport where the produce is delivered before export.4 million due to theft of sugar while en route to Maputo. with the central grading and packing area also having refrigeration or being subjected to lower temperatures. reaping when temperatures are low and reaping two or three times a day to ensure the product is harvested at the ideal stage. Quality depends on a combination of field management. FOB prices for sea-freighted crops are in many instances the same as if the product was air-freighted. products have to enter the cold chain . The availability of road and rail refrigerated transport is considered essential if quality is to be maintained. subtropical fruit. This process reduces handling considerably and allows the exporter to pack carefully with minimal damage and discolouration to the refrigerated as soon as possible and remain so until they are bought by the customer in the retail outlet. Time taken for grading and packing must be kept at a minimum to prevent products increasing in temperature during this process. Having reaped correctly. Field production of high quality products is dependent on the correct selection of seed and variety. Crops which are considered suitable for export by sea are citrus. insect and disease control and time of harvest. post-harvest handling and an efficient transport system from field to market. Some cold chains are more complicated than others. pineapples and bananas. it is possible to transport citrus up to a week without refrigeration. Whilst fruit is the main sea-freighted crop. However. and the containers being transported to the airport. Post-harvest handling involves reaping under correct conditions.Sea freight offers growers the opportunity to export horticultural crops in large quantities at lower cost. the list can be greatly extended if "controlled atmosphere containers" or the latest concept known as "modified atmosphere packaging" are utilised. including cutting correctly from the plant.

The value per tonne of exports from Zimbabwe of both fruit and vegetables and flowers has increased considerably by selecting the high value lines and varieties and excluding others. Regular contact cannot be over-stressed. freight forwarders charter flights and compete on freight rates with the national carrier. both at the airport and in Harare itself. Zimbabwe has the most sophisticated cold stores with several being available. Handling of crops for the local market is a major feature of marketing in Zimbabwe. in addition to realising higher prices. High prices can also be achieved by pre-packing and semi-processing at source. Maximising pre-packing in farm pack-houses. Europe and South Africa addressing these meetings. a switch from summer flowers to roses has increased the value per tonne considerably. and the first refrigeration takes place at the airport. is due to regular seminars being held with international speakers from USA. Indications are that Zambia in particular is following this trend. In order for a new industry to survive and develop. Plans are developed in Zimbabwe to construct a very modern large cargo terminal which will provide the most modern facilities for horticulture. Attention must be paid to semi-processed products such as vegetables and fruit salads prepacked at source. Whilst Zimbabwe makes the most use of cold stores and suitable transport.5 kg boxes. Importers . while recent developments in Malawi could lead to export of pre-packed products to supermarkets. and particularly post-harvest handling in Zimbabwe. These crops are stored for three to four months and sold during high price periods. one exporter in Tanzania does not have a cold store on the farm. These developments. Zimbabwe growers also travel regularly investigating the markets and discussing requirements with their importers. while others which can be produced more easily tend to be over supplied and low priced. The very significant awareness of quality. freight forwarders play a very significant role in handling exports and maintaining storage under ideal conditions until loading. can significantly reduce air transport costs by making better use of available air space.ideal handling system is found in different countries. In Zimbabwe. Several have their own cold stores and handling complexes. In addition. The importance of refrigeration is widely known. Cold stores are available at all the main airports. very careful consideration must be given to product selection and presentation. Likewise. In addition. The high cost of transport in some producing countries can significantly affect the viability of a horticultural export industry. Products requiring high capital investment and specialized technical skills are normally in short supply and at high prices. apart from Lusaka where the growers are building their own facility. more importance is being placed on value added by Mangetout prices can be increased by up to one pound sterling by pre-packing instead of selling in 2. Onions are also stored for up to 5 months for the same reason. to maintain prices. pears and citrus are stored on farm and by wholesalers. Apples. Demand is increasingly swinging towards well presented pre-packed products. but this is only done by the larger producers.

wholesalers. each has its own advantages and disadvantages. On the other hand.Following recent bankruptcies of importers in Europe. negligence. destruction. a decision has to be made on the distribution system. Records and reputations of importers are well known in the industry and exporters must make enquiries before entering into firm commitments worth hundreds and thousands of dollars. growers want reliable outlets who will supply all the necessary market information. Along with price. after sale. etc. non-payment and so on. This example concludes this section on distribution. Importers require high quality products on a continuous basis and are prepared to assist growers to achieve this. Recent trends between importers and exporters is towards establishing long term partnerships or understandings for the benefit of both parties. . distribution forms a major element in international marketing and the detail is essential if success is to be guaranteed. it is now more essential than ever for exporters to know who they are dealing with. So careful choice and evaluation of channel partner is a necessity. retailers. Key Terms Agent Basis trading Broker Contracting Cooperative Review Distribution channel Forward Forward markets Horizontal integration Personal trading networks Questions Physical distribution Resource/Management contracts Retailer Vertical integration Wholesaler Review Questions 1. as a result of which exporters lost a lot of money. it is in the channel of distribution that the international marketer can encounter many risks and dangers. However. These involve many transaction costs both apparent and hidden. Again. Chapter Summary Along with price and promotion decisions.the physical (order processing storage/warehousing and transport) and the institutional aspects. direct sales or sales forces. There are two components to this . The latter involves the choice of agents. Risks include loss in transit. Distinguish between "institutional" and "physical" distribution. Payment terms are important in that some imports take 3 to 4 months to pay while others make part payments immediately on shipping with the balance paid 2 to 4 weeks later. distributors.

"Institutional" distribution . For any agricultural product of your choice discuss the factors which have to be considered in the choice of a channel of distribution. 2a) Brokers Advantages  better informed by buyers and sellers  socially skilled and adept at forming buyer/seller links  bring "personal touch" to parties who may not communicate well with each other  bring economies of scale  bring stability to market conditions. Personalised trading Advantages  high context cultural exchange  minimise administration and paper work  reduce information. What are the principle advantages of using brokers. Review Question Answers 1.2. e. monitoring.definition The logistics of the distribution system including transport. bargaining and enforcement costs  may become proxies for laws  give priority or focused treatments. storage and order processing. retailer. . 2b) Association Advantages  counter "lumpy investment" phenomenon  reduce or pool members' risks  lower transaction costs of members  reduce marketing costs  act as a countervailing power between buyers and producers. personalised trading networks and associations in the marketing of international commodities? 3.g. "Physical" distribution .definition The middleman between producer and end consumer who may take title and change the form of the product handled. wholesaler.

" Marketing and Sales". In S. Bibliography 3.1 Distribution alternatives The following exercise is aimed at testing a student's ability to discover the different ways in which products reach their end user market. . paper pulp etc. Carter (Ed) Horticultural Marketing. 1989. 1989. Proceedings of Second Regional Workshop on Horticultural Marketing . Prentice Hall International Editions. 1991 pp. Exercise 10. Collett W. wattle. "International Transport and Handling of Horticultural Produce". the student will learn and understand the different methods of market entry and the modalities necessary to achieve this. E. a) The export of Zimbabwean flowers to Japan b) The export of surplus Tanzanian maize to Zambia c) The export of Nali products (processed chilli sauces) from Malawi to the UK d) The import of Botswanan beef to the EC e) The export of John Deere tractors to Kenya f) The export of Zimbabwean timber products (hard woods. Locher. In Training Manual on Cotton Trading Operations.Network and Centre for Agricultural Marketing Training in Eastern and Southern Africa. W.3. 4th ed. International Trade Centre UNCTAD/GATT. 2. Factors in channel choice  company objectives and goals  resources available  market knowledge. Describe fully the method of entry. Geneva. pp 79-112. W. coverage  risk of business  transaction costs  marketing costs  language  space and time utilities  currency risk  provision of information on prices and competition  payment system and credit  integrity  infrastructional soundness. "Global Marketing Management".J. As such.) to Zambia References 1. 268-288. documentation and other modalities required in the following situations. Keegan.

Promotion. so much of the promotion process is limited to either third party advertising (for example the Dutch advertising Kenya grown flowers) or taking part in international exhibitions (for example the Zimbabwe International Trade Fair in Bulawayo). intended to enhance the intrinsic value of a product or service". Most basic marketing textbooks cover the "ground" rules for effective advertising and promotion and so the reader is referred to these rather than repeat these again here. the rules still apply for effective promotion. Chapter Objectives The objectives of this chapter are: . is defined as: "An incentive. whether it is of limited or more extensive nature. usually at the point of sale. Other expressions in common use are "above the line" and "below the line".Chapter 11: Promotion Decisions Chapter Objectives Structure Of The Chapter The nature of global promotion Global promotion Campaign design Chapter Summary Key Terms Review Questions Review Question Answers Carmel of Israel References Bibliography Products or services will not sell unless people are told about them. on the other hand. defining the boundary between promotion from the retailer to consumer and the other from manufacturer to retailer. most promotion is limited to mentions of origin in developed country promotion. Nonetheless. the line being an imaginary one. As many primary products of developing countries become the end products of developed countries. Advertising is defined as: "Any form of communication in the paid media". It is usual to distinguish between "advertising " and "promotion". It is true that few companies from developing countries are global in operation.

The problem is in estimating the levels of each. Optimal levels of advertising occur where the advertising/sales overseas effect is equal to the marginal advertising expenditure. Whilst the process is ostensibly straightforward. mass volume consumer products. Products like fertilizers. canned and fresh produce and tobacco . These are illustrated in figure 11. To show the benefits of global advertising and promotion  To identify the special problems in international promotion  To describe the steps involved in designing a promotion campaign. Global promotion When organisations advertise across international boundaries a number of important factors have to be taken into consideration. In intermediate products like timber. The nature of global promotion Generally advertising is used primarily for low cost. The chapter then goes on to describe briefly the main steps involved in a communications campaign design. "adapt" or "create" new messages. Individual companies like General Motors and IBM are each spending billions on advertising per annum. Structure Of The Chapter The chapter starts by looking at the nature of global promotion and the special difficulties involved when sending messages across global boundaries.all products which are used by end consumers . with the US the largest spender and Japan next. Worldwide.1. giving a larger potential market for products. especially where television is not available. Global programmes like CNN news and MNet television have dramatically increased the global advertising and direct selling possibilities via satellite. the average advertising expenditure as a percentage of GNP is around 1. Until recently. (that is someone (seller) says something (message) to someone (buyer) through a medium) the process is compounded by certain factors.1 The advertising paradigm These mitigating factors can be called "noise" and have an effect on the decision to "extend". due to the more widespread availability of media and higher incomes.are the subject of heavy promotion. Global expenditure on advertising is believed to be more than US$ 200 billion. per capita GNP and advertising were directly correlated. the USA spending over US$ 30 billion on this medium. although less in Africa. as in Malawi. Print advertising continues to be a major medium in Africa. leather and cotton the advertising may be more limited in nature due to the fewer end purchasers of the raw material. These are related to translation and transmission problems (non-availability of media) and cultural interpretations. Figure 11. This is no longer the case.4% The major expenditure is on the television medic. In many African countries radio is widely used. .

Figure 11. must be answered. many. Budgets . Cultural differences may account for the greatest challenge. Intending advertisers should refer to the appropriate codes of advertising practice available in each country. the extent of its use and time available may be limited. coupled with the type of message which may or may not be used. Government may ban types of advertising. In developing countries "education" and "information" may be paramount objectives.Language differences may mean that straight translation is not enough when it comes to message design. Other objectives include building a favourable image. it would be quite unacceptable to have swimsuited ladies advertising sun care products in Moslem countries. say an agency? The basic steps in designing a campaign are set out in figure 11. Media availability is a mitigating factor. Media use and availability. Whatever objective(s) are pursued. is tied to government control. Campaign design Before embarking on a promotion campaign. In developed countries. information giving. these must be related to the product life cycle and the stage the product is in. For example. However. the objectives may be more persuasive. due to lack of audience understanding and: the message may get through. due to a lack of media knowledge. the following questions. notably Elinder (1961)1 challenged the need to adapt messages and images. Three major difficulties occur in attempting to communicate internationally: the message may not get through to the intended recipient. stimulating distributors or building confidence in a product. However. Advertising may also play different roles within developed. Take for example. among many others. be understood but not provoke action. persuasive advertising's ultimate objective is to obtain sales.2. Whilst difficult to directly attribute to advertising. Whilst in Africa a number of countries do have it. television.2 Basic steps in conducting an advertising campaign Objectives Advertising must only be undertaken for a specific purpose(s) and this purpose must be translated into objectives. this is only one point of view. Changes may be needed only in translation. as there is no doubt that cultural differences do exist across the world. What can be said about the product? Which audience is being reached? What resources does the organisation have? Can someone do it better. as is the case of cigarettes on British television. as he argued that consumer differences between countries are diminishing. between developed and underdeveloped and within underdeveloped countries. the message may get through but not be understood. This may be due to lack of cultural understanding.

character (national or local or international) and its "atmosphere". products fill the images which the communication campaign projects. public relations. press. but it would have to be cheese and wine in France. Germany. These include the Hanover Fair. In illustrations and artwork. language nuances and the development of global segments and customers. or rule of thumb. discounts. not the product. like Lintas and Interpublic. In advertising the choice is television.Budgets can be set in a variety of ways. branding and sponsored events. Products do not project images. illustration. but of crafting images. "Scientific" methods include sales response methods and linear programming. cinema. Media selection There is a great difference in variety and availability of media across the world. both by providing organisations like Horticultural Promotion Councils and by giving information and finance. posters. and as a product display and competitive information gathering facility. Coke. Cheese and beer adverts would go well together in Germany. Message design has three elements. trade missions. Decisions hinge on the standardisation or adaptation of message decision. transport and video promotion. confidence in the market and market coverage. Coke's "Life" theme is a classic in this regard. It is often the image. Agency Agencies can be used or not depending on the organisation's own abilities. objective and task methods. the Royal Agricultural Show. Care has to be taken that the meaning does not get lost in translation. GATT/UNCTAD Geneva provides a promotional service. or text. some forms are universally understood. Copy. are worldwide and offer a wide range of expertise. packaging. There are over 600 trade fairs worldwide. Other forms of promotion include exhibitions. With the "postmodern age" now affecting marketing. In promotion the choice is wide between money-off offers. extra quantities. It is not just a question of selling. which is commercialised. for example in Zimbabwe posters versus adverts in the Financial Gazette. The choice of media depends on its cost. direct mail. has been the subject of much debate. Effective translation requires good technical knowledge of the original and translated language. Advertising appeals should be consistent with tastes. radio. availability. giving information about products to interested parties. again. Coke and Pepsi have found universal appeal. magazines. Trade Fairs are popular both as a "flag flyer". message design is becoming particularly crucial. Message selection Message selection is probably where the most care has to be taken. Governments can be a very powerful promotion source. with its "life" theme is applicable anywhere. Many organisations. Many budgets use a percentage of past or future sales. wants and attitudes in the market. coverage. selling. layout and copy. UK for machinery and the . the product and the objectives of the original copy. and so on.

clear beer segment. the product has been established in a number of London outlets.the effectiveness of the message and the effectiveness of the media. Through use of a UK agency. If. The criterion for participating in fairs is always cost versus effectiveness. and the specific dates and times for advertisements to appear in the media. Chapter Summary . including scenes of the Victoria Falls. except Kenya. clever and impressive message design. This is a relatively cheap but effective medium. the foregoing sections have to be considered carefully in order that possible mistakes are avoided. Organisation and control Whilst companies like Nestle may have centrally organised and controlled advertising campaigns. can be universally accepted. or even regional advertising. Case 11. Few countries activate their overseas embassies sufficiently to generate possible trade. Campaign scheduling Scheduling international campaigns is difficult. Measures include message recall tests. is a phenomenon not normally associated with African countries. especially if handled alone rather than with an agency or third party. Whilst it would be nice to say that "X" sales had resulted from "Y" advertising inputs. Unfortunately few countries see or use the overseas media to advantage. this "designer" lager (incidentally sold in a bottle) is nearly nine times the price it would sell on the local Zimbabwe market Television advertising. and a premium pricing policy. however. Evaluation Advertising campaign evaluation is not very easy at the best of times. enabled Zambezi to be positioned in a quality. This example goes to prove that a quality "buying proposal". Evaluation takes place at two levels . too many intervening factors make the simple tie-up difficult. Few African developing countries. coupled with retailer support. Fro developing countries.Zimbabwe International Trade Fair for agricultural produce and other things in general. the use of media solely or in combination. through the use of a clever creative proposition. many are devolved to local subsidiaries or agencies. have any sophisticated methods for campaign evaluation. as time goes by it may be. At a retail price of nearly £2 per bottle. Scheduling decisions involve decisions on when to break the campaign. it is done. Whilst truly global advertising. diary completion. trade missions can be very useful for promotion. and brand recall.1 Zambezi Lager One of Zimbabwe's successes in international marketing has been the launch of Zambezi lager into the highly competitive U K lager markets. The degree of autonomy afforded to local subsidiaries depends on the philosophy of the organisation and the relative knowledge of the local market by the principal.

scheduling and evaluation. depending on the similarities and differences between product and markets. budget. promotion decisions are subject to the "standardisation " versus "adaptation" argument. Whilst many commodities from developing countries end up as ingredients in downstream industries. Outline the difficulties which could occur when conducting an advertising campaign across national boundaries. 2. 3. Review Question Answers 1. which themselves may promote their brand.changing the communications strategy to fit the nuances of each recipient country. and. message and media selection. As with product choice. These are mainly related to cultural differences but could also be caused by physical problems including lack of media availability and skilled personnel. When the appropriate strategy is chosen then decisions have to be made on the promotional campaign objectives. promotion campaigns can be subject to all sorts of distortion or "noise". Adaption versus standardisation Definitions  Adaption . many suffer from the lack of a reputation. Describe the arguments for "adaptation" versus "standardisation" of advertising campaigns when developing global communications strategies.same communications strategy irrespective of country.  Standardisation . Taking any two of the following products describe what you think is the communications strategy for each one: a) Coca Cola b) Del Monte canned fruits c) John Deere tractors d) Bayer Agro Chemicals. Arguments .No product or service will sell unless it is promoted. Key Terms Advertising Agency Media evaluation and control Media scheduling Budget Media Message promotion Review Questions 1. As with global intelligence gathering.

understood but no action resulting. message not getting through to intended recipient .g. media.what can or cannot be advertised. literacy.  Regulatory and Government issues . language differences. message getting through. etc.  Lack of support from retailers.  egal or regulations differences. public relations and exhibitions and emphasis . translation. reachability.g. Coca Cola standardised)  Objectives of campaign  Mix of communications elements . mores and attitudes.  physical differences e. research facilities. promotion. and.  Message difficulties e. dispersion.advertising. buying power. Students should describe the strategy along the following times: Adaption versus standardisation (e.control of agency. expenditure.language nuances.message getting through but not understood. Students should expand on the answers given.  Market issues . 3. selling.g. campaign. Difficulties Students should firstly describe steps in conducting a campaign:  set objectives  set budget  Agency use if need be  Message selection  Media choice  Scheduling campaign  Organisation in evaluation and control of campaign. media form.  Cultural differences .location.  cultural differences.  Control issues . Difficulties are associated with a number of factors as follows: Availability of agencies.

well-managed organisation. fruit and vegetables had more or less coincided with domestic consumption. In pre-State days. was founded and created the Carmel label. forward looking marketing.  Mix of target audience . Carmel products grace supermarkets shelves throughout Europe and North America. which enabled Israeli farmers to grow exactly what European and America consumers wanted. Before long. middlemen or other "publics". A modest shipment of several hundreds kgs of potatoes and gladioli was Carmel's first venture into the foreign trade. Message intention and target audience. Agrexco was formed to meet the pressing need for planning. when Agrexco. but solidly based on advance planning and dynamically researched product development. and Agrexco is one of the largest and best known agricultural export companies in the world. Agrexco has become an efficient. and when. agricultural production for export was no longer dependent on chances surpluses. the Agricultural Export Company. Today.consumers. high technology farming there were large surpluses. Exercise 11. control and aggressive. Agrexco was established to plan and organize the export of Israel's fresh agricultural produce. Its beginnings date back to 1957. new agricultural settlements rapidly sprouted up all over the country. . however. With Independence. It learned to compete effectively with long-established rivals in Europe and to deal with the varied and sundry problems that inevitably arise in producing crops and bringing them to market. and after a few years of intensive. Task a) Identify the "key success factors" in Carmel's operation under the following headings:  Competitive strategy  Market entry strategy  Product  Price  Distribution  Promotion. local production of dairy. In the course of time. b) Do you foresee any dangers to Carmel's international operation? How might they be overcome? Carmel of Israel Carmel. The name is practically synonymous with quality and taste in fresh agricultural produce.1 Carmel Of Israel Read the following case "Carmel of Israel" and attempt the following exercise.

and poultry board) and four representatives of Tnuva. In most cases farmers are paid the difference between the gross market proceeds and calculated marketing and transport expenses.000 farmers supply produce to Agrexco. as it stipulated in its Articles of Association. The latter consist of one representative from each of the farmers' four produce marketing boards (the fruit board. Agrexco maintains an "open door" policy towards farmers who feel comfortably at home at Agrexco offices. when calculations are adjusted to actual costs. which is Israel's foremost agricultural marketing cooperative. and a strict system of quality control implemented.Among the mainstay of Carmel's strength on the international market are the sheer variety and quantity of its produce. Structure and organization Agrexco is a registered company jointly owned by the Government of Israel. At the end of the year. All sales revenues are shared by the producers and their representatives organizations. maximal product uniformity encouraged. Of all the produce that Agrexco markets. and that consists mainly of seasonal vegetables. They literally change with the weather. To attain such concentrations. Marketing Marketing agricultural produce is different from marketing every other product. but for maximum efficiency and operational flexibility subsidiaries and overseas agents provide many vital services. bringing the Israeli grower up-to-date information on ever-changing consumer tastes abroad and encouraging him to adapt his production accordingly. Some of them have individual contracts. vegetables board. unlike the other . This mixed ownership gives the farmers considerable say in Agrexco decisions on both current issues and long-term policy. increasingly penetrating new foreign markets while providing ever better service to long standing customers and friends. Its sixteen member Board of Directors is evenly divided between eight representatives of the government and eight representatives of the growers. only about a third is marketed under minimum price terms. Moreover. such as collective settlements. The easy atmosphere enables Agrexco to fulfil its function as a mediator. Agricultural produce is alive and sensitive. it is a non-profit organization. The major portion of Agrexco's fruit and flower exports is contracted through open contracts at market price. flower and ornamental plants board. like kibbutzim and moshavim have bulk contracts. acting through the Ministry of Agriculture. Israeli agricultural produce has steadily improved in quality and scope. and the farmers. Although Agrexco operates on a commercial basis. To Agrexco's credit. while protecting the public interest. quality and price are almost totally dependent on natural conditions. Produce supply contracts Approximately 12. Most of Agrexco's activities are carried out by its local divisions and overseas branches. the farmer may receive further payment. These are two main types of supply contracts: an open contract and a minimum guaranteed price contract. Its quantity. growers were pooled. Others.

Carefully cultivated over many years. on the consumer pulse and to supply exactly the products and varieties that ate wanted in the desired amounts. which are in touch with local media are buying patters are directly responsible for the advertising. in Australia and Japan for example. the farmer has no way of regulating the price his goods will fetch on the market. In other case.this for the sale of flexibility. Agrexco sets minimum prices for about a week in advance. They have enabled Agrexco to keep its finger. and especially with the large supermarket chains. these close ties have been a key factor in Agrexco's success. Milan. reliable and efficient consumer service with optimal prices for its farmers. ornamental plants. some sales are made directly form Israel..S. To deal with these limitations. How does it work? Taking into account the short-term supply. Agrexco has branches in Copenhagen. Agrexco conducts extensive market research into buying habits and consumer preferences. while the branches. so to speak. In countries where Agrexco does not have a branch or trustee. Frankfurt. and cuttings. if a product doesn't sell at the suggested price. and its follows up to the introduction of new products into the market. which handles fruit.this to obtain at least a certain stability. Rotterdan.products. bulbs and seedlings. forecast and other pertinent market information. Zurich and New York. eight in Europe and one in the U. or if a bad weather results in an unexpected shortage of something else. for example. unlike other producers. London. Agrexco's marketing network consists of nine sales centres. Sales promotion and market research To find out what its customers want. at just the right seasons and in the most popular packaging. It evaluates the success of its marketing. Advertising and promotion let our customers know what Agrexco has to offer and how they can enjoy its many products. it operates through a local agent.A. public relations. One of Agrexco's major assets is the excellent working relationships it has developed with the importers and wholesalers. and two merchandising centres in Israel. Paris. prices are readjusted . All of this prepares the ground work for penetrating new markets and keeps existing ones healthy and growing. Overall planning is directed form the Agrexco office in Israel. But then if anything should change. most products are sold on a "regulated consignment" basis. Agrexco has created an extensive and flexible marketing system which balances. agricultural stock simply cannot be kept. Most of its sales are made through a panel of local importers working with the overseas Agrexco branches. vegetables and other edibles. which handles flowers. This means that. He cannot even assure himself a definite price when he ships them for export. advertising and promotional campaigns. Transport . It searches opportunities for new products and for improving its tried and true standbys. Cologne. one in Tel Aviv. Vienna. and the other at Ben Gurion Airport. in-store demonstrations and special sales campaigns in each of their countries.

About 45% of the air cargo lands at the allocation and distribution centre in Cologne. on 20-25 weekly jumbo jet cargo flights. as well as a support service of ventilated liners. Agrexco's leased refrigerator ships. far larger than for any of its competitors. in constant operation. It invests funds. totalling over 350. Agrexco products set sail from Haifa and Ashdod.K. Approximately 70. Germany. as well as on additional regular flights when necessary. During the main export season. the rest is sent to its various destinations directly. Indeed. packing and delivery. conveyor and computer system to ensure that the fresh produce reaches its destination in the shortest time and best possible condition. Boasting an expert staff. for example. Agrexco has four refrigerator ships. are sent exclusively by air. All along the way.Every year about 500. the need to transport perishable goods and to keep them in peak condition over very long distances has made transportation Agrexco's largest single expense. which keep the Tel Aviv office informed of what's happening on the farm and assists the growers with needed advice. technological expertise and engineering vision to design today the ship that will be right in the future. Especially sensitive products. The product itself is first inspected at the transit and packing stations. carried at the rate of about 2500 tons a week. such as flowers. Quality control Carmel products are under constant quality control. from planting through picking. About 80% of the produce is sent to the allocation and distribution center in Marseilles: the rest is shipped directly to ports in the U. Seventy percent of it is flown during the winter season. leave Israel by sea or air.000 tons of fresh produce a year. the terminal has been equipped with the latest in sophisticated refrigeration. two of them bearing the Carmel the latter. Only constant efforts to cut costs through improved organization and technology have enabled Agrexco to stay in the running. Agrexco is cooperation with shipping experts to create a vessel that will meet its own strict specifications for both efficiency and economy.000 pallets of Carmel products. More than once. goose liver and strawberries. the Carmel Kor (an Agrexco subsidiary) terminal handles 200. Among any other efforts in this direction. The supervisory process begins with the preparations of the fields and the planting and growing of the crops. The Agrexco terminal at Ben Gurion is able to store a large range of produce in quantities that amount to the capacity of four 747 jumbo jets. have been especially adapted to transport products requiring different storage conditions and a carefully regulated range of temperatures.000 tons of fresh agricultural produce leave Ben Gurion Airport every year. disaster has been averted by disqualifying produce while it was still in the ground or by having district supervisors offer on-the-spot counselling. and Northern Europe. the products are repeatedly and meticulously inspected for export suitability according to international criteria.000 tons. Special Agrexco teams dispersed all over Israel provide extension services. Here the Phytosanitary Administration of the Ministry of Agriculture determines whether each and .

Quality inspectors working alongside the branch managers report to Israel on the quality and conditions of the shipments. the produce has to be kept at the right temperature along the entire route. wooden pallets. which handles the planning. the produce that has been accepted for export undergoes a rigorous sampling inspection. and sleeves through to wrapping papers and plastic bags. cardboard and metal. The packing department is highly respected at home and abroad. re-sort and re-package produce that has been damaged en route. Keeping cool Israel is a natural greenhouse. The final inspection takes place at the branches abroad. Agrexco searches out and develops optimal methods for cooling. Haifa and Ashdod seaports and Ben Gurion airport. Agrexco inspectors examine anonymous samples of the outgoing produce. Growers receive bonuses in accordance with earned quality points. and provide feed back on new crops and varieties. and a range of receptacles. the practice serves as a powerful incentive for the farmer to produce superior goods. ships. It is picked and packed in the cool early morning hours. promptly loaded onto refrigerator trucks.000 km. It has been honoured with the Kaplan prize for "developing effective packaging which results in significant savings. cardboard containers. wood and fibre. So that every one of hundreds of products reaches its destinations fresh and undamaged. rubber and resins. in keeping with its particular characteristics and sensitivities. At the ports. Packaging for every product Carmel products travel a long hard road from the field to supermarkets shelves in European cities. With the growers identified only by number. Through unrelenting R & D. Since renumeration may reach as high as 30% of the average price of the product. specifications. each must be properly packed.every item does or does not meet internationally agreed upon export standards. punnets. The unit utilizes a large variety of materials and technologies. purchase and distributions of the packaging. packing and . Applying science Agrexco products. The annual packaging budget amounts to approximately $15 million. The average route was calculated at 3. storing. Those that do not. To stay fresh and crisp over the thousands of kilometres it travels. bags. from bulk crates. planes and trains as well. follow up consumer complaints. are disqualified and channelled to the domestic market or slated for destruction. But along with many advantages of its hot sunny climate are a host of difficulties that begin as soon as the fruit or vegetable is detached from the plant and end only when it arrives at market. In charge of this task is the packing department. in an unbroken cooling chain. are pampered. like Agrexco customers. including paper and plastic. and kept under refrigeration in the warehouses. Agrexco inspectors look for qualities of taste and appearance above and beyond the minimum required.

each box is supplied with a bar code listing the variety. For avocado. And the central computer.B. in turn. The end product: better tasting fruit and vegetables with longer shelf life. . as everyone knows. operated by its subsidiary Carmel Computers. It carries out experiments in coordination and cooperation with Israel's prestigious Vulcani Institute for Agricultural Research. using software that translates foreign currency figures to dollars F. two-way flow of information and services running non-stop between the large central computer in Agrexco's Tel Aviv office and the numerous terminals in its department in Israel and its branches and depots abroad. which. a series of experiments has reduced the spoilage rate from a hefty 10%. Once they are cut and arrive at the packing stations Israel. One example of the efficient use that Agrexco makes of its state-of-the arts communications network is in the marketing of cut flowers. For example. which relays the vital statistics to Agrexco's central computer. humidity and ventilation. the Ministry of Agriculture and integrated regional research units. analyzes the sales data. The first step is to check them. sends the details overseas. From here on. With another variety of plastic wrapping. The bar code is read by a computerized optical reader. The advance information arrives in Europe even before the plane takes off. developments in its storage transportation have lengthened not only its shelf life but also its marketing season. the challenge is to get them to European supermarkets and flower shops no later than the very next evening. As the cartons are packed. have to be virtually whisked to their destinations if they are to retain their freshness and glow. can now be transported via the more economical sea route. at lower costs to the consumer and higher returns to the grower. size. a new variety of persimmon. Communications Agrexco's on line communications system. which in the meantime has also taken in all incoming orders and kept tabs on outgoing shipments. which once had to be sent by air. A long series of experiments on celery and Chinese leaves has resulted in their being kept at optional temperature.sending bills. following up payments and relaying marketing and accounting information to company headquarters. the highly perishable strawberry now arrives at market in better condition and lasts longer once there. thanks to especially developed plastic wrapping. the sensitive eggplant. The application for vacuum pre-cooling has worked similar wonders for lettuce. number and quality of the flowers inside. to be sent to ship. allowing the branches to schedule sales before it lands. the branch computer comes to life . As for the exotic Sharon fruit. Flowers. keeping stock.O. provides a round-the-clock. extending its shelf life seven full days and enabling it.shipping every one of its more than four hundred products.

Logistics . Whilst exporting and importing are. both supply customers with products manufactured outside the country. Often. but in practice this is of little use. Many African countries . organisation and control and information systems. Government. Simply. seeks to support export activities in three ways: by applying lower rates of tax to earnings from exporting or refunds.Access And Documentation Chapter Objectives Structure Of The Chapter Complexity Terms of access International trade Special trade terms in export sales Export documentation Commercial documents Official documents Insurance documents Transport documents Financial and financing documents Export financing Collection arrangements Letters of credit Conflict of law Chapter Summary Key Terms Review Questions Review Question Answers References Bibliography Exporting and importing are two sides of the same coin. Theories of trade stress the basis as "comparative advantage". this is not the way governments look at it when making policy. planning. however. Exports now account for over 15% of global GNP and are growing at an annual compound rate in excess of 10%. every effort is made to improve and encourage exports whilst every effort is made to curb imports. The most significant factors affecting trade are "firm" not "product" characteristics. outright subsidies or assistance like information giving. No doubt few firms will export unless profit and growth opportunities are expected. a marketing mix decision. The combination of policy measures can have an offsetting effect. policy can be construed as two-faced. Exporting is often an incremental process.Chapter 12: Global Marketing. Export marketing requires a knowledge of the target market. from unsolicited order filling to deliberate export planning. McGuiness and Little (1981)1 found two firm characteristics "restrained from exporting" and "high technology" as opposed to product characteristics had an overwhelming influence on the decision.

Complexity Exporting and importing requires an enormous amount of thought and attention to detail. . and transport documents. and the non-tariff barriers which can be quite effective in reducing the normal terms of trade.1 Kenya Horticultural Produce Export In organising for export. The various terms of access are described. These include commercial documents like invoices.have incentives like export retention schemes and revolving schemes to aid potential exporters. trade and the different types of export documentation required in global marketing and  To show the importance of ensuring that export documentation is in order and legal recourse of any defaulting in global transactions. necessarily so. If documents are missing or wrongly filled out then the transaction will be void. the special terms of trade (FOB. The documentation required is as follows: 1. fax or telex since the exporter is dealing with a highly perishable commodity and decisions have to made fast with no time lag. Chapter Objectives The objectives of this chapter are:  To give an understanding of the complexity involved in managing global marketing logistics  To describe the terms of access.000/=) 4. The chapter goes on to discuss international contracts. Structure Of The Chapter This chapter is very detailed. a Certificate of Incorporation from the Registrar of Companies 2. certificates of origin. given the nature of the subject matter covered. Case 12. export Licence from HCDA (a fee of Kshs. The chapter concludes by looking at financial. especially documentation. a miscellaneous occupational Licence (Export) from the Ministry of Commerce 3. written contracts with farmers for supply of produce 6. the exporter needs to be within reach of and must have an office with telephone. a bank account 5. CIF etc. including tariffs and duties. 1.) and other important export documents. Note that all cases quoted in this chapter were sourced from Kwelepeta (1991)2. have adequate knowledge on the quality standards for horticultural produce. insurance and transport documentation and the legal ramifications of any defaulting in international transactions. Consider the following example of the exportation of horticultural produce from Kenya.

Airway Bill and Docket) are verified by HCDA for final approval STEP 6 Agent sends documents to customs officer for verification. Airway Bill and Customs entry (C. STEP 7 From customs.29). and issue docket (correct weights of produce). Tariff systems Tariff systems provide either a single rate of duty for each item applicable to all countries. STEP 4 Produce is weighed by Kenya Airways Handling Services Ltd. The major instruments covered by this include import duties. STEP 2 HCDA officer to vet prices. i. CD3.Flow of documents in export of horticultural Produce by Air A shipper is required to submit the following documents to facilitate the processing of exports: a) A duly complete invoice b) CD3 form (from Central Bank of Kenya) available from commercial banks) c) Appendix HCDA 3 from HCDA (Horticultural Crops Development Authority) d) Certificate of Origin i) EUR 1 (for European Economic Community countries from KETA) ii) Certificate of Origin for Middle East countries from Kenya National Chamber of Commerce iii) GSP (for all other countries) e) Export Certificate f) Phytosanitary Certificate STEP 1 Shipper to submit Invoice to produce inspectors for inspection of produce. STEP 5 All the documents (invoice. the agent prepares other documents.e. who then passes the documents to the airlines. Certificate of Origin. agent sends documents to Kenya Air freight Handling Ltd. weights declared by the shipper and issue export certificate which is endorsed by produce inspectors. STEP 3 Shipper sends the documents to his/her agent (here the responsibility of the shipper ends). or two or more rates. Terms of access Terms of access refer to the conditions that apply to the importation of goods manufactured in a foreign country. Tariffs are usually grouped into two classifications: . foreign exchange regulations and preference arrangements. Appendix 3. import restrictions or quotas. applicable to different countries or groups of countries.

Normally. GATT prohibits preferential tariffs except historical preference schemes like the Commonwealth. length. the applicable rate is the one that yields the higher amount of duty. A uniform basis for the valuation of goods for customs purposes was elaborated by the Customs Cooperation Council in Brussels and was adopted in 1953 (the Brussels Nomenclature came out of this). iii) Alternative duties .These duties provide for specific plus ad valorem rates to be levied on the same articles. iv) Compound or mixed duties . These are special additional import charges designed to cover the difference between the export price and the "normal" price. with some exceptions. temporary import surcharges and compensatory import taxes . those part of a formal economic integration treaty like a free trade area and preference to companies of a developing country importing into a developed country. vi) Countervailing duties . ii) Specific duties . Usually specific duties are expressed in the currency of the importing country. Preferential tariff: A reduced tariff rate applied to imports from certain countries. Types of Duties: Customs duties are of two different types . volume. i) Ad valorem . 25 cents per kg.Expressed as a specific amount of currency per unit of weight.Single column tariff: A simple schedule of duties in which the rate applies to imports from all countries on the same basis. Two column tariff: The initial single column of duties is supplemented by a second column of "conventional" duties. which usually refers to the price paid by customers in the exporting countries. As definitions of customs value vary from country to country it is best to secure valuation policy information first. although there are cases where the lower is specified.This duty is expressed as a percentage of the value of goods.In this case both ad valorem and specific duties are set out in the customs tariff for a given product.Additional duties levied to offset subsidies granted in the exporting country.g. apply the most favourable tariff to products.Applied if injury occurs to domestic producers. In this case the customs value is landed GIF cost at the port of valorem or specific amounts per unit. Other import charges: These include variable import charges. or a combination of these. The second column is supplied to all countries enjoying "most favoured nation" status within the framework of GATT. v) Antidumping duties . Signatories to GATT. e. This cost should reflect the arm's length price of the goods at the time the duty becomes payable. or number of other units of measurement. which shows reduced rates agreed through tariff negotiations with other countries.

Exporters should seek the most favourable classification for their products to minimise the duty levied. ii) Discriminatory government and private procurement policies . Tariff administration has been made more simple by the Brussels Nomenclature (BTN). Sometimes products can be reclassified to get an advantageous rate. They virtually prevent sales in a foreign market. Non tariff barriers Non tariff barriers are measures. Tariff classification Before World War II specific duties were widely used and the tariffs of many countries were very complex. iii) Compensating import taxes .i) Variable import charges . According to GATT such "border tax adjustments must not amount to additional protection for domestic producers or to a subsidy for exports". With many new products appearing the task of classifying becomes more difficult. that cause internationally traded goods and services to be allocated in such a way as to reduce potential real world income (the attainable level when resources are allocated in the most economically efficient manner). iii) Selective monetary controls and discriminatory exchange rate policies ."Buy British" policies aimed at restricting foreign supply. safety and health. ii) Temporary import surcharges . for example Zimbabwe. the numbers may often reflect hasty and arbitrary . for example has very strict hygiene measures for imports of horticultural products. Some countries require an import deposit. operate state trading.Can be used to raise imported product prices to the domestic price level. public or private. worked out by an international committee of experts under the sponsorship of the Customs Cooperation Council. i) Quotas and trade control .Used as a local industry protection measure and in response to balance of payments deficits.Act distortively on import duties and export subsidies. which in 1955 produced a convention that entered into force in 1959.In theory these taxes correspond with various internal taxes. such as value added taxes and sales taxes. This can lead to great inequities.Include antidumping. The BTN groups articles mainly according to the materials from which they are made. The EU. These rules now apply to most GATT countries. Difficulties of classification raise serious questions about the accuracy of data in international trade patterns. Some countries. and once the quota is filled the price mechanism is not allowed to operate. thus in effect raising the price of foreign goods.Specific limits and controls. iv) Restrictive administrative and technical regulations . size regulations. In using data on trade.

The essential elements of a contract of sale should include the following: a) Names and addresses of the parties b) Product. it is always safer for the exporter to produce his terms of selling in writing and obtain the signatures of his buyer or authorised representative. delivery schedule and so on. These shipping documents consist normally of the bill of lading. In many export transactions. a thing that differentiates the international sale from the local sale.classification which distorts the true picture of the trade flows. The position becomes more involved when payment is made under a banker's documentary credit because this common method of payment requires the addition of two other contracts to the export transaction viz: the contract of the bank with the buyer and seller respectively. This often explains the discrepancies in import and export figures of the same commodity between two countries. destination and delivery schedule g) Method of payment . The acceptance should be unqualified and any variation is regarded as a repudiation of the contract. packing. The export contract should be very explicit regarding goods and specifications. Export contracts A contract is a general agreement between a seller making an offer and a buyer making an acceptance. International trade The export transaction is founded on a contract of international sale of goods with the special characteristic that it is entwined with other contracts. Normally the contract is sent with a pro forma invoice by airmail. mode of payment. Although contracts may be oral or partly in writing and partly by word of mouth. price. These connected contracts are the contract of carriage by sea or air under which goods are exported and the contract of insurance by which the goods are insured. delivery of the shipping documents amounts to performance of the contract of sale. labelling and marking requirements e) Marine insurance f) Port of shipment. storage. standards (quality) and specifications c) Inspection of products d) Packaging. the marine insurance policy and the invoice.

C & F etc. the exporter can then get an order with duplicate copy of the contract. as per quotation must be examined in terms of elements of contract conveyed by the exporter to his buyer. . Terms of payment This is very important: If payment is to be by LC the following should be borne in mind when examining the LC: a) confirmation of the LC b) documents stipulated in the LC will be submitted by the exporter's bank c) draft to be drawn against the LC is for the period set out in terms of the contract. Delivery schedule: All efforts should be made to ensure adherence to delivery schedule as this would affect the requirements of the LC. The export order should indicate whether part shipment is permissible or not. "sight draft" is payment by the recipient or "usance draft" if credit has been allowed in the contract d) the credit validity period allowed in the LC e) payment against the LC is permissible according to requirements of foreign exchange control regulations. i) Settlement of disputes including arbitration clause. specifications etc. detailing payment arrangement and other details and an indication that a letter of credit (LC) has been opened in favour of the exporter.contents of the order in respect of product. in international currency or currency asked for by the buyer and. CIF. Qualities/volume should be examined and ascertained in respect of capability to supply within the stipulated time. sizes. If the buyer is satisfied with the terms set out in the contract and the pro forma.h) Price FOB. Documents Since the LC indicates the documents required along with the bill of exchange. The following must happen: a) Acknowledgment .exporter must acknowledge receipt of the order indicating that confirmation follows b) Scrutiny . The Buyer should endeavour to send a special form of invoice required by him. Details of documents required will also be indicated in the export order. the exporters should look for availability of the documents called for by the importer and particularly: a) Commercial customs consular/legalised invoice.

Confirmation If the exporter is satisfied with all of the above. Ex-works or ex-warehouse or ex-store (where the goods are situated) This is an arrangement which is most favourable to the seller who desires to conduct export trade as closely as possible on the lines of a home market sale. The most common are the FOB and CIF clauses. packing etc. language. Notice should be given to the buyer that the goods are ready for collection. No special form of confirmation is needed as any letter giving details of order and indicating clearly terms and conditions would be sufficient. The name of the company from which the insurance contract is to be obtained should also be mentioned.number of copies required e) Marine Insurance Policy whether in FOB or CIF contract is to be effected by the exporter on behalf of the importer. The seller must provide goods of the contract description and place them at the agreed collection point. labelling and marking requirements Special or usual activities for example. Other clauses are ex-works. colour contents. the exporter should write to the importer to seek for clarification and necessary corrections. the FOR. the COF. then he must send his confirmation of the export order to the buyer. Special trade terms in export sales Export transactions based on the contract of sale usually have terms which are not customary in the local trade. c) Certificate of origin d) Packing list . Packing. FOT. Pre-shipment inspection To be carried out by an appointed body or any other agency. The clause means that the overseas buyer or his agent must collect the goods at the place where the seller works or where his factory. ex-ship.b) Kind of Bill of Lading (usually "clean on board") and the number of copies required by him along with the bill of exchange and non-negotiable copies to be sent to the buyer. If the export transaction presents itself to the businessman as a natural and indivisible whole and he is apt to pay little attention to its constituent parts. If dissatisfied. exquay and arrival. or ex-warehouse or ex-store. like the motorist who thinks of the components of his car only when he notices a fault in them. warehouse or store is situated. Free on rail or free on truck (FOR/FOT) .

the goods are not collected at the seller's doorstep but have to be delivered by him into the custody of the railway or transport authority at the agreed point. import duties. He undertakes to place the goods on board a named ship at a named port and berthing place. Ltd. A receiver and manager was appointed for the sellers. freight. The seller. the seller has little to do with the actual exportation of the goods and many overseas risks. the seller assumes further responsibilities. Under the FAS contract. for insurance are made by the buyer direct. Vs Charles Twigg and Co. Under the strict FOB contract the arrangements for shipment and. There are two types of FOB contract. The actual loading of the goods is the responsibility of the buyer. The bicycles were packed into cases which were marked with the buyer name and registered for shipment in a named ship that was to load them at Liverpool. and including the delivery of the goods over the ship's rail. The cases containing the bicycles had not yet been sent to the port. if he so wishes. Ltd. Under an FOB contract the duty to name an effective ship falls on the buyer. vs Charles Twigg & Co. the strict or classical type and the one with additional services. It was held that the property in the bicycle had not yet passed to the buyers so that the receiver could get them. This transaction differs markedly from an ordinary sale in the home market where no dealings in a port have to be carried out and yet it does not display the complexion which is a true mark of the export transaction.Here. under an FOR or FOT contract. Failure to name such a ship will make the buyer liable to an action for damages for non-acceptance. has normally to procure the railway wagon or other means of transport. consular fees and other incidental charges due on the arrival of the consignment in the port of destination. In Carles Federspiel & Co. All charges to. marine insurance as well as unloading charges. The seller will have performed his obligations when the goods are carried alongside the ship so that they can be placed on board. But unlike the above. The seller should give immediate notice to the buyer of the loading or delivery to enable him to make a claim on the carrier within the time prescribed. (1957). This is shown in the following case: Case 12. a company in Costa Rica bought from an English company 85 bicycles FOB British port and paid the purchase price in advance. the duty to nominate an effective ship falls on the buyer. Free alongside ship (FAS) This involves certain elements which are absent in a sale on the home market. Once the seller has placed the goods alongside a ship in the customary way and at the agreed time.. in the event of loss. named port of shipment (FOB) Here.2 Federspiel And Co. all subsequent expenses and costs are to be met by the buyer. have to be borne by the seller while the buyer has to pay all subsequent charges such as the stowage of the goods on board ship. . Free on board.

and. CASE 12. if the goods were not then ascertained. This can be seen in the following case: Case 12. The goods were carried in the Elafi which carried altogether 22. It was held that. the buyer.. the goods shall be at his risk. The right of the buyer where the goods have not arrived is to sue the contract of carriage or insurance which is assigned to him by the seller under the contract of sale. If the seller omits to do this. The claim of the Swedish against the shipowners was successful. This can be seen in the following case: CASE 12. the shipment to be made by October 31st. 16. the buyers had no title To and therefore could not sue in negligence.000 tonnes of copra under four identical contracts which provided for delivery CIF Karlshamn. Delivery is complete when the goods are put on board ship. In both types of FOB contract the cost of putting the goods on board ship is borne by the seller. The buyers sued the shipowners in the tort of negligence. Cost Insurance Freight (CIF) (named port of destination) This is the most common export clause. if the goods are lost from a peril not covered by the ordinary policy of insurance current in the trade.5 Kwei Tek Chao Vs British Traders And Shippers Ltd. The 16. Their ship carrying the cargo was sunk by a German cruiser. The goods .4 The Elafi (1982) In The Elafi (1982). a buyer is under an obligation to pay against the shipping documents even if the goods do not arrive. sold goods to Kwei Tek Chao who were merchants. The Elafi: Part of the cargo purchased by them was damaged on discharge in Sweden by the negligence of the shipowners. The seller must give notice of shipment to the buyer so as to enable him to insure. Barber sold Groom 100 bales of cloth on CIF terms. the parties agree that the arrangements for the carriage by sea and insurance shall be made by the seller but for. and on behalf of. insuring them under a policy which did not cover war risks.In an FOB contract with additional services. A CIF contract is not a sale of the goods themselves but a sale of the documents of title. However.000 tonnes having been sold to other buyers. Barber shipped the goods. ii) property hand passed on the goods becoming ascertained in Hamburg. There was no custom of trade that the seller should insure against war risks. Groom was bound to pay the price on tender of the shipping documents. (1954) British Traders and Shippers Ltd.000 tonnes of copra in bulk. (1954 In Kwei Tek Chao vs British Traders and Shippers Ltd. Sweden. Swedish buyers bought 6.. that property shall pass when they later become ascertained.000 tonnes sold to the other buyers were located in intermediate ports of Rotterdam and Hamburg so that only the quantity bought by the Swedish buyers remained on board. It was held that: i) the goods became ascertained when discharged was complete in Hamburg because the buyers could then say all the copra on board was destined to them. the buyer must nevertheless pay the full price on delivery of the documents. because in a CIF contract the parties intend that either the property shall pass upon the shipping documents being transferred to the buyer or else. The shipowners claimed that at the time of the damage to the cargo. The risk of accidental loss under the Sale of Goods Act passes to the buyer when the seller has placed the goods safely on board ship. Thus.3 Groom vs Barber (1915) In Groom vs Barber (1915).

if they arrive. vs Etablissement General Grain Co. and this certificate was tendered together with the bill of lading.were shipped on November 3rd.A. The bill of lading tendered must correctly state the date of shipment otherwise the buyer can reject the goods.7 Comptoir d'Achat vs Luis de Ridder (1949) In Comptoir d'Achat vs Luis de Ridder (1949). The date of shipment shown on the bill of lading was forged to show a shipment in October. The terms were CIF Antwerp. the goods are not ascertained at the time the documents are taken up. is the property in the goods. (See following case). However. Panchand Freres sold a quantity of Brazilian yellow maize to Etablissement General Grain Co. If. ii) Kwei Tek Chao although they had not rejected the documents still had a right to reject the goods and could recover the difference between the contract price and the market price. 1965. The property under a CIF contract passes when the documents are taken up by the buyer but what the buyer obtains. under which the goods will be delivered at the destination contemplated by the contract. (1970) In Panchand Freres S. was not a nullity as the forgery did not go to the root of the contract. CASE 12. The duties of the seller under CIF contract are: to ship at the port of shipment goods of the description contained in the contract. An example of this can be seen in the above case. The goods were part of a larger consignment and the documents tendered to the buyer included a delivery order addressed to the seller's agents in Antwerp instructing them to release 500 tonnes to the buyer. to make out an invoice for the goods and to tender within a reasonable time after shipment the bill of lading. or recover for their loss if they are lost on the voyage. Under a CIF contract the buyer has the right to reject the documents and also a right to reject the goods. This distinction can be seen in the following case: Case 12. but the bill of lading was out dated and falsely gave as the date of shipment July 31st. when the title under the document is given to him. It was held that: by taking up the documents and paying for them.A. (1970). no property in the goods will pass until the goods are ascertained. The goods were in fact shipped on August 11th and 12th. vs Etablissment General Grain Co. subject to the condition the goods reverts if upon examination he finds them not to be in accordance with the contract. were unable to sell the goods. but as the market had fallen. if the buyer accepts the documents knowing that they are not in order he is estopped from later trying to reject them. the buyers were aware that the goods were shipped later than provided in the contract and were estopped from complaining of the late shipment or the defect of the bill of lading. The contract was CIF Antwerp and provided that shipment had to take place from Brazilian ports "during the period of June/July 1965" and the "bill of lading to be considered proof of date of shipment in the absence of evidence to the contrary". These two rights are quite distinct. However. but British Traders were ignorant of It and not party to the forgery. and. 1965. to arrange a contract of insurance on the terms current in the trade for the benefit of the buyer. 1965.6 Panchand Freres S.. All the same they took delivery of the goods.. It was held that: i) the bill of lading though forged. however. The buyers paid against the documents but . the policy of certificate of insurance and the invoice to the buyer so that the buyer may obtain delivery of the goods. to procure a contract of carriage by sea. a certificate of shipment issued by a superintendent company in Brazil stated as date of shipment August 10th to 12th. a Belgian company bought 500 tonnes of la plate rye from an Argentine company.

When the seller negotiates the bill to his bank the latter charges him commission and interest until payment has been received on the draft in the seller's country. Contracts Expressed to be CIF but not True CIF Contracts The strict rules discussed above do not apply to other contracts. Case 12. Since. passed neither possession nor property to the buyers but was merely a note from an agent of the sellers to another. whereas in the latter it means that the purchase price is not affected by the subsequent rise or fall of the stipulated currency of payment against another currency. the S. payment to be paid for each shipment as it took place by means of a confirmed credit with the buyer's bank in England. The clause CIF and C and I is used when goods are exported to distant places where some time elapses before the bill drawn on the buyer abroad is settled. it is sometimes said to refer to the banker's commission or charge. CIF and C and I: CIF AND C STANDS FOR COST.8 Urquhart Lindsay & Co. Thus. the goods were sold cheaply. in particular arrival contracts and other contracts which are not true CIF contracts.the ship carrying the goods. CIF and C. though they may be described as CIF contracts by the parties. Juliana. the consideration had wholly failed. freight and commission. (1922). The expression "exchange" is ambiguous. In the former case it denotes that the banker's charges are included in the calculation. . Accepted variants of the CIF contract The following are some of the variants of the CIF contract which are reconcilable with the legal nature of a true CIF contract. The following case evidences this. Urquhart sold machinery to a buyer in Calcutta to be delivered by instalments. It was held that the bank was liable in damages. At Lisbon. vs Eastern Bank. owing to the non arrival of the goods in Antwerp. Apart from the above situation where a bill of lading is replaced by a delivery order. despite it being called a CIF contract. E stands for exchange and I for interest. a contract expressed to be a CIF one will not be truly such also where delivery of the goods is expressed to constitute performance of the contract. After two shipments had been made and paid for. the contract. and the seller by adding in his contract of export the letter "I" to the clause indicates to the buyer that the quoted price includes the bank's interest and commission. It was held that. the buyers were entitled to recover the whole purchase price paid by them from the seller. was an arrival contract because the delivery order unlike a bill of lading. CIF and E. It is thought that the former interpretation is more common as currency fluctuation arrangements are most explicitly made. This was one of some 900 transactions concluded by the parties before on similar terms. vs Eastern Bank. The buyer's bank told Urquhart that a "confirmed irrevocable credit" was open in his favour. the terminology used by the parties is not conclusive evidence as to the nature of the export contract. while sometimes it refers to exchange fluctuations.S. the bank on the buyer's instructions refused Urquhart's bill of exchange. The commission is the export merchant's commission which he charges when acting as buying agent for the overseas buyer. was diverted to Lisbon because Antwerp had fallen into enemy hands. insurance. (1922) In Urquhart Lindsay & Co.

Date of arrival of goods is mere determinate for payment of price: The parties sometimes agree on CIF terms adding "payment on arrival of goods" or "payment 'x' days after arrival of goods". This clause is ambiguous and its meaning can be ascertained from the intention of the parties. As a general rule, these words refer to the time at which payment has to be made. If the goods do not arrive, payment shall be made on tender of the documents at the time at which the goods would normally have arrived. C and F (Named Port of Destination) This stands for cost and freight. The seller is responsible for procuring the contract of carriage of goods but not the contract of insurance which is to be effected by the buyer. However, the seller must promptly inform the buyer of the shipping of the goods to enable him to insure the goods. The C and F clause is not frequently used by export merchants except in the case of some countries, which for political reasons, or due to lack of foreign exchange, require their importers to insure at home rather than buy CIF. Arrival of ex-ship (Named Ship and Named Port of Arrival): Where this clause is used, the goods must arrive at the place of destination. It is not sufficient that documents evidencing shipment of the goods to that destination are made available to the buyer. When examining whether a particular contract is a CIF contract or an arrival contract, attention must be paid to the situation of the parties; the terms used by the parties are not conclusive. (See previous case 12.8 Comptoir d'Achat vs Luis de Ridder).

Export documentation
In internal/inland trade, the commercial parties to a sales contract agree on a price based on the buyer taking over the goods at the seller's or supplier's warehouse, or on delivery by the seller to the buyer's warehouse, or delivery by the seller to a specified rail or road carrier. This is because it is simple for either buyer or seller to arrange to pay for all formalities involving the movement and insurance of the goods from one place to another in the same country. In international trade, the position is a little complicated. There are likely to be three separate contracts of carriage of the goods, i.e. from the seller's or supplier's warehouse to a place within the seller's country, from which there will be an international movement of the goods to a place of arrival within the buyer's country, with a possible internal carriage within the buyer's country to his warehouse. Basic export documents Below is a list of basic documents used in export trade. These have been covered in detail in other sectors of this text.
a) b) c) d) Invitation to quote Quote Pro forma Invoice Order confirmation/acknowledgement

e) f) g) h) i) j) k) l) m) n) o) p) q) r) s) t) u) v) w) x) y) z) a1)

Bill of lading/short form bill of lading Airway bill Marine (other) insurance policy Commercial invoice Consular invoice Certified invoice Certificate of origin Packing list/weight note Specification sheet Manufacturer's analysis certificate Health, sanitary, phytosanitary, veterinary certificates Quality inspection certificate/certificate of value Independent third party inspection certificate Dispatch advice note Dangerous goods declaration Shipping or export consignment notes Documentary credit of payment drafts Export licences Import licences Exporter's commission advice to agent Customs and Excise export entry forms EU Movement documents EUR 1 Form Other specifically requested documents

Not all of these will be relevant depending on whether the exporter is from a developed or less developed country. Note: A great number of exporters find it more convenient to control the volume and variety of paper work and related matters by designing a file folder that has printed on the covers the entire control procedure covering documentation, production of goods, payment, shipping instructions and so on. Each separate transaction is then allocated to a numbered filed folder. The documents are either required by the importer to satisfy the country's trade control authorities or to enable a documentary credit transaction to be implemented. Trade control authorities want to ensure that each document controls the import of a good/commodity for sanitary/veterinary reasons, or to ensure no plant disease likely to affect the local seeds is imported from another country. The importer also wants to ensure that the exporter fulfills these requirements under documentary letter of credit operations in order for payment to be effected.

Commercial documents

Of the documents described earlier, this section will single out some and describe them in detail. Pro forma invoice This is a form of quotation by the seller to a potential buyer. It is the same as Commercial Invoice except for the words "Pro forma Invoice" which appear on it. It may be an invitation to the buyer to place a firm order and is often required by him so that the authorities of the importer's country will grant him an import licence and/or foreign exchange permit. The pro forma invoice normally shows the terms of trade and price so that once the buyer has accepted the order there is a firm contract to be settled as stipulated in the pro forma. Details from the accepted pro forma must be transposed identically to the commercial invoice that goods are in accordance with the pro forma invoice. No pro forma invoices are used in settlements:  in advance  on consignment  subject to tender  after an invitation to tender has been accepted by the seller. Commercial invoice The following details must appear on a commercial invoice used in international trade:  Names and addresses of buyer and seller and date  Complete description of goods. If payment is to be obtained by means of documentary letter of credit, this description of goods must exactly match the details in the documentary credit  Unit prices where applicable and final price against shipping terms  Terms of settlement e.g. under documentary credit or 30 days sight Documents against Acceptance  Shipping marks and numbers  Weight and quantity of goods  Name of vessel if known or applicable. Sometimes it is necessary to show to the customs authorities in the buyer's country:  Seller's signature  Origin of goods  Ports of loading and discharge or places of taking in charge and delivery  Details of freight and insurance charges specified separately where applicable.

Certified invoice A certified invoice may be an ordinary signed commercial invoice specially certifying: a) That the goods are in accordance with a specific contract or pro forma b) That the goods are, or are not, of a specific country of origin c) Any statement required by the buyer from the seller. There are also formal certified invoices which when submitted to the importing authorities will provide them with the necessary evidence to pass the goods through customs with a lower import duty or none at all. Combined certificates of value and origin (CVO) are used between members of the Commonwealth and special invoices for the other major trade areas such as the EU. All certified invoices must be signed and in case of combined certificates of value and origin they should be signed by a witness as well. Weight note This certificate may be issued by the seller or often by a third party - it indicates weight of goods, which should tally with that shown on all the other documents. Weighbridge tickets are sometimes produced for road or rail shipments. Banks will accept superimposed declaration of weight on shipping documents, unless credit calls for a separate or independent document. Packing list and specification These documents set out details of the packing of the goods. These are required by the customs authorities to enable them to make spot checks or more thorough checks on the contents of any particularly package. The packing list has no details of cost/price of the goods; the specification does have these details. Manufacturers analysis certificate The certificate states the ingredients and proportions revealed by an analysis of chemicals, drugs etc. Third party certificate of inspection This is a certificate declaring the result of an examination of the goods by a recognised independent inspection body. In order to protect himself from paying when substandard or worthless goods have been shipped an importer can call for an independent check or examination of goods before they are despatched. This is important for the buyer as banks' liabilities and responsibilities under documentary credit are limited to documents and not goods represented by the documents. The usual independent body which serves buyers/sellers is the Société Generale de Surveillance.

Official documents

These are legion. This section looks at the following few official documents only for example purposes, a) EURI form b) TzL form c) Consular invoice d) Legalised invoice e) Combined invoice and Certificate of Origin f) Chamber of Commerce Certificate of Origin g) Blacklist Certificate h) Veterinary Certificate. EC documents EURI and TzL EURI form is used in respect of preferential exports from an EU country to a non EU country. The TzL is used for trade between EU member states, where the goods are being transported directly between member states and without passing through the territory of a non member country. Consular invoice Importing authorities of several countries require consular invoices to be produced before goods may be cleared through customs. These invoices are normally obtained by the exporter from the Embassy of the importing country and are submitted to the Embassy for stamping at a charge. Sometimes a Chamber of Commerce is required to certify on the Consular Invoice that the origin of the goods is as stated. This mainly happens in the South American countries. The selling price is mainly examined in the light of current market price to ensure that there is no "dumping" or that importers are not syphoning money overseas or that the correct basis for levying import duty can be determined by the Customs Authorities. Legalised invoice Some countries require that commercial invoices should be legalised by their own embassy or consulate in the seller's country. Sellers produce their own invoices and have them stamped (visaed) by the buyer's embassy. This is normally required in the Middle East countries. Certificates of origin These constitute signed documents evidencing origin of the goods and are normally used by the importer's country to determine the tariff rates. They should contain the description of goods and signature and seal of the Chamber of Commerce. Blacklist certificate Countries at war or with badly strained political relations may require evidence that: a) The origin of the goods is not that of a particular country

b) That the parties involved (manufacturer, bank, insurance company, shipping line etc.) are not blacklisted or, c) That the ship or aircraft will not call at ports in such a country unless forced to do so. Health, veterinary and sanitary certificates Sometimes these are required for official purposes in the purchase of foodstuffs, hides and skins, livestock and in the use of packing materials.

Insurance documents
The following are insurance documents required in international trade: a) Letter of insurance b) Insurance company's open cover certificate c) Lloyds' open cover insurance d) Insurance policy. Letter of insurance It is normally issued by a broker to provide notice that an insurance has been placed pending the production of a policy or a certificate. Sometimes this takes the form of a cover note. The above documents do not contain details of the insurance being effected and therefore are not considered satisfactory by banks which normally require evidence of an insurance contract in documents required under a documentary credit. Broker's certificates, and cover notes are issued by a third party and not the insurer so that in the event of any claim, it would be made against the broker. Insurance certificates These are issued by insurance companies to embrace either open covers or floating policies. The systems of open cover and floating policies are similar in that: a) Once the system has been arranged, the insured party is covered for all his shipments on the terms and for the risks agreed. The insured will declare to the insurance company the value and details of each shipment and will receive a pre-printed insurance certificate made valid and the document will show the risks covered and be presigned by the insurer. b) Under English Law, no action will be obtained on a contract of insurance evidenced solely by an insurance certificate. So, any action to be taken against insurers can only be on production of a policy to be sued on.

Transport documents
Airway bill

be consigned to a correspondent bank (provided that the correspondent bank is agreeable to this) and in such a case the bank will release the goods or documents as instructed. Consequently. When such a document is required under a documentary credit it does not make sense for such credit to specify ports of loading and discharge. or to prohibit transshipment as the essentials are the places of taking in charge and delivery.The IATA airway bill (sometimes called an air consignment note or air freight note) is often issued in a set of 12 of which 3 are commercially important. and the goods are delivered to the named consignee without further formality once customs clearance has been obtained. any sea waybills. Rail consignment note With the growth of freight liner traffic the volume of goods being exported by rail through to final continental destination is increasing. Under the Carriage of Goods by Sea Act 1971. not being bills of lading or title documents. to be shipped on one contract of carriage from a "place of taking in charge" to a "place of delivery". Combined transport bill of lading As a natural sequel to unitisation of cargo it has become increasingly customary for the "unit load". and is a substitute for the traditional port-to-port bill of lading. This exhibit is the form recommended by The Institute of Freight Forwarders Limited for trading members of the Institute and bears the IFF Standard Trading Conditions. or duplicate copy. subject to the Hague Rules relating to bills of lading where the non-negotiable documents provide evidence that they relate to contracts of carriage of goods by sea. There might be an arrangement for payment whereby the bank might wish to have a lien over the goods until payment is effected by the importer. frequently accompanies the other documents. house bills. the carrier's receipt. The document should bear the airline stamp with date of despatch and flight number. This is known as a "combined" or "multi-modal" transport. and be signed on behalf of the airline. Its name is combined bill of lading "combined transport bill of lading" is used. therefore. Goods will be released to the . the remainder being copies for airline purposes. If the third original document is in the hands of the shipper this can be surrendered to the airline before delivery is made to the consignee. House bill of lading These documents are issued by freight forwarders for their own services. data freight receipts. especially where the cargo has been packed in a container of 20 feet in length. are nonetheless. The three important documents are: a) for the issuing carrier b) for the consignee c) for the shipper. forwarding agents' receipts or similar non-negotiable documents. The waybill is a receipt only and not a document of title. The goods will.

the use is being encouraged of a short form bill of lading common to a number of different shipping companies. Italy. Bulgaria. Romania. Poland. The rail consignment note should bear the stamp of the station of departure and the date of departure. Spain. Czechoslovakia. The shipping company's terms are usually given in full on the reverse. Road waybill (CMR) The CMR (Convention Merchandises Routiers) consignment note is an internationally approved and recognised non-negotiable transport document used when goods are travelling by road through or to countries which are parties to the CMR. Control over the goods would be arranged in the same way as for an air consignment. Bills of lading This document is the receipt given by the shipping company to the shipper for goods accepted for carriage by sea.consignee. If in negotiable form it also conveys title to the goods and the goods will only be released by the shipping company at destination against surrender of a signed original of the bill of lading. Denmark. Article 19(b) (ii) of the Uniform Customs and Practice for Documentary Credits. Such means of transport has . Hungary. The essence of the "short form" is the complete removal from the reverse of the bill of lading of the "small print" which gives details of the contract of carriage. Luxembourg. Federal German Republic. This is not pre-printed with the name of the shipping company. Switzerland. so the "name of the carrier" has to be typed in with the other data relating to the specific shipment. including the UK. Bills of lading (Liner) These are issued by shipping companies in respect of goods carried on regular line vessels with scheduled runs and reserved berths at destination. This type of document is known as the "common short form bill of lading". German Democratic Republic. but with the short form bill this is not the case. the bill of lading evidences a contract of carriage. The contracting countries are Austria. upon application and normal proof of identify. Banks wilt accept such bills of lading when presented under documentary credits unless the credit specifies otherwise. Belgium. Finally. Sweden. defines such short form bills of lading as "bills of lading issued by shipping companies or their agents which indicate some or all of the conditions of carriage by reference to a source or document other than the bill of lading". Short form bills of lading One of the three functions of a bill of lading is to provide evidence of the underlying contract of carriage by sea which comes into being with the reservation of space on board a ship. In a number of countries. Netherlands. France (including overseas territories). by the rail authorities at destination or by delivery direct. As well as its function as a receipt and delivery document. Portugal. Greece. Finland. United Kingdom (including Northern Ireland) and Yugoslavia. the note provides written evidence that goods are being carried under the terms of the CMR. Gibraltar. Norway.

requiring the person to whom it is addressed (drawee) to pay on demand. Shipping lines serving the same routes or destinations may form a conference. addressed by one person (drawer) to another (drawee).possible advantages over tramp vessels which do not necessarily adhere to a very strict schedule and may make unscheduled calls at various ports on the way to the ultimate destination. Bills of exchange which have been dishonoured may be used in their own right as the basis for . for this is merely a receipt for goods shipped abroad. both for the buyer (drawee) and for the seller (drawer). Therefore. The non-negotiable sea waybill was developed to avoid delay in handling of goods at destination. A short description then follows: a) Bill of exchange drawn in foreign currency and payable at sight b) Bill of exchange drawn in sterling and payable at sight c) Bill of exchange accepted payable at 30 days' sight d) Promissory note e) Inspection and sampling order f) Delivery order g) Warehouse receipt h) Trust receipt. Bills of exchange are widely used in international trade. or to bearer. The words in brackets do not appear in the Act. it should be exchanged for the set of bills of lading by the shipper at the offices of the shipping company. Not being a document of title. Section 3) of a bill of exchange is an unconditional order in writing. or to the order of. It resembles the air waybill. within which agreements are made over such matters as the terms and conditions of bills of lading. or at a fixed or determinable future time. Bills of exchange The legal definition (Bills of Exchange Act 1882. Financial and financing documents The financial documents. and sometimes of sailing and use of berthing facilities. signed by the person giving it (drawer). a specified person (payee). but have been inserted for clarity. bills of exchange and promissory notes are listed below. Non-negotiable sea waybills The processing of bills of lading is slow since they may have to pass through several hands. freight rates. and has been adopted by a number of shipping lines as an alternative to bills of lading. a certain sum in money to. Mate's receipts Rarely seen in trade circles. partly since they are convenient vehicles for collecting payment from traders abroad. these documents may not be received by the consignee before arrival of the vessel. as the goods are delivered to the named consignee without any need to hand over the waybill. and rightly so. Finance may be arranged in a number of ways using bills of exchange.

to a customer of undoubted integrity. the settlement of indebtedness. Delivery order This is an order on a warehouse instructing it to deliver goods to the bearer or a party named in the order. and it is necessary to be able to authorise a warehouse to permit this to take place. Delivery orders may be issued against the receipt for the goods which relate to action. Warehouse receipt This is a receipt for goods issued by a warehouse. a bank may issue such an order on a warehouse and hand it to the prospective buyer. it may obtain a completed trust receipt from its customer to whom a loan has been made. it is presented for payment by the holder. or the goods themselves. After payment. this raises the status of the document as the availing bank has guaranteed payment at maturity. Assuming that the overseas seller or UK importer authorises sampling and/or inspection. Trust receipt When a bank wishes to release documents of title. these are largely subject to the same rules and are used for a somewhat similar purpose. or if they are lending to a UK importer against a pledge of goods. It is the practice in some European countries for banks to avail bills of exchange by adding the bank's name to the bill. in favour of the beneficiary. who may be the payee or someone to whom the promissory note has been negotiated. The document is not negotiable and no rights in the goods can be transferred under it. the discharged bill of exchange is retained by the drawee as evidence of payment. they are made by the person who owes the money. or . Promissory notes Whilst not bills of exchange. the goods are usually warehoused in the bank's name pending sale to buyers. say. Instead of being drawn like a bill of exchange by the person expecting to be paid. When due. A simple way of looking at a promissory note is to consider it an IOU. Prospective buyers frequently need to inspect and sometimes sample the goods before buying them. Inspection and sampling order When banks are protecting consignment stocks for foreign exporters to. This is an acknowledgement of the pledge of the goods to the bank and an undertaking of the customer to take the documents as trustees for the bank and to: a) arrange for goods to be warehoused in the bank's name. in other words it becomes a receipt for the money. the UK. whilst still retaining its security rights in those goods and/or the proceeds of their sale. Banks issue such orders when goods stored in their name are to be delivered to a buyer or are to be reshipped and have to leave a warehouse.

In the case of a collection agreement the bank in the buyer's country is squarely responsible for effecting payment.g. 60 or 90 days after sight. commercial invoices. in international sales. airway bills of lading. banks are used as intermediaries and the shipping documents are used as collateral security for the banks. the seller draws a bill of exchange either on the buyer or on a bank. it can be arranged to have consigned merchandise placed under bonded warehouse control in the name of a foreign bank. or unusual delays may be accepted. This bill is usually payable a certain number of days after sight. Collection arrangements . The merchandise is not cleared through customs until after the sale has been completed. consular invoices and any other documents that may be required in the country of destination.b) arrange for processing of the goods and their return to the warehouse in the bank's name. also called a documentary credit. The two most common methods are payment under a collection agreement and payment under a letter of credit. Export financing There are various methods used in the international sale of goods to pay the purchase price. They are very little used today. Usually. whereas in the case of a letter of credit this responsibility falls on the bank in the country of the seller. or parcel post receipt. Drafts directed to a bank for collection are accompanied by shipping documents consisting of a full set of bills of lading in negotiable form. Sales on a consignment basis No tangible obligation is created by consignment sales. 90 days after sight. or c) arrange for sale of the goods and to pay all sale proceeds without deduction to the bank immediately on receipt or within a short. e. exchange restrictions difficult. These are as follows: Drafts covering exports These may be on sight basis for immediate payment or drawn to be accepted for payment 30. Sales against cost advances These are used where credit is doubtful. In both cases. together with insurance certificates. stated period of time. Sales can then be arranged by the selling agent and arrangements made to release partial lots out of the consigned stock against regular payment terms. In countries with free port or free trade zones.

If the correct documents are tendered by the seller during the currency of the letter of credit arrangement. Thus. the collecting bank releases the shipping documents to the buyer. which passes them on to a bank at the buyer's place. Whichever method used is pre-arranged between the seller and the buyer. Letters of credit These are of particular importance. Types of letters of credit Letters of credit can be revocable or irrevocable. the advising bank adds its own confirmation of the credit to the seller. the revocable and unconfirmed letter of credit. the irrevocable and confirmed letter of credit. The irrevocable and unconfirmed letter of credit: In this case. There are four main types of letters of credit. These commitments are undertaken to the seller. the irrevocable and unconfirmed letter of credit. Whether it is confirmed or unconfirmed depends on the commitment of the advising bank. namely. In some circumstances. the seller has the certainty that a . who is then able to receive the original bill of lading that enables him to obtain the goods from the carrier on arrival of the ship. When the buyer has complied. specifying the documents which the seller has to deliver to the bank for him to receive payment. The irrevocable and confirmed letter of credit: In this type of credit. From the point of view of the seller this type of letter of credit is a more valuable method of payment than a revocable and unconfirmed letter of credit. The collecting bank is liable to the seller if it releases the shipping documents to the buyer without having received finance from him. the advising bank pays him the purchase price or accepts his bill of exchange drawn on it. The collecting bank then presents the bill of exchange to the buyer and requests him to pay or to accept the bill. confirmed or unconfirmed. the seller can sue them in the country where the bank has a seat. the remitting bank.Where a collection arrangement is organised the seller hands the shipping documents including the bill of lading to his own bank. which is drawn on the buyer. the authority that the buyer gives to the issuing bank is not revocable and the issuing bank is obliged to pay the seller provided that he has tendered the correct document before the expiry of the credit. The buyer instructs a bank in his own country (the issuing bank) to open a credit with a bank in the seller's country (the advising bank) in favour of the seller. and the transferable letter of credit. the collecting bank. If the issuing bank defaults. the seller can sue the issuing bank in his own country if there is a branch office. Whether the credit is revocable or irrevocable depends on the commitment of the issuing bank. This type of credit affords little security to the seller that he will receive the purchase price through a bank. The revocable and unconfirmed letter of credit: Neither the issuing nor the advising bank is committed to the seller and as such the credit can be revoked at any time. or negotiates his bill of exchange. who is the beneficiary under the credit. A letter of credit arrangement will be agreed upon in the contract of sale.

9 Equitable Trust Co. The seller can use such credit to finance the supply transaction. The doctrine of strict compliance Under this doctrine. It was held that. The banks which operate the documentary credit act as agents for the buyer. otherwise the correspondent bank will refuse to honour the credit.. See the following case: Case 12. Such refusal will only be accepted if it is proved to the satisfaction of the bank that the documents tendered are fraudulent and the seller is a party to the fraud or knew of it. The confirmation constitutes a conditional debt of the banker. A confirmed credit that has been notified cannot be cancelled by the bank on the buyer's instructions. who is the principal. and as such they should not pay against documents that are different from those specified. The following case sets this out: Case 12. In this case. Dawson Partners Ltd.e.10 United City Merchants (Investments) Ltd. paid on tender of a certificate by a single expert The seller was fraudulent and had shipped mainly rubbish but the expert who inspected the cargo failed to notice it. Equitable Trust Co. instructing them to provide finance on presentation of certain documents. In United City Merchants (Investments) Ltd. the seller. i. a British company. sold glass fibre forming plant to a Peruvian company. This type of credit is used when a person buys goods for immediate resale and wishes to use the proceeds of resale to pay the original seller. of New York vs Dawson Partners Ltd. bought a quantity of vanilla beans from a seller in Batavia (Jakarta). Payment was . They opened a credit in his favour through Equitable Trust Co. (1926). a debt subject to the condition precedent that the seller tenders the specified documents. Equitable Trust Co. Transferable: The parties to a contract of sale may agree that the credit is transferable. Fraud in letter of credit transactions Letters of credit have been described by an English judge as "the life-blood of commerce" and as such the defence of the bank that it will not honour the credit because fraud has occurred is accepted rarely and with reluctance. Lord Summer emphasised the importance of this requirement in Equitable Trust in his own country will provide him the finance if the correct documents are tendered within the time stipulated. (1926) Lord Summer said "There is no room for documents which are almost the same or which will do just as well". Where there is a mere suspicion by the bank that fraud has occurred. Such a fraud may occur if the shipment of the goods is fraudulent or if the bills of lading tendered under the credit are falsified or forged. Glass Fibres and Equipment Ltd. refusal to honour the credit is not accepted. must tender documents which strictly comply with specifications by the buyer. The buyer opens the credit in favour of the seller and the seller (who in the supply transaction is the buyer) transfers the same credit to the supplier (who in the supply transaction is the seller). vs Royal Bank of Canada (1983). including a certificate of experts. had paid contrary to Dawson Partners' instructions and could not debit there. vs Royal Bank Of Canada (1983). to obtain payment. Of New York vs Dawson Partners Ltd.

lex loci contracts.. the confirming bank (The Royal Bank of Canada) should have honoured the credit of the document. thereby avoiding the difficult task of weighing various factors in deciding on what law to apply.. viz: the lex focii lex loci solutions. Lex Loci Contracts This means the law of the country where the contract is made. Lex Locii Solutions This means the law of the country where the contract is performed. international sales pose the problem of conflict of law. little difficulty arises as problems that crop up are easily resolved by looking at the rules in The Sale of Goods Act (where the parties have not agreed otherwise). i.e. rules of Private International Law are used to resolve these problems. Various treaties have been signed in order to unify the law relating to international sales.arranged under an irrevocable letter of credit issued by a Peruvian bank and confirmed by the Royal Bank of Canada at its London branch. This is so because the defendant can be more easily compelled to go to court and answer the case than when he is out of the jurisdiction of the court. the law of the contract country having the closest connection with the contract. out of shipping time. the proper law of the contract. 1&76. e. Conflict of law Where a sale of goods transaction is made on the home market. 1976. It was held that. The two Hague conventions signed in 1964 are perhaps the most important of such . Several factors are weighed in order to arrive at a conclusion as to which is the proper law of the contract. Lex Situs This means the law of the place where the property is situated. It is normally advisable to sue in the country where the defaulting party resides or is incorporated and has an office and property. i. Lex Focii This means the law of the country in which the case is tried. lex situs. In the absence of treaty provisions. Shipment was to be made from London on or before December 15th. The bills of lading were altered and backdated to December 15th. in the case of a company. while v the Credit was open until December 31st. On the type of law to apply. is applied. the law of the country whose language. However. shipment of the installation was made on board the American Accord on December 16th. currency or flag (flying on the ship carrying the goods) is used. This alteration was made fraudulently by an employee of the loading agents without the knowledge of the sellers of the transfers of the credit. The laws of the seller's country and those of the buyer's country may be different in some areas and the question arises as to where to sue and which law to apply.

for example. Malawi. specifically the contract of carriage of goods. . the contract of insurance and the letter of credit arrangement. In particular.e. if a reasonable person in the position of the buyer "would not have entered into the contract if he had foreseen the breach and its effects".The United Nations Convention on contracts for the International Sale of Goods . the uniform laws do not recognise the concept of the "condition" which exists under common law for the breach of which the buyer can reject the goods even though the breach causes him no loss. At common law. This is different from the common law position where such a standing offer would be revocable if not supported by consideration. The two conventions have been given statutory effect in UK by the Uniform Law on International Sales Act 1967. the acceptance will only be invalid if the qualification consists of an additional or different term which materially alter the terms of the offer unless the offeror promptly objects to the discrepancy. Other rules deal with the passing of risk and the buyer's obligations as to payment and the taking delivery of the goods. the insurance and carriage of goods. An offer is generally revocable until the offeree has despatched his agreements. or that it is irrevocable. These rules are in several respects different from the rules under the Sale of Goods Act. i. The intention of the convention was to supersede the Hague Conventions. The uniform laws instead introduce a concept of "fundamental breach". The convention rules also deal with the case of late acceptances which will be good unless the offeror notifies to the contrary. in order to determine whether the buyer has a right to reject. an acceptance which varies the terms of the offer is not valid. has not passed any enactment to give legal recognition to the Hague conventions and as such the rules under it do not have legal effect here unless a seller and buyer expressly agree that these rules shall govern their contract. and the Uniform Law on the International Sale of Goods. Thus.was signed in Vienna. Rejection will be possible only if the breach is "fundamental". On April 11th 1980. one must examine the breach that has occurred together with its consequences. another important convention . However. under the convention. These are the Uniform Law on the formation of contracts for the International Sale of Goods. The uniform law on the formation of contracts for the international sale of goods The provisions of the convention relate to offer and acceptance. However. the conformity of goods with the contract and the giving of goods title. The uniform law on the international sale of goods This agreement consists of provisions dealing with the obligations of the seller and the buyer as to the time and place of delivery. under the convention an offer is not revocable if it either states a fixed time for acceptance. The contract of international sale of goods reflects a complexity which is absent in the home market sale. This is so because this contract is entwined with other contracts.

These different transactions are often looked at as one entire activity unless something goes wrong somewhere. Although the meaning of these trade terms may vary slightly from one country to another. contracts. Trade terms which have evolved over the years from the custom of merchants are used. Key Terms Bill of Exchange FAS Letter of Credit Bill of Lading FOB Non Tariff Barriers CIF Review Questions 1. there is need for the signing of treaties to try and provide ready rules on international sales which are uniform. and the consequences of breaking any of the terms and conditions. Although Private International Law rules help in dealing with this problem. The most common of such trade terms are the FOB and CIF clauses. Malawi. the easier the documentation process becomes to set up and operate. What is the difference between the following contracts of trade? a) FOB b) FAS c) CIF . thereby requiring separate analysis of the contract in question. These serve to outline the rights and duties of the seller and buyer. The United Nations Commission on International Trade Law is also busy promoting the convention of 1980. with regard to the Hague conventions. This happened at the Hague in 1964. However. Chapter Summary Global marketing logistics. the problem of jurisdiction and choice of law where rules as to obligations of the seller and the buyer are different in their respective countries. when the fault is isolated. commercial documents including insurance and financial documents. In many products. Having the correct documentation internally and externally is vital or goods and services just simply cannot be exported. uniformity is obtained when the parties adopt the International Chamber of Commerce meaning of trade terms. Marketers or their agents must be familiar with Terms of Access. The international sale also involves another complexity. these efforts are wasted if countries do not pass national laws to give effect to the conventions as is the position in. can present to the unwary and uninitiated an enormously formidable barrier. for example. the more familiar the distribution network players are with each other and their individual systems. trade terms. This reduction of transaction risk is a bonus and may involve the use of specialist agencies like freight forwarders and shippers. referred to earlier in chapter four.

The seller arranges the shipping. invoice and freight. or at a final or determinable future time. except the seller will have performed his obligations when the goods are carried alongside the ship. a) FOB (Free On Board) The seller undertakes to place the goods on board a ship (maybe named) at a named port and berthing place. c) Letters of Credit Agreed in a contract of sale. "linear" or "non-negotiable sea waybills" b) Bills of Exchange An unconditional order in writing. c) CIF (Cost.2. whilst the buyer has to pay all subsequent storage. All changes to. Bills can be "short". and goods will only be cleared by the shipping company at destination against sender of a signed original of the bill of lading. The bill of lading endorses a contract of carriage. Review Question Answers 1. A buyer is under an obligation to pay against the shipping documents which are taken up by him. freight etc. Explain fully the meaning of bills of lading and bills of exchange 3. Insurance. Describe the different types of letters of credit. and including delivery of goods over the ship's rail are borne by the seller. addressed by one person (drawer) to another (drawee) signed by the person giving it (drawer) requiring the person to whom it is addressed (drawee) to pay on demand. a specified person (payer) or to bearer. b) FAS (Free Alongside Ship) Very similar to the above. A buyer can reject the documents and the goods but not if he has accepted them. Contracts may be "strict" or with additional services. Freight) It must be noted that a CIF contract is not a sale of goods itself but a sale of the documents of title. or to the order of. a certain sum in money to. All the terms are used in contracts of sale. The buyer must also nominate a ship. 2a) Bills of Lading This document is the receipt given by the shipping company to the shipper for goods accepted for carriage by sea. The buyer instructs a bank in his own country (the issuing bank) to get a credit with a bank in the seller's country (the advising bank) in favour of the seller. specifying the documents which the seller has to deliver to the bank for him to . If in negotiable form it also conveys title to the goods.

the advising bank pays him the purchase price or accepts his bill of exchange drawn on it.receive payment. provided that he has tendered the correct document before the expiry of the credit. The seller can use such credit to finance the supply transaction. c) The irrevocable and confirmed letter of credit.e. McGuiness. Whichever method is used is pre-arranged between the seller and the buyer. From the point of view of the seller this type of letter of credit is a more valuable method of payment than a revocable and unconfirmed letter of credit. In some circumstances. A confirmed credit that has been notified cannot be cancelled by the bank on the buyer's instructions. the seller has the certainty that a bank in his own country will provide him the finance if the correct documents are tendered within the time stipulated. Neither the issuing nor the advising bank is committed to the seller and as such the credit can be revoked at any time. the authority that the buyer gives to the issuing bank is not revocable and the issuing bank is obliged to pay the seller. pp 110-122. Journal of Marketing. This type of credit affords little security to the seller that he will receive the purchase price through a bank. and Little. In this type of credit. "The Influence of Product Characteristics on the Export Performance of New Industrial Products". i. the advising bank adds its own confirmation of the credit to the seller. or negotiates his bill of exchange which is drawn on the buyer. References 1. the seller can sue it in the country where the bank has a seat. d) Transferable The parties to a contract of sale may agree that the credit is transferable. . 3. B. Spring 1981. If the issuing bank defaults. The confirmation constitutes a conditional debt of the banker. N. In this case. There are four main types of letter of credit: a) The revocable and unconfirmed letter of credit. the seller can sue the issuing bank in his own country if there is a branch office. If the correct documents are tendered by the seller during the currency of the letter of credit arrangement. The buyer opens the credit in favour of the seller and the seller (who in the supply transaction is the buyer) transfers the same credit to the supplier (who in the supply transaction is the seller). a debt subject to the condition precedent that the seller tenders the specified documents. b) The irrevocable and unconfirmed letter of credit. This type of credit is used when a person buys goods for immediate resale and wishes to use the proceeds of resale to pay the original seller.W. Thus.

the future Key statistical data on horticultural marketing References Bibliography The key to good organising. This is not to say that once the structure is defined. clear to all and agreeable. but. modern marketing thought is that formal structure is just not the order of the day. at the same time. In fact. delineates relationships clearly between parts and personnel of the company. This is a recipe for disaster as it forces organisations to fit the strategy to the structure. planning and controlling in global marketing is to create a flexible structure or framework which enables organisations to respond to relevant differences in the markets in which they operate. Planning And Controlling Global Marketing Operations Objectives Of The Chapter Structure Of The Chapter Agricultural systems: organisation. Many informal structures develop within formal frameworks. Objectives Of The Chapter The objectives of this chapter are:  To describe the pattern of international organisational evaluation  To give an understanding of the different forms of global organisation and their advantages and disadvantages . One thing is clear though organisations can only work effectively if structure is defined. with all the inherent dangers of such rigidity. it cannot be changed. standards of performance are designed and communicated. and the control framework is fair. coordination and performance overview Global marketing planning Global marketing control Formal control methods Informal control method Variables influencing control Chapter Summary Key Terms Review Questions Review Question Answers Fruit and vegetables marketing . planning framework and form of agricultural control. There are no prescriptive solutions to the questions of what is the most appropriate organisational structure. Many organisations make the mistake of setting a structure first. long before they have decided on a strategy.Chapter 13: Organising.

parallel marketing channels and the types of contractual and ownership integration. for example. horizontal and vertical structural elements can vary. Vertical coordination. The chapter ends with an overview of the different types of control methods and a case study which serves as an example of global marketing control. in most developing countries international marketing organisation is relatively rudimentary. so the forms of organisation will be only briefly covered here. whether they be food commodities. exchange interfaces and value added stages is a challenge. Take for example the manufacturer of ready -to eat meals. Most failures to vertically coordinate will probably reveal themselves in resource misallocations. but a complex operation. technical inefficiencies and other risks. To discuss the different types of formal plans for global marketing and examine the merits and demerits of each type  To briefly describe the different methods of control in global marketing and the variables which can affect the control mechanism. One good example . The chapter does not consider the detail of control in global operations. artificial flavourings. But this approach has drawbacks because the distinctions between traditional commodity systems are breaking down. for example. are interdependent. For Israeli fresh produce to arrive on a UK's family table within 48 hours or less is quite remarkable. As stated earlier. Most agricultural products and commodity systems exhibit widely different organisational characteristics between countries. An over-supply of tomatoes. information is vital as well as an understanding of all definitions and permissible behaviours of the participants. Coordination in international marketing is complex and vital. Agricultural systems: organisation. coordination and performance overview As constantly stated in this text. inputs or whatever. marketing. as can terms of access. this being left to any standard marketing text. vegetables and many other raw material suppliers but substitute technologies may begin to "stray" into the traditional raw material supply system. decentralised and interactive planning types. In order to make the process flow smoothly. competitive conditions. coordination and performance evaluation within a subsystem or single commodity. analysts usually look at the activities of organisation. Because of this. Different governments have different programmes. production and marketing systems. Not only does the manufacturer draw from meat. Structure Of The Chapter The chapter starts with an examination of the evolution of global organisational development and then briefly describes some of the different types of organisational form and their advantages and disadvantages. As such the activities and economic entities within the network of exchange relationships and any other coordinating mechanisms are complex. may incur storage costs or waste. The next section considers why planning is necessary in global marketing and reviews standardised. harmonising all the vested production.

freight forwarders and so on. But the analysis cannot stop there. Flowers and vegetables. conduct and performance" paradigm is well documented (see Helmberger et al 1981)1. Eventually. auction systems or distributors in the country of destination. the actual costs of transferring goods. the nature of the product. with its own personnel. selling and transferring ownership of goods and services. are generally sold through agents. These primarily relate to costs associated with buying. for example horticultural produce is usually handled by overseas agents who have their own exporting organisation or by a local network of services like cool store owners. The form of appropriate organisation depends on a number of factors including company goals. who in turn are part of multinationals. the nature of the marketing task and the risk involved. This is exemplified by Oserian and Sulmac flowers of Kenya. but they are specially treated so that they ripen at the exact time when required. Most organisations deal through agents or other merchanting houses which have their own organisation. Most work has centered around operational and allocative efficiencies as well as longer term development patterns and the environmental and the economic impact of commodity systems. exported from Eastern and Southern Africa. These costs include information. and put into quantitative forms. the number of markets operated in. This-so called "structure. costs of monitoring trade conditions and enforcing trading terms and conditions. . Differences between regions are a pressure to create the regional centres. Transaction costs tend to get less attention than other costs. negotiating contracts. size of business. international experience. so they must be developed with care.of an almost perfectly coordinated system is that of Geest bananas. the organisation grows in complexity and extent of operations. which then gives rise to an International Division structure. In evaluating agricultural performance a large number of indicators and norms are utilised. services. Table 13. Many organisational forms in developing countries are relatively unsophisticated. as agricultural marketing involves marketing. Table 1 gives a summary of performance criteria useful in agricultural marketing. Regional centres can be costly. Because of this relative lack of sophistication this chapter will concentrate only briefly on the various forms of organisation. Many are "domestic" based. As the organisation grows it usually has an overseas subsidiary which reports to it. the level of involvement in the market. they may have a small export division within the domestic based operation. Not only do the bananas ripen on the voyage over to the UK from the West Indies. money and ownership rights. the width and range of the product line.1 Performance criteria useful in global marketing activities OPERATIONAL ALLOCATIVE LONG TERM MARKETING TRANSACTION ACTIVITY EFFICIENCY DEVELOPMENT/ECONOMIC SERVICE COSTS Production Opportunity costs Profitability Transport Personal time. so the quality of marketing sources should also be assessed. and are very wide ranging. Depending on the factors described above organisational development usually starts with dependence on outsiders. that is. The next stage of evolution is the development of regional headquarters or regional management centres. Transaction costs should also be included.

Extraction yields Capacity Utilisation Unit costs Input/Output ratios Costs of storage.1 Area organisational structure The advantages and disadvantages of this form are as follows. commodity wastage. As the organisation continues to evolve.2 Product organisational structure . The area organisational form is used by highly orientated organisations with stable products. transport Prices versus consumer preferences Rates of return Rates of growth and volume and value Levels of raw materials. the international division may be replaced by a variety of structures like a geographical. product. See figure 13.2. Figure 13. Figure 13. function or strategic business unit approach.ease of communications . Quality Variety Employment rates Innovation Technological development Risk analysis Income distribution Market access. Communications Advertising Promotion Market research Inspection Services Property guards Recovery Reporting of stollen property Distribution Legal Consultancy Advocacy Advertising Insurance Transport Storage Financial Credit rating checks Delayed payment procurement.lack of coordination. delivery rates Order Grading Labelling Supply adjustments Uniformity to standards Mix of products Supply regulating Timing Information provision Travel.growth of regional groupings .1.knowledge of areas Disadvantages .expertise grouping . Advantages .suboptimal product and functional expertise allocation .duplication . These product groups have global marketing responsibility 2 See figure 13. Structure. A second organisational form is the product organissation structure.

production and marketing. functional competence in such fields as finance. In many ways an SBU is not part of a formal structure but represents a process or system overlay for the purpose of developing a business strategy.can miss marketing opportunities .shortage of area knowledge . See figure 13.good where regional variations are not too great Disadvantages . Matrix structures require a fundamental change in management behaviour. and a knowledge of the customer (figure 13. Matrix organisations are the most sophisticated form of organisation and bring together four competencies -geographic knowledge. The final organisational form is that called a Matrix organisational structure.The advantages and disadvantages of this form are as follows: Advantages Disadvantages . product knowledge and know-how. A third organisational form is the functional organisational structure. Figure 13. Management's task in a matrix organisation is to bring together all the above perspectives and skills to achieve particular objective(s).flexibility .4. Strategic Business Units (SBU) SBUs are defined as a group of products or technologies that serve an identified market and compete with identified competitors. Too often structures are developed long before a strategy is worked out.may miss market opportunities because of narrow focus. control and manage its destiny. . One of the important things to remember is that structure must always follow strategy. organisational culture and technical systems. See figure 13. Here executives on functional areas have global responsibility.difficult to coordinate. It is likely to be quite a while before less developed countries have developed a number of the organisational forms described above.3 Functional organisational structure . This can cause "straitjacketing" and lead to an inflexibility which is both unnecessary and stifling. The important thing is to keep an arrangement which allows the company to grow. The advantages and disadvantages of this form are as follows: Advantages .3.good for firms with narrow. homogeneous product line.4) industry and its needs.

decentralised or interactive. for example.where are we now? b) Objectives .Different market characteristics make uniform products inappropriate. Wholly owned subsidiaries give the organisation almost total control. Planning involves three main activities: a) Situation analysis . fresh milk products. Exporting and licensing give minimum country involvement but joint ventures involve more in-country activity and give a greater degree of integration and control. Figure 13. for example lack of refrigerated transport in developing countries. Planning can be standardised. for example fertilisers. Because of the "external uncontrollables" international planning is rather more difficult than domestic planning (see table 13. Decentralised plans .where do we want to be? c) Strategy and tactics .Global marketing planning Planning involves where the organisation would like to be and how to get there.2).Uniformity of consumer choice across the world. The planning task depends on the level of involvement in a country. .4 Matrix organisational structure Standardised plans These offer a number of advantages: . Environmental obstacles disallow can we best reach our goals? Planning gives a number of advantages:  Gives rise to systematic thinking  Helps coordinate activities  Helps prepare for exigencies  Gives activity continuity  Integrates functions and activities  Helps in a continuous review of operations.Cost savings on limited product range and economies of scale both in production and marketing. There are disadvantages: . which involves goal setting and strategy determination.

Table 13. Most companies operate "annual operating plans" although these are often "rolled forward" to cover a few years hence.the formal product. Headquarters coordinates and rationalises advertising. 10 11 12 1. 6. Such criteria include market size. 3. usually accurate and collection easy Political factors relatively unimportant Relative freedom from government interference Individual corporation has little effect on environment Chauvinism helps Relatively stable business environment International Planning Multilingual/multinational/multicultural factors Fragmented and diverse markets Data collection a large task requiring significantly higher budgets and personnel allocation Political factors frequently vital Involvement in national economic plans. 7. Currencies differing in stability and real value Business "rules of the game" mature and 11. 3. stage of .Decentralised plans take into account the subtleties of local conditions. 9. market accessibility (market or commercial economies). 8. government influences business decisions "Gravitational" distortion by large companies 1. 5.customers. 4. and subsidiaries interpret these under local conditions. 2. 7. Management frequently unautonomous and unfamiliar sharing responsibilities and using with budgets and controls financial controls Planning concepts In order to operate any type of plan. 5. Multiple environments. competitors and government b) Knowledge of the product . Hence countries are grouped according to a number of criteria and treated alike. 4. 6.2 Domestic vs international planning Domestic Planning Single language and nationality Relatively homogeneous market Data available. Rules diverse. Increasingly planning is becoming fairly routine. pricing and distribution. however they are usually very costly and resource consuming. Chauvinism hinders 8. its technology and its core benefit c) Knowledge of the marketing functions. three types of information are essential: a) Knowledge of the market . for example Nestlè. "Country grouping" is an effective way to plan. Interactive plans In this approach headquarters devises branch policy and a strategic framework. changeable and unclear understood Management generally accustomed to 12. Variety of financial climates ranging from overconservative to wildly inflationary Single currency 10. In many cases LDCs have found it difficult to make real international inroads often because they lack the information required. many of which are highly unstable (but may be highly profitable) Uniform financial climate 9. Within any of the above approaches plans can be either long or short term. 2.

The method of export control in many less developed countries takes the form of direct organisation by government. prospects for growth. Zimbabwe may be a "promising" country for investment. yet these are developed in the midst of uncertain forces both internal and external to the firm. The budget spells out the objectives and necessary expenditures to achieve these objectives.5 The planning and control cycle In well developed international operations headquarters may seek to achieve control over subsidiaries by three types of mechanism . political and other factors. In international marketing the ability to control is disturbed by the distance.5 illustrates a typical plan/control cycle. the degree to which they have or have not been successful cannot be judged. ultimately. and promise for future growth and development. The appendix note at the end of this section describes the types of control imposed. merge mechanisms. Plans are the prerequisite to management mechanisms. say. Evaluating performance . culture. Yet without control over international operations. In exporting flowers. Figure 13. Competence centres are not those developed through "leadership" ability but involve a number of factors like strategic location and skills. Zimbabwe would be well advised. The downside is that some market opportunities may be overlooked. language and practices create barriers to effective control. Basically control involves the establishment of standards of performance. but Somalia may not be "promising". Control consists of measuring actual sales against expenditures. with the small quantities involved. Other concepts for planning are "competence centres". Figure 13. measuring performance against standards and correcting deviations from standards and plans. Global marketing control Factors like distance. culture. The mission of a competence centre is to formulate a global business strategy for a new business. Formal control methods Planning and budgeting Planning and budgeting are the main formal control methods. type of task and competence to achieve the task. to development. and conflict resolution mechanisms that resolve conflicts triggered by necessary trade-offs. to leave the task to those experts in Holland and Germany whose knowledge and competence is far superior. If there is tolerable variance then no action is usually taken. In marketing planning. the decision on the type of plan rests entirely on the size of the task. which shift emphasis from subsidiary to global performance.

Informal control method When staff are transferred from market to market.electronic control measures may not always be available c) Distance . Other methods include face-to-face contact and evaluation. Influences on marketing budgets In preparing a budget or plan.the greater the distance.the more technological the product the easier it is to implement uniform standards e) Environmental differences . image.the greater the instability in a country the less relevance a standardised measure of performance has . Other performance measures Other measures of performance include share of market.these may not be appropriate b) Communication systems . Problems of international comparison inevitably occur like how does one plan in an environment where exchange rates fluctuate quite often during the budget period. Often these are difficult to obtain where data or data collection is difficult.headquarters may impose an "indicative planning" method or guidance.the greater the environmental differences the greater the delegation of responsibility and the more limited the control process f) Environmental stability . Usually it is based on historical performance with some kind of industry average.have a heavy influence on control mechanisms .packaging can be substituted in many ways d) Process .what is the competitive level? c) Impact of substitute products .Performance is evaluated by measuring actual against planned performance. position or corporate acceptance. the bigger the physical and psychological differences d) The product . Variables influencing control A number of factors may influence the control methods. The problem is setting a performance standard. they often take their standards of performance with them and these can be assessed. These include: a) Domestic practices and values of standardisation . the following factors are important: a) Market potential . can it be tested? b) Competition .how large.

To a considerable extent. is reproduced in the Memorandum for the information of Importers and Exporters. the list of licensable Items has been reviewed only very occasionally. the commonest are the traditional agricultural export commodities.1 Controlling Export Operations .the more a subsidiary does. For reasons of self interest.the Tea Association of Malawi and the Coffee Association of Malawi. However. or reports. They include items like maize. a non variance. Similarly. rice and beans. like the Agricultural Development and Marketing Corporation (ADMARC) and the Ministry Of Agriculture when considering applications for export licences. occasionally and on specific products. Of the products which are listed as licensable under the Control of Goods Act. The list of exports subject to licensing under the above quoted Act and the regulations made under it. Licensing Is probably the most prevalent instrument of import/export control in developing countries. some of which are amongst the country's staple foodstuffs.the bigger and greater the specialisation of headquarters staff the more likely will extensive control be applied. The administration of the Act falls primarily under the jurisdiction of the Ministry of Trade and Industry. import licensing is generally more pervasive than export licensing. This brief note concentrates on export licensing in Malawi. Obviously the ability to control any international operation. A copy of the latter Memorandum is attached hereto. Coverage of export licensing The products covered in export licensing are fewer than those which are subject to import licensing.g) Subsidiary performance . the Ministry consults with other Institutions. the control is relegated principally to the Tobacco Control Commission. depending on what happens to be the principal reason for their Institution. The latest review was made in 1988 when items like scrap metals and cement were removed from the list of licensable exports. the less likely is there to be headquarters interference h) Size of international operators . the administrative and day-to-day regulation of exports of bulk tea and coffee is largely done by the Trade Associations of those product groups . whether it be very sophisticated or relatively unsophisticated. Export licensing in Malawi In this country the main legal instrument for the licensing of both export and import trade is the Control of Goods Act (Chapter 18:08 of the Laws of Malawi) and the subsidiary regulations made thereunder.Malawi Introduction The foreign trade of many developing countries is subject to various controls. the coverage of the licensing and the reasons for its existence. In the case of tobacco exports. Furthermore. Reasons for export licensing . tariffs and procedures and documentation on imports and exports also do play a controlling role. The instruments of control and the Intensity of application of these Instruments vary from country to country. Case 13. the process will break down without adequate face-to-face and/or electronic communications. Since the institution of the Control of Goods Act.

prior to the Ministry's consideration of the requests for permits. ADMARC plays the central role of advising Government on this. e) Checking re-exports of strategic goods A number of goods which are of strategic importance and on which the country spends a lot of foreign exchange could easily be re-exported by some businessmen. Such goods include petroleum fuels and fertilizers. leaving the country with shortages of supply of the goods. Controls on imports and exports in Malawi were imposed for reasons that the world markets could hardly do certain things which the country would like. It is for this reason that. With regard to the estimates as to what are adequate quantities of the different varieties of produce required by the domestic market. on considering applications for permits to export the produce. and the Malawi Iron and Steel Corporation (MISCOR) (using scrap metals) . occasionally need arises for controlling and influencing the direction both of imports and exports. as pointed out earlier on. it endorses the forms with a 'no objection' advice. the argument that re-exports could bring in a net inflow of foreign exchange. But. perfect competition is not allowed to flourish in the world economy. . If ADMARC supports the applications.although. including productive establishments. the dhall industry (using various types of pulses). it does not appear obvious that there could be any reason for licensing exports or for controlling export operations. in a country where aggregate imports have usually been more than aggregate exports. b) Protection of raw material supplies A few of the local industries use some of the local produce and items as raw materials. for reasons of tactics and trade policy as they might affect the bargaining position of the country in its negotiations with neighbours and other trading partners. The following are the reasons for licensing exports and for controlling export operations a) Food security For the traditional exports which fall within the group of foodstuffs. Examples of this are. cooking oil industry (using groundnuts. The common practice that has evolved is that.We are living in an imperfect world.f. the requests and application forms are referred to ADMARC for the latter's advice. such an advantage on products like petroleum products hardly outweighs the disadvantages of disruption of supply to local users. There is. the Ministry consults with that Corporation. The controlling and direction of import and export trade is done for political considerations (c. d) Direction of trade and political considerations While Government would like to promote exports and hence would like to see no hindrances to export trade. the most important reason for licensing Is the consideration to ensure food security The striving for self-sufficiency in food supplies requires not only the promotion and expansion of production but also the maintenance of certain levels of supplies. the licensing of scrap metal exports was decontrolled. sun-flower and cotton seeds). trade with Communist countries). However. Mostly by acts of governments. f) Security reasons This applies to metals and atomic energy materials of Strategic value and used in the production of arms. of course. c) Monitoring Licensing provides Government with an instrument for monitoring exports.

strategy. on what type of marketing plan. Operations globally can be evaluated and improved by a global marketing audit. sources of data and a time span and reporting format. The export items involved here include wild animals. Chapter Summary In every marketing plan there must be provision for organising. whether it be area.ammunition and implements of war. Audits have a wide focus. and crocodile skins. productivity and functions. product. As stated earlier. distance of the market to the seller. described in the preceding chapters. Formal methods of control include budgets and informal methods include elements of auditing but this depends to a great extent on environmental differences. all the pitfalls of politics. To be successful audits have to have objectives. Key Terms Area organisation Interactive plan Product organisation Decentralised plan Matrix organisation Strategic business unit Functional organisation Performance evaluation Strategic plan Review Questions . culture. Audits can cover the environment. See appendix 13A for a detailed export control document with reference to Malawi. organisation. Much of the preceding discussion covers more sophisticated forms of international control. function or matrix based. wild animal trophies. not least of which is the size of the international organisation. except budgeting which is applicable to all types of exporting or global marketing. data. be it standardised or decentralised and on what method of control to install. g) Conservation For some products. are systematic and conducted periodically. are independently carried out. many less developed countries have export controls imposed by governments. implementing and controlling marketing organisations. system. to a considerable extent. as in any attempt to gather global data. metals and energy materials which are listed in the Control of Goods Act as licensable include items like uranium. also assists in checking the wanton depletion of the base resources. This is particularly important when marketing globally. beryllium. The mineral products. The Malawi case which follows gives an example of this. The instrument of export licensing in this connection is really for checking the potential rather than for controlling what is obtained in the current situation. lithium and cobalt. the product and other characteristics. export licensing. Depending on the size of the export or global operations a decision has to be made on the type of organisation. and language differences arise. due to the many possible pitfalls which can occur. Unfortunately.

lack of coordination Examples include . identify and describe the different possible forms of marketing control applicable to global operations.can miss marketing opportunities . Advantages . 2.Coca Cola.shortage of area knowledge .difficult to coordinate Examples include. By reference to any source of your choice. .flexibility Disadvantages .suboptimal product and functional expertise allocation .ease of communications . What are the advantages and disadvantages of area. Glasco b) Product organisation Here product groups have global marketing responsibility.1. Describe the factors which have to be considered when deciding on the form of marketing control in international operations.expertise grouping .duplication . Review Question Answers 1.knowledge of areas Disadvantages . 3. product.growth of regionalgroupings . Advantages . a) Area organisation Used by highly marketing oriented organisations with stable products. Nestle. function and matrix based organisational structures in global marketing? Give examples.

g) Subsidiary performance . Variables influencing control A number of factors may influence the control methods. Advantages . e) Environmental difference . homogenous product line . . greater the environmental differences the greater the delegation of responsibility and the more limited the control process.has a heavy influence on control mechanisms c) Distance . These include: a) Domestic practices and values of standardisation ..good where regional variations are not too great Disadvantages .may miss market opportunities because of narrow focus Examples include. Forms of contract . h) Size of international operators .the greater the instability in a country the less relevance a standardised measure of performance is valid.tractors.the more technological the product the easier it is to improve uniform standards.these may not be appropriate. f) Environmental stability .the bigger and greater the specialisation of headquarters staff the more likely will extensive control be applied. fertilisers c) Functional organisation Here executives on functional areas have global responsibility. b) Communication system .good for firms with narrow. a non variance the less likely is there to be headquarters interference.the more a subsidiary does. financial services 2.the greater the distance. or reports. d) The product . the bigger the physical and psychological differences.

Over the years the country has been building up its horticultural industry.e. Tanzania and Uganda are beginning to get their horticultural production organised and geared for a massive export drive to traditional consumption areas. etc) 450 10. the latter having farms in the region of 2 hectares in size. with connections to major destinations.000 tonnes. Produce is mainly sold in the European Union.000 Citrus 8.000 tonnes with a value of X$ 80 million. as do the Asian tigers. The Middle East offers a distinct market.985 8.200 . a Sub-Saharan Africa country.650 16. Typically. Most of the exports are sourced from the commercial sector. Japan is difficult to enter. South America is serving the North American continent well. In other countries. especially in fresh fruit and vegetables.500 Soft fruit 50 500 Processed Products 550 50.Budgets ratio analysis . Zambia.1 Comprehensive international marketing strategy4 Xavia. it has a commercial farming sector and a small scale farming sector. By the year 2000 it is expected that the export crop availability will be dramatically increased as follows: Produce 1992/93 Tonnes/annum 2000 Tonnes/annum Cut flowers 3. but a number of schemes are being implemented in the small scale sector to increase the involvement of this large sector of the farming community. avocadoes. but transport is a problem. Elsewhere in Africa.Image break even analysis Exercise 13. with its close proximity and political advantage. Holland and Germany. where agents handle most of the business to date. Australia has its own well developed industry. Nature has endowed it with a good typography. i. In 1980 it produced some 5.750 160. to some 21.435 245.Standard costings return on Investment/Capital employed .000 Total 21. soils and rivers but it is prone to drought in particularly poor rainy seasons.200 Fresh produce (vegetables) 7. fruits and flowers at present (1992/3). enjoys a moderate climate with one rainy season from November to March. Over the same period.. particularly UK. Malaysia. exports have grown from virtually zero to some 12.Market share profit contribution . the EU. Thailand and South Korea. there being only 10 cargo aircraft flights per week.000 Top fruit (mangoes. Massive investment in the country has seen the export potential of Xavia soar rapidly.500 tonnes of vegetables.

the targeted markets. mangosteen. Improved versions of existing varieties. distribution).e.the future Market predictions and future Introduction The analysis of the individual products will have to take the following factors into consideration: a) Trends in consumer demand Whilst it is dangerous to over-generalise about the European market. apples and bananas etc. It will also.  luxury items such as floriculture crops.This increase in exports would place a huge burden on internal and external transport. tree-ripe fruit. promotion. a popular product but supplied during the off-season e. there is no need to educate the consumer and can increase all sales of the product by being available through the year) i. price. The growth is in:  different versions of established products. i. The more important aspects are the consumers' and the retailers' increased concern about health and hygiene with implications for pesticides and packhouse facilities. Fruit and vegetables marketing . especially air freight which would need to double in uplift capacity. and on the road/rail requirement. cherry tomatoes. asparagus. storage (cool) and credit.g. provided that their . In some products it will supply the Western European markets with horticultural crops and in particular in processed products. documentation and sources of finance. open out new markets and expand demand. In addition there is the beginnings of a movement for better flavoured product and crops produced by 'self-sustainable' agriculture. baby vegetables. herbs.  certain tropical fruits such as lychees.B.e. devise a comprehensive export strategy for the Xavia horticultural industry for 1994 .g. e. trends and tastes differ in the developed markets of Europe. e. Task Given the information above and the following. in the longer term. non-astringent persimmons. It would also need huge investment in pack-houses.  small.1996. Clearly show Government Policy requirements. b) The effects of Eastern Europe integration into the western trading system Eastern Europe will have two influences.g. very high priced markets for excellent taste and quality. summer fruits (N. the marketing mix (product.

Eastern European consumers demand the mainstream products i. probably starting in France. Southern and Eastern Africa air freight rates are higher than potential competitors in West Africa and the Caribbean.000 $2. In the medium term only East Germans are expected to influence total European demand significantly.000. Zambia and Malawi and Zimbabwe. pineapples.900 tonnes comes from the region.50/kg Mange -tout: Continued growth in the market in the UK. Air freight is often the single most important cost.000 tonnes but Kenya has succeeded in increasing its share of the market from about 20% in 1985 to nearly 40% in 1989.000 tonnes. bananas.00/kg Baby corn: This is mainly a British product with total sales in Western Europe guessed at less than 1.000 tonnes 2. Kenya. Prediction for 1995 Total Market Regional Supply Value C&F Price 35. The product is expected to transfer slowly onto the continent. The market for fine and extra fine beans will grow. Fine Beans:. The total EU import market has remained static at about 32.000 tonnes $8. pawpaw and even sweetcorn being sea-freighted over the next 5 years.e.000 tonnes 20. Prediction for 1995 Total Market Regional Supply Value C&F Price 12. oranges. Individual products NB "Regional supply" means Xavia. with potential in Belgium and to a lesser extent Switzerland from its current estimated size in Western Europe of 6. Keener competition from Nigeria will inhibit the region fully exploiting the growth in this product demand. Buyers feel over-reliant on Kenya and are looking for new suppliers.000 tonnes $50. Kenya is perceived as the only supplier of extra fine beans. . making possible cheaper transport for an ever wider range of crops.economies can develop. c) Changes in the post harvest technology and air freight competitiveness Every year the technology of sea-freight improves. France. We expect that producers will be reluctant to grow it as it is difficult to see how it can be grown profitably. Tanzania and Nigeria. Tanzania. The projections below have been based on our knowledge of the total European market. particularly in the UK supermarket trade which is currently very strong on legumes.000 $3. Potential threats to Kenya are Uganda. We are expecting to see a greater proportion of mangoes. the future growth potential of each product is likely to have competition from other suppliers.400. kiwi fruit and to a lesser extent.000 tonnes and value of $27 million of which perhaps 1.

of which 70% comes from the region.000. Prediction for 1995 Total Market Regional Supply Value C&F Price 7.000 tonnes 800 tonnes $8.000 tonnes $15. Unit gross wholesale prices are expected to fall from about $6/kg to $5. Although some growth of sales to indigenous populations are at higher prices.600.000 tonnes and worth around $25 million. with growth potential in Southern Europe.000 tonnes 1. Prediction for 1995 Total Market Regional Supply Value C&F Price 8. Expect Kenya's market share to fall from about 2000 tonnes or 2%.000 $4.000 tonnes with a value of $30 million.50/kg.25/kg Chillies. mainly to the UK. Italy and Greece and maybe Eastern Europe. i.e.Prediction for 1995 Total Market Regional Supply Value C&F Price 2.400. The major market is for sea freighted product.000 $4. Sea freighting pineapples is not a highly profitable export business with narrow margins and the need for economies of scale. Prediction for 1995 Total Market Regional Supply Value C&F Price .000 tonnes $4. Tanzania is developing sea freight to Italy with an aimed 3000 tonnes per annum.500 tonnes 6. unless sea freight to France can be successfully carried out.000 $2.40/kg Avocadoes: The major growth phase has now finished.00/kg Pineapples: As an air freight product this region cannot compete with West Africa. It is a crop quite capable of production being manipulated to harvest all year round (AYR).000 $2.00/kg Asparagus: A major opportunity.750 tonnes 1. A very high priced and seasonal product which is increasingly popular (15% growth per year)and with additional sales potential in Eastern Europe.000 tonnes and will expand at about 5% per annum. okra and other Asian vegetables: Small specialized trade. European imports currently account for about 5. the demand from immigrant populations is expected to decline as the newer generations lose commitment to traditional meals. The Western European market stands at about 250. Kenya will maintain her exports at 3000 tonnes. Spain.400.800 tonnes $ 3. Prediction for 1995 Total Market Regional Supply Value C&F Price 100. Total market is currently about 9.

5% per annum.000 tonnes 1. Firstly. Prediction for 1995 Total Market ME Market Regional Supply Value C&F Price 10.000 $ 0. Prediction for 1995 Total Market ME Market Regional Supply Value C&F Price 15. Prediction for 1995 . and secondly.000 tonnes $2.25/kg Strawberries: Major market for off-season supplies. Should have good skins and strong coloured flesh.000 tonnes 6. Sales already being made in the Middle East.000 tonnes 4.000 tonnes 1. Kenya's production continues to expand and new projects expected in Zimbabwe and Uganda. Sea freighted product from the Caribbean will be important. Asia. With increased production sales will increase. but only for small solo types.275.000 tonnes $ 3.. Prediction for 1995 Total Market Regional Supply Value C&F Price 1.500 tonnes $6.50/kg Mangoes: Mangoes will decline as an air freighted product to Western Europe. Sales in Eastern Europe expected to expand but the commodity will remain very price competitive.000 tonnes $ 3.250.000 $4.000 $ 3.800.50/kg Citrus: Around 9000 tonnes of navel oranges are imported from Zimbabwe into the EU. Sales potential in the Middle East. offers good potential and an expanding market which Kenya is already accessing.) unit prices have been falling by about 4. while the major off-season supplier Israel is in decline. good shelf life means it could be sea freighted if a volume market develops.500. Ugandian production can create its own market niche.50/kg Paw paw: Growing demand in Europe at 50% p.500 tonnes 1. Prediction for 1995 Total Market ME Market Regional Supply Value C&F Price 40.000 $ 3.a.000 $2. Some growth in France and Scandinavia -but two problems.E.000 tonnes $ 4.750.000 tonnes 25. wrinkled skin when ripe is viewed as unappetising by consumers. however. mainly via Belgium (89%). which is currently importing from S.000 tonnes 25. Although volume sales are increasing (12% p.80/kg Passion fruit: Small European market of some 1000 tonnes. The Middle East market. Oranges are almost a commodity.000 tonnes 8.a.500.

000 stems $ 26. baby vegetables.000 20 cents/stem Carnations: A product with good potential. Any off-season production of temperate fruits.000. Prices are predicted at 30 cents a stem.000 tonnes. Current crops with little potential: It is difficult to see how crops like courgettes (except baby sizes).000 10 cents/stem Chrysanthemums: The relative high weight of chrysanthemums will not make this product especially profitable.a. Zimbabwe 80 ha. aubergines.e. and the growth will be less spectacular than the other products.000. 24. Prices will fall to 12 cents a stem.000. blackberries. flat beans. Expect to see diversification to standard carnations and increased exports maintaining 7% p.000 stems 12. raspberries. herbs.750 or. Roses: A product with excellent potential.000 6.000 24 cents a stem . Imports are increasing by 20% p. Specialist tropical fruits such as lychees. Sales will increase very significantly but prices will fall to 25 cents a stem with production on around 110 ha.a.000.000. Prediction for 1995 Dutch Market Regional Supply Value C&F Price 3.000 tonnes 550. These crops could generate a further $10.80/kg Other crops worth considering: Legumes such as runner beans.250. growth. Prediction for 1995 EC Market Regional Supply Value C&F Price 25.000 stems $25.880.000. mangosteen and apple bananas. Specialist crops such as salad onions.170. persimmons (non . Prediction for 1995 Dutch Market Regional Supply Value C&F Price 1.000 stems $2.000 $0. i. melons and sweet corn will cover current air freight rates.season supply. nectarines.200.astringent types).000 p.600. currants. Expect to see rose projects in production in Kenya at 20 ha.a. Zambia 7 ha and Malawi 3 ha. even peas and broad beans for off.EC Market for citrus EC Market for navels Regional Supply Value C&F Price 4. cherries.500 tonnes $12.000 stems 132.

Total exports could be over $250.000. Micro-biological standards are becoming more stringent amongst buyers and the German market is particularly fussy about sulphur levels. Its location is viewed as excellent because of the potential for all the year round supply.0 258. The canned pineapples operations in Kenya are not located for optimum pineapple production and are competing against the dominant producers in South East Asia. . with perhaps a further $2 million in other sales. Total projected exports Table 13. Canned products Generally the sales of canned products have been in decline across Europe as consumers turn towards better methods of food preservation. and premium prices are paid for good quality.5 44% 240. Canned products: sales of canned pineapples will remain at $16 million. Field grown flowers like Ammi Majus will move from Zimbabwe to new production sites within the region.0 100% Processed products The next section briefly outlines the opportunities for processed horticultural products.7 sets out the total projected exports. Table 13. aubergines.7 Projected size of regional exports in 1995 Value in US($'000s) % of total value Produce 124.a.Other cut-flower crops: Sales of all other flowers are expanding throughout Europe and expected to continue to increase as consumers become more sophisticated in their flower buying and keen for variety from the main items.000. Statice will continue to be a major crop in Kenya.0 Sub total Canned products 18.000. increased sales are found amongst the more minor products such as dried green beans. Within international trade. This anticipates an increase in the value of exports of 10% per annum for fresh produce and flowers. courgettes and chives. Gladioli will be discontinued as their prices cannot cover the air freight. There is at least one dehydrated vegetable operation in Kenya. Dried vegetables The dominant product is dried onions but the sale of all dried vegetables is in decline as soup consumption is Western Europe is falling. solidasters. well coloured products like red peppers and green cabbage. Quality is reported to be good. Reports are coming in that canned French beans operations have started and look likely to be successful. asters. Other flower sales may amount to another $60. Crops like alstromerias. proteas will expand.000 p.5 56% Cut flowers 115.

Semi-prepared products With increased sales of all types of convenience foods. some exporters developed semiprepared vegetable products. Passion fruit prices are notoriously unpredictable.000 per tonne and drop to $2. This crop grows successfully in Uganda. peeled and diced etc.000 per tonne. i. The demand for paprika oleoresin (the market for the extracted colour component for dried paprika oleoresin has been expanding with the increased demand for natural colorants in developed countries). A successful plant has been operating in Ethiopia for the last 20 years.Frozen vegetables Home freezers and microwave ovens have resulted in increased sales in frozen vegetable products. Malawi is a respected supplier of the extremely hot bird's eye chilli peppers. The new rapid curing technology is producing a product of the highest standard and sales are being made to the world's major buyers. Marketing channels . Both products are high value and can carry air freight rates. Secondly. the market is relatively small and the product very low priced for an extremely labour intensive crop. Climate and infrastructure would be suitable both in Zimbabwe and Kenya. Unfortunately. Some are prepacked for immediate microwave use. Dried Flowers The European market for dried flowers is currently worth $70 million a year and is currently expanding at 15% per annum. Oleoresin operation could be suitable for Zimbabwe. The potential exists for growing other varieties of chillies. It is unknown why no major frozen vegetable factory has been established in the developing world. Zimbabwe. with her skills in floriculture and the crop drying technology used for tobacco. Paprika peppers are an ideal small farmers group. international trade in fruit juices is dominated by very few trading companies. They peak at over $5. Passion fruit plants have been considered in Kenya and in Zimbabwe. Very often projects fail because they are budgeted on high prices rather than using a low working average in the initial study. which places the grower/processor in a very weak negotiating position. citric acid and prepacked). Fruit juices Increased consumption of fruit juices is a world wide trend. 25% of the products are imported from outside the EU. Another example is the sale of peeled and sliced pineapple sections treated with a natural bactericide (eg. should be able to develop a portion of this trade for herself. The world price for vanilla has continued to increase.e. Spices and oleoresins Currently. The world market stands at about 500 tonnes and is worth approximately $30 million.

but particularly Germany. of Kenya. own their own marketing company in Germany (a joint venture with Florimex) which facilitates direct sales into this important market. where it is sold by Wholesalers to Florists.4% 1975-85 9.The typical flow patterns for horticultural exports into the EU from the region are set out below. sales are increasing by over 20% which reflects the sudden interest of supermarkets in cut flowers. Dusseldorf.a. France is the major import market. Sulmac.5% 11. Germany is the largest market in Europe. Most of this material (about 70%) is exported out of Holland to other European markets. The larger importers will import themselves from outside the EU.3% Table 13. and a market expanding at 15% p. In the UK. Sales are made to them by major importing companies. many of whom will make up bouquets.0% 6. Berlin and Cologne. There will be differences between countries and individual growers. Agents working on behalf of the non-EU exporter are often used to provide market feed back. The major wholesale markets are Hamburg. After Germany. FRESH PRODUCE The majority of the produce imported will be routed by importers and end up for sale in supermarkets. Specialist importers supply the wholesale trade. using flower mixes sourced from different countries according to price.9 Developing countries share of the world trade in fruits & vegetables Year 1961-63 1975-77 1983-85 Fruits Vegetables 38% 24% 36% 25% 42% 28% . which is mainly centred around the Rungis market in Paris.8 Average percentage growth in horticultural exports from developing countries Year Fruits Vegetables 1965-75 6. The vast majority of Zimbabwean flowers and over half Kenya's are sold via Dutch importers who put about 90% of their imports through the Auction markets. possibly via a pre-packer. FLOWERS Key statistical data on horticultural marketing Table 13.

3.3% 10.2.6% Table 13.800 4.0 7.50 9.85 United States 8.12 Projected % annual growth in horticultural imports by major market to 2000 Country Fruits1 Vegetables1 Flowers2 United States 1.19 0.1 6.01 -2.9 17.14-5.13 Projected value of horticultural import market by 2010 in US$ (million) Horticultural Floricultural Current Value % Growth Future Value Current Value % Growth Future Value United States 5. Vegetables 27 23.5 6.7 7.11 Annual average growth in horticultural imports by major market Country 1965 .8% Japan 18.0 Pulse 49 10.500 2.0 Misc.Table 13.0 Misc.7 Fresh Vegetables 23 7.8 Roots 3 2.300 1.97 4.4 3.4.0 Table 13.66 5.2.20 7.1 Tree Nuts 40 9.1 7.7 Citrus 30 9.7 Tree Nuts 70 3.95 7.9 24.5 Roots 24 9.00 3.76 22.2 1.9 Processed Vegetables 32 15.6 Tropical Juices 60 14.1 8.500 1.67 0.1 6.600 2.920 225 9.8 Other Tropical Fruit 87 8.0% Western Europe 11.9 Bananas 94 5.39 .09 0.10 Developing countries share of world trade & growth % % Annual growth % Annual growth Share 1965-75 1975-85 Fresh Fruit 40 5.0 Japan 2.81 .83 .00 200 Country .75 1975 .34 .8 Processed Fruit 40 8.2 7.6 5.0 Western Europe 1.6 Tropical 60 11.2 Non-Tropical Fruit 50 21.240 Japan 4.4% 15.0% 4.360 100 5.0 6.4 Commodity Table 13. Vegetables 25 6.00 630 Western Europe 16.3 11.1 11.4 7.

6 -0.2 1..17 Exporters and importers Import market Exporting regions: Horticultural products Western Europe Israel N Africa. Horticultural Exports Policy Issues.0 8.. Egypt West Indies & Caribbean Central America South America Exporting regions: Cut flowers Israel Colombia Kenya Zimbabwe Turkey .200 Table 13.213 24.195 Roots 887 879 Misc Vegetables 2.103 Sub Total 6. Nos. 1983 .) Total Value 800 225 200 170 115 100 125 465 2.400 Processed Fruit 3.339 Processed Veg 2.114 3.0 32.6 0.8 1.6 2.8 7. IFPRI. Doesburg.550 8.1985 Horticultural Exp US$ billion % Share trade %Growth 1975 .6 10.85 Fresh Fruit 5. J. Morocco.85 8.650 6. Channels of Flower Distribution.V. Table 13. Floriculture.16 Value & share of horticultural exports of developing countries by region. N. 4. 1990.1 3.073 9.750 Sub Total 9.1 2 Islam.6 6.964 5.77 1983 . Int.600 Totals 15.6 10.795 Table 13.3 7.9 15.140 15.15 Value of international trade in cut flowers in US$ (000's) Country Germany United States France United Kingdom Holland Japan Switzerland Others (Est. Vol 1.14 Value of world trade of horticultural products in US$ (000's) 1975 .2 Developing Market Economy Africa Latin America Near East Far East Table 13.

Peru China. Thailand 296 1.8 19. India 240 0.01 12.14 7. Honduras Chile.10 8.50 9.33 12.40 25.99 11. Taiwan Caribbean Basin United States Taiwan China Thailand New Zealand Australia Colombia Netherlands Israel Netherlands Thailand Taiwan Table 13.3 0. Mexico 510 1.44 19.40 11.30 2.10 10. China 552 2.140 4.07 13.30 13.50 7.0 17. Costa Rica 243 0. Kenya 76 0.19 Leading exporters of cut flowers US$ (Million) 1987 1 Netherlands 1. Taiwan 544 2.60 12.United States Japan West Africa South Africa East Africa Eastern Europe Mexico Costa Rica.00 Country Table 13.34 13. Argentina 273 1.74 10.10 26. Morocco 291 1.70 13.7 5. Turkey 911 3.22 10.8 3.3 16. Chile 344 1.12 6.55 12.1 5.500 2 Colombia 173 3 Israel 108 4 Italy 90 5 Spain 65 Country .6 9.7 7. Cote d'Ivoire 84 0.40 5.1 21.39 18.73 14.60 3.0 8.60 6. Hong Kong 189 0.19 20. Philippines 358 1. Honduras 258 1.18 Leading horticultural nations in developing countries Horticultural exports % Share Trade %Growth % Growth US$ (Million) 1965-75 1975-85 1983-85 1.1 6.9 10.3 1. Brazil 1.10 4.94 7.8 4.95 17.

August 1991. Sandelands E. "International Planning: Mission Impossible? "Columbian Journal of World Business". John Wiley and Sons. Axtell R. M. "Controlling Export Operations".R. pp 72 . W. Malnight. UK. 2. Terptsra V. Prentice Hall 7. "An Overview of the International markets for Horticultural Produce". (1989) "The Do's and Taboos of International Trade". Special Issue. pp 129 -132. 4. (ed). 1994 10. "Europe and International Business" Vol 28 No. Network and Centre for Agriculture Marketing Training in Eastern and Southern Africa. 2 Feb 1995 pp 119-141. 6 1994 pp. and Sarathy R. Paliwoda S. 9.B. (1993) "International Marketing Strategy "2 Edition Heinemann 8.6 7 8 9 10 11 12 13 14 15 Kenya France Mexico Peru Morocco United States Turkey Equador Zimbabwe Costa Rica 30 18 10 10 5 5 3 3 2 2 References 1 Helmberger P. Dixie G. W. Butterworth Heinemann. Campbell C and Patson W. FAO. in S. 6. T. "International Marketing Review" MCB Publications.. "Organisation and Performance of Agricultural Markets in A Survey of Agricultural Economies Literature". 3. Dryden Press. G. "G localisation of an Ethnocentric Firm: An Evolutionary Perspective Strategic Management Journal. 8.92 5. W. Cain. Philip C. No. and Doole I. E. In Carter S. (1994) "International Marketing Strategy. Lowe R. 514 European Journal of Marketing. July-August 1970. 1991 ch. Mkandawire. 11. Carter (ed) "Horticultural Marketing Training in Eastern and Southern Africa". Section 1 Marketing . 58. Analysis". 12. Vol 16 No. 6th Edition. (1991) "International Marketing Strategy". Bradley F. "Export Procedures". "International Marketing".

World Bank Discussion Paper 198 World Bank 15. 19-33. Terpstra. 4th ed.13. Bibliography 14.(1987) "International Marketing". "Some Preliminary findings". European Journal of Marketing Vol 28 No. W. (1989) "Global Marketing Management". V. Keegan. Jaffee S. J. Das M. Prentice Hall International Editions 16. "Successful and Unsuccessful Exporters from Developing Countries". . 4th ed. Dryden Press. 12 1994 pp. (1992) "Exporting High Value Food Commodities".

provided an adequate and acceptable explanation is given. Importers are warned that in such circumstances. Discretion as to issue of import licences Import licences may be refused by the responsible authority without any reason or prior notice being given. Furthermore. 3. unnecessary delays in the processing of applications for import permits would be reduced if all applications were accompanied by a full and accurate description of the type of goods to be imported and all supporting documents attached to the application forms such as indent or order and copy of trading licence(s) in cases whereby the imported goods would be sold.Appendix 13A: Export control . At the time of making application for extension of licence. 4. consideration may be given for the extension of licences on application. faces the possibility of financial loss through having to return the goods to the supplier. 2.General notice Warning to importers 1. Withdrawal of licences Importers should note that failure on their part to comply with any provision laid down in various Government Notices (as amended) listed on page 3. any importer who places a firm order for goods and allows goods to be shipped.The Malawi case Part I . Goods imported under open general licence To avoid subsequent embarrassment importers are urged to approach the Ministry and clear the importation of all goods about whose qualification for entry under Open General Licence they have any doubts whatsoever. a letter from the supplier explaining the reason for the delay should be produced. In cases where it is not possible to obtain delivery of the goods within the period of six months. may constitute grounds for an authority to revoke a licence. or with any condition endorsed on a licence at the time of issue. Country of origin . Period of validity of import licences Import licences are issued in most cases for a period of validity extending six months from the date of issue. Licences may be revoked or amended by the Minister on grounds of national interest. 5. without first obtaining an import licence where such is required in respect of the particular goods.

Malawi Telephone: 732 711 Telex: 44873 General information on exports from Malawi may be obtained from:The General Manager. Statutory Instruments This memorandum is published for information only and shall not be taken in any way to vary the provisions of the under-mentioned Government Notices. The Associated Chamber of Commerce & Industry of Malawi. 6. Importers are. therefore. . Malawi Telephone: 671 988 Telex: 43992 7. BLANTYRE. Capital City. Malawi Telephone: 620 499 Telex: 44589 General information regarding imports into Malawi may be obtained from:The General Manager. Malawi Export Promotion Council.In all cases the determining factor in assessing the need for an import licence is the country of origin and not the country of supply. Application for licences and enquiries for general Information on trade Application for import and export licences and enquiries about import and export controls should be submitted to:The Secretary for Trade. P. Industry and Tourism. O. O. Delamere House. Gemini House. Box 1299 BLANTYRE. advised to ascertain from their suppliers the country of origin of the goods so that if an import licence will be required this could be obtained before a firm order is placed to avoid the possibility of financial loss (see 1 above). P. Box 30366. P. which may be amended from time to time. Box 258. LILONGWE 3. O.

imported by a person arriving in Malawi to take up residence or employment therein 8. Part II . originating in any country. Motor spirit. 85 of 1988 (Commerce) Regulations Control of Goods (Import & Export) GN. Goods temporarily imported into Malawi by a bona fide tourist for his own use 9. where goods are allowed to be imported under licence. Samples and advertising materials intended solely for use in the taking of orders. 83 of 1988 (Agricultural) Order.Goods from any source not requiring import licences The following goods. transformer and insulating types. Any bona fide unsolicited gift not exceeding Malawi K50 in value 11. 85 of 1988 (Commerce) Order. 8. Used personal and household effects. including aviation fuels 3. may be imported without the authority of an Import Licence:1. Lubrication oils 4. illuminating. Antifriction and lubricating greases 2. Control of Goods (Import & Export) GN. Oils and fuels. Control of Goods (Import & Export) GN. Goods in transit through Malawi 7.Control of Goods (Import & Export) GN. Exposed cinematograph films 6. unless otherwise restricted. Goods not exceeding a total value of Malawi K50 accompanying a person entering Malawi and intended for private use of such person or his family 10. Control of Goods (Import & Export) GN. 84 of 1988 (Commerce) Order. and not for sale . 307 of 1987 (as amended) Control of Goods (Import & Export) GN. power and illuminating paraffin 5. 82 of 1988 (Agriculture) Regulations. Importation by Private Individuals Private individuals may apply for the private importation of individual articles.

a work of art. and in respect of which a certificate to that effect has been issued by an officer of the Department of Customs and Excise. Game traps. 10.12. or b) any article or substance containing such unmanufactured gold. or b) is released from the handle or sheath thereof by the force of gravity or the application of centrifugal force and which if released. other than the personal effects of an individual. Bees. Used clothing.Goods requiring import licences from all sources 1. 6. honey. 12. Compound products containing flour. Part III . an article of commerce. 2. 8. Clothing and uniforms designed for military. foundation combs. as such. including:a) unmanufactured gold in any form whatsoever. 3. Gold. 4. naval. 9. unmanufactured beeswax. or c) any article consisting of. Any knife having a blade which either: a) opens automatically by hand pressure applied to a button. Radioactive substances. but excluding the following:a) Seed beans in quantities of less than 90 kgs. 13. bottled or otherwise preserved. . or of archaeological interest. or d) gold derived from the smelting or treatment or any manufactured article containing gold. Wild animals. Mist nets for the capture of wild birds. Sugar. Any goods exported from Malawi for repair and return. Live fish. spring. is locked in place by means of a button. 7. not gold coin. 11. 5. sometimes known as "gravity-knife". b) Antibiotic growth stimulants. including the eggs and spawn thereof. wild animal trophies and wild animal products (including birds and reptiles) and any egg produced by such birds or reptiles. spring or any other device in or attached to the handle of the knife sometimes known as a "flick-knife" or "flick-gun". airforce or police use. meal residues and other preparations of a kind suitable only for use as animal foodstuffs but excluding the following:a) Chemical additions to animal foodstuffs. or containing gold which although manufactured is. lever or other device. Beans. b) Beans which are tinned.

g) Cat and dog foods. 26. Gram and dhall 16. Rupoko. Maize including:a) maize grits. 29. including dressed poultry. Groundnuts. f) Bird seed. The Minister has. 27. is prohibited without prior permission in writing from the Minister of Trade. b) maize cones. 18. Eggs of poultry. The importation of all animals and other animal products require to be certified as free from disease before importation. Bananas.c) Inert fillers. and h) Salt-lick for cattle. and e) processed maize meals with or without additives. Dieldrin. Industry and Tourism. Aldrin. Meat. eggs of wild birds. 28. 25. e) Synthetic animal foodstuffs. however. 21. Rice. c) hominy chop.Countries from which goods must be licensed in every case . Kitchen and table salt. Potatoes. whether in shell. 20. 17. 23. including day-old chicks. oil meal. ham and bacon. rupoko meal (finger millets). Exercise books. exempted the following from import licensing control: All tinned meat  All potted meat  Meat soaps  Meat pasties  Edible meat fats  Tallow  All cooked or cured meats other than cooked pork. offals and residue from oil seeds. d) maize offals. 14. pulp or dried forms. 19. Fertilizers. 22. oil cake. Part IV . 15. Live poultry. Oil seeds. 24. The importation of all meats. d) Trace elements.

Part VI . . Lilongwe 3. Private Bag 305. Such applications will be considered on their merits and licences must be applied for before firm orders are placed. P. 0. Capital City. Capital City.Subject to Part II.Other legislation affecting importation of certain goods requiring import licences i) Firearms and ammunition ordinance All applications for permits for the importation of firearms and ammunition and explosives should be made to the Inspector General of Police. ii) Raw materials and machinery for industrial use The Secretary for Trade.Import of military type clothing and materials and machinery for industrial use i) Military type clothing Import licences for new military type clothing of any kind will be issued only if the importer produces evidence that he has obtained an order from the Army or Police authorities. Industry and Tourism is prepared to consider the issue of licences authorising the import into Malawi of any raw material or machinery from any country if the material or machinery is for use in an industry within Malawi. ii) Dangerous drugs ordinance The importation of certain drugs and poisons is controlled by the Ministry of Health. Box 30377. Applications should be made to the Secretary for Health. goods originating in the countries listed below require import licences in every case. Application for licences will be considered on their merits before orders are placed. Lilongwe 3. Andorra Muscat and Osman Albania Bulgaria Cuba Czechoslovakia East Germany Muscat and Osman Mongolia North Korea Tibet USSR Part V .

that without the written permission of the Minister. "Unity and Freedom". GN. the Armorial Ensigns. the word "President".iii) Soap The importation of soap is subject to special regulations set out in the Control of Goods (Importation of Soap) Order. the Public Seal. Part VII . the National Flags. atomic energy materials strategic value. emblems and names act. the words "Malawi". The Act provides for the safeguard of the dignity of the Head of State. controlling the sale of certain articles in specified weights.Goods requiring export licences The following goods may not be exported without a licence:1. vi) Protected flags. Implements of war (other than arms and ammunition). which prohibits the importation of goods bearing forged trade marks or false trade descriptions. (GN. "Republic" and "University". the names. or marked with offending marks in terms of the Ordinance Act 17 of 1957 and Act 17 of 1959. 1967 (Act 10 of 1967) This Act provides. and prohibits the use of any likeness of the President. or which resembles or is capable of representing any of them. v) Weights and measures The attention of importers is drawn to the provisions of the Weights and Measures Act and to the Weights and Measures (Sale of Articles) Regulations (F. no person shall import or possess for the purpose of sale any article bearing any protected colours or cork symbol or any article on which or in respect of which any title of any patent or any trade mark or design is used in connection with any or the foregoing. and items of primary strategic significance used in the production of arms and ammunition and other implements of war: Beryllium  Cobalt  Tantalum  Uranium  Lithium  Columbite . newspapers and periodicals do not fall within the scope of the Act). "National". 273 of 1959). 1967. iv) Merchandise marks The attention of the importer is drawn to the provisions of the Merchandise Marks Act. 64 of 1967). styles and titles of the President. as amended. (Books.

wild animal trophies and wild animal products including birds and reptiles and any eggs produced by such birds or reptiles. Gemstones unmanufactured. Cassava. on or off the cob. oil meals. Interested parties requiring more information on this subject may contact:- . Wild animals. Petroleum products. oil cake. Crocodile skins. Maize meal including:a) Maize grits. Oil seeds. 11. rapoko meal (finger millets. Rice. Seeds for planting. 14. and d) Hominy chop. including:a) dried maize. 3. Rupoko. Groundnuts 7. Tea (including tea seeds). including the eggs and spawn thereof. Under the provisions of the Treaty establishing the PTA. Sorghums. gram or dhall). b) Maize cones. 2. Unmanufactured tobacco. in quantities of more than 90 kgs. Live fish. Niobium (columbium)  Thorium  Germanium  Titanium  Nickel and nickel alloys and any materials containing such metals. 17. 20. 16. Maize. 18. c) Maize offals. 12.Preferential trade area (PTA) Malawi is a member of the Preferential Trade Area (PTA) currently grouping 15 countries of Eastern and Southern Africa. Beans and peas 8. and b) crushed maize. 15. Part VIII . Munga. 10. sorghum salt 6. Bean meal 5. munga meal (millets). but excluding green maize on the cob. sorghum meal. 19. 4. 13. 9. goods included in the Common List of Commodities may be traded among member States under preferential treatment as long as they satisfy the requisite Rules of Origin.

A predisposition towards a person or object based on cultural mores and values which is a precursor of behaviour. P. An organisation which develops clear marketing strategies for what it intends to do in a foreign markets. . Anthropology. Agent. One country enjoying total lower costs of production than another country (ies). The discovery of beliefs. Ndeke House. A form of international organisational structure used by highly marketing oriented organisations with stable products. Blantyre. A measure of all economic transactions between one country and all other countries. distribution or advertising form to take account of unique conditions in any one country(ies). Box 30051. Adaptation. Zambia. Balance of payments. Advertising. Box 258. Aggressive exporter. Goods or service adapted in either product. Area organisation.The Secretary General Preferential Trade Area for Eastern and Southern African States. Attitudes and values. Telex: PTAZA 40127 Cable: PTA LUSAKA Telephone: 219880/1/2/3/4 Copies of the PTA certificate of origin may be obtained from Associated Chambers of Commerce and Industry of Malawi. Any form of marketing communication in the paid media. O. A channel institution which represents one or more suppliers for a fee. P. motives and values through the study of a society's overt and covert behaviour. Malawi. Haile Selassie Avenue. Glossary of marketing terms Absolute advantage. LUSAKA. O.

a sum certain in money to. The difference to new york futures. not the goods. at a fixed or determinable future date.Barter. either on or off. Competition. mainly according to their material composition. Brussels nomenclature. A technique for grouping similarities or differences between a set of objects or persons. Basis trading. A product. Budget. Cooperative. . Comparing the same set of statistics within a category of one country with another for the purpose of estimating potential demand. Comparative advantage. A channel institution which puts a specific buyer(s) and seller(s) in contact with one another in one or more commodity(ies) or service(s) with a view to achieving a sale or benefit. Cluster analysis. An unconditional order in writing. addressed by one person (drawer) to another (drawee). One country enjoying a lower production ratio (input to outputs) than another country under total specialisation. Comparative analysis. selling or processing goods and/or services. An international convention aimed at grouping articles. whereby the buyer is under an obligation to pay against the shipping documents irrespective of the arrival of the goods. insurance freight" of the documents of title. organisation or individual. pooling their resources in order to gain commercial or non-commercial advantage in buying. A contract of sale "cost. The direct exchange of goods and services between two parties.F. often without cash considerations. requiring the person to whom it is addressed (drawee) to pay on demand. Broker. The adoption of a specific target market and marketing mix stance in the market place.I. Bill of lading. C. a specific person (payee) or to bearer. Competitive strategy. or to the order of. An amount of money set aside to cover the total cost of a communication campaign or other marketing activity. The receipt given by the shipping company to the shipper for goods accepted for carriage by sea. A collection of organisations or individuals. (as opposed to an airway bill of lading for goods carried by air). into a simplified classification system for tariff administration. in either the same or another category which can be directly substituted one for the other in fulfilling the same needs or wants. Bills of exchange. signed by the person giving it (drawer).

Expropriation. reprocessed and re-exported. designated within the country. Currency swaps. to guarantee the development costs of exports or legal claims arising there from. A contract of sale "free along side" whereby the seller undertakes to place the goods alongside a ship ready for boarding and carry all charges up to that point. or specification amount per unit or combination of these two. Dumping.Countertrade. enjoying tax privileges or other status. An institution through which goods or services are marketed giving time and place utilities to users. The reduction in the value of one currency vis a vis other countries. Export credit guarantee fund. The selling of goods or services in a buying country at less than the production unit price in the selling country. A facility. Demand pattern analysis. Distribution channel. Ethnocentrism. Culture. The sum total of learned behaviourial characteristics or traits which are manifest and shared by members of a particular society. Decentralised plans. characterised by a normal distribution.A. A planning system taking into account differences in product/market conditions.S. The ratio of exchange of one currency to another. Duty. The analysis of in-country industrial sector growth patterns. Devaluation. Exchange rate. Diffusion theory. A zone. Export processing zone. An agreement by the customer to buy goods on condition that the seller buys some of the customer's own products in return. A home country orientation but with export of surplus production. A method to gain access to foreign capital at favourable rates comprising contracts to exchange cash flow relating to the debt obligations of the two counterparts to the agreement. Exporting. F. where goods and services can be brought into. or the difference between normal domestic price and the price at which the product leaves the exporting country. The actual custom duty based on an imported good either on an ad valorem. The annexation or seizure of national assets as an extreme form of political action. provided by government treasury. . The marketing of surplus goods produced in one country into another country. A classification for the adoption of innovation(s) through social phenomenon.

domestic focus to a fourth stage. Products designed to meet global market segments.O. Foreign exchange. The value of all goods and services produced by a country's domestic economy in one year. A four stage organisational development process evolving from first stage. General Agreement on Tariffs and Trade (GATT). Global products. . A contract of sale "free on board" whereby the seller undertakes to place the goods on board a named ship at a named port and berth and carry all charges up to delivery over the ships rail. An institutional framework producing a set of rules and principles with the intention of liberalising trade between member countries. Gross national product (GNP). Forward rates. which require fulfillment. A mechanism to avoid the risk of a decline in the future market of a commodity. The market value of all goods and services outputted by residents of a country in one year including income from aboard.B. A world orientation with world market strategies. more on the "implied". A legally binding contract to deliver/take delivery on a specified date of a given quality and quantity of a commodity at an agreed price. Hedging. Gross domestic product (GDP). Minimum reliance on explicit verbal or written conversations. Global marketing. Ideology. Geocentrism. An individual's organisation or country's political belief. usually expressed in foreign currency bought or sold on the foreign exchange market. A mechanism whereby the risk of changes in exchange rates can be covered by obtaining a new rate quote for a future exchange of currencies. All semi or uncontrollable factors which a marketer has to account for in carrying out global operations. similarities and opportunities in order to meet global objectives. Global evaluation. usually by entering into futures markets.F. adaptation and creation of market opportunities. Hierarchy of needs. Marketing on a worldwide scale reconciling or taking commercial advantage of global operational differences. Facilities' business across national boundaries. The ordering of a person's needs into hierarchy of relative potency such that as lower order needs are fulfilled higher. unfulfilled order needs emerge. global marketing strategy of extension. High context culture. Future. Global environment.

International product life cycle. to meet a specific objective. International monetary fund. Licensing. Letter of credit. A model which suggest that products go through a cycle whereby high income. Goods or services seen as having extended potential into other markets. mass consumption countries go through a cycle of exporting. (united nations) which lends money to countries on a short term basis to assist them balance of payments problems. International products. Market entry. Joint ventures. loss of exports to final importers of products. A method of foreign operation cooperation whereby an organisation in one country agrees to permit a firm in another country to use the manufacturing. An enterprise in which two or more investors share ownership and control over property rights and operations. affecting an upward change in prices. The way in which an organisation enters foreign markets either by direct or indirect export or production in a foreign country. analysing and reporting data aimed at reducing uncertainty in business decision making. A method of international payment whereby the buyer instructs his own country bank to open a credit with the seller's own country bank specifying the documents which the seller has to deliver to the bank for him/her to receive payment. A description of the relationship between the demand for goods and changes in income. Income per capita. Low context culture. A system for gathering. processing. Local products. Goods or services seen only suitable in one single market. A planning system whereby headquarters sets a policy and framework and subsidiaries interpret these under local conditions. know-how or some other skill provided by the licensor. A fund. Interactive plans. The market value of all goods and services outputted by a country divided by the total number of residents of that country. Levy. with world wide country membership. Inflation. Information system.Income elasticity measurements. trademark. A condition where demand outstrips supply or costs escalate. A tax imposed by government. . High reliance on explicit verbal or written communications or other explicit format.

Goods or services adapted to the perceived unique characteristics of national markets. Penetration price. industry and its needs. Any paid for communication channel including television. pricing.and a knowledge of the customer. Option. Media. product knowledge and know how. Non tariff barriers. public or private that cause intentionally traded goods or services to be allocated in such a way as to reduce potential real world income. Nationalism. promotion and distribution of ideas. . but not the obligation to buy or sell a specified asset at a specific price. Matrix organisation. A timetable for the allocation of advertising messages in the media over a given time horizon. mutually profitable exchange relationships satisfying individual and organisational objectives. Planning. challenger. The act and functions of physically distributing goods and services including the elements of transport. follower. An organisation which awaits orders or comes across them by choice.Market holding price. Media scheduling. Multiple factor indices. A nationalist doctrine of one nation prospering at the expense of another nation. A bilateral contract giving its holder the right. posters etc. executing and controlling the conception. goods and services in order to build lasting. vis a vis competition. Passive exporter. either leader. flanker or adopter.. variables that either intuition or statistical analysis suggest can be closely correlated with the potential demand for the product under view. production and marketing . and functional competencies . as proxies. Market positioning. A complex form of organisational structure bringing together the competencies of geographic knowledge. Measures. The charging of a price at what the market can bear in order to hold market share. The assertion of indigenous culture by an individual. Multinational products. Mercantilism. The charging of a low price in order to gain volume sales conducted under conditions of little product uniqueness and elastic demand patterns. at or up to. a specific date. Marketing. Physical distribution. The adoption of a specific market stance. Message. organisation or country. An informative communication about a product or service placed in a communication channel. A measure of potential demand indirectly using. warehousing and order processing.

Product organisation. The difference between the domestic price and the target price in foreign markets due to the application of duties. Regiocentrism. The maximum price which can be charged bearing in mind competition and what the market can bear. charging a margin for its services. Revaluation. Price ceiling. Purchasing power parity. A channel institution which acts as an intermediary between other channel institutions and the end user and who usually breaks bulk. Price escalation. over and above the intrinsic value or price of a good service. A specific imported amount imposed by one country on another. The rate at which one unit of currency will purchase the same amount of goods and services as it bought in an equilibrium period. A good or service offered by an organisation which affords a bundle of benefits both objective (physical) and subjective (image) to a user.Polycentrism. When a quota is in force the price mechanism is not allowed to operate. Quota. . The minimum price which can be charged bounded by product cost. Promotion. despite differential rates of inflation. The offer of an inducement to purchase. dealer margins and/or other transaction costs. Search. Regression analysis. A regional market orientation with world market strategies. The selection of an independent variable which accounts for the most variance in a dependent variable. Price floor. A form of international organisational structure whereby executives in functional areas are given global responsibility. Retailer. Unpublished data from individuals or organisations. Published accessible data from a variety of sources. Secondary data. Product. The collection of relevant information by deliberate searching either formally or informally. Product strategy. The increase in the value of one currency vis a vis other currencies. when once filled cannot be exceeded within a given time. A host country orientation on a subsidiary basis. A set of decisions regarding alternatives to the target market and the marketing mix given a set of market conditions. Primary data.

Perceptual distortion brought about by an individual's own cultural experience. Wholesaler. (United nations) which provides long term capital to and economic development. The charging of a high price in order to gain maximum revenue conducted under conditions of product uniqueness and inelastic demand patterns. Terms of access. Sourcing. Tariff. Surveillance. The collection of relevant information which crosses an individual's scanning attention field. products or technologies which serve an identified market and competes with identified competitors. A decision to have certain components in the value chain manufactured out of the country. with world wide country membership. A self contained grouping of organisations. A uniform planning system applied globally. Strategic business unit. An instrument of terms of access normally the imposition of a single or multiple excise rate on a imported good. The conditions imposed by one country which apply to the importation of goods from another country. Skimming price. A bank.Global agriculture marketing management Annex 1 Annex 2 Annex 3 (statistical bales of 480 lbs net) Growing areas Planting period Harvesting period Production in 1'000 bales . Transfer pricing. charging a margin for its services. distribution or advertising form. Often called the "make of buy" decision. unchanged in any country. The price at which goods or services are transferred between one country and another within the same organisation. Subject appendices . Standardised plans. Known also as the International Bank for Reconstruction and Development (IBRD). based on economics of scale and consumer uniformity. Same goods or services marketed in either product. The World Bank. Standardisation.Self reference criterion. A channel institution which purchases and sells in bulk from either original suppliers and/or other channel intermediaries.

700 700 100 700 2. Most of the cotton grown in Latina is fully irrigated.100 3.600 85/86 2.500 88/89* 2. 1-3/32'") 58.35 Unch AMERICAN-TYPE COTTONS .300 86/87 1.800 100 200 6.000 100 200 200 10.1/16" to 1. In US cents per lb.200 * Estimates.700 100 1.300 100 300 200 10. Rain-grown or semi-irrigated areas yield less. The extended planting and harvesting periods are due to a great variety in climate and distances between the various growing areas. All November/December shipment except where otherwise stated quotations as at 3 November 1988.100 6.400 200 2.100 5.000 300 2.40 +0.5/32" and 1.3/32". All cotton is saw-ginned.000 6.000 4. Birkenhead.800 300 2. Cotlook indices Dual system 1988/89 1989/90 'A' (Midd.100 100 300 300 11.200 6. Some cotton is harvested as early as May and as late as February with this production mainly moving to domestic mills.300 400 500 200 12. In the Juarez area Acala cotton of 1. Rock Ferry. Yields in such areas are around 2 bales per acre and more. Outlook House 458 New Chester Road.300 3.1 2 3 4 5 6 7 8 9 Total production Local consumption Mar-Apr Feb-Apr Jan-Apr Nov-Dec Mar-Apr Mar-Apr Jan-Apr Mar-Apr May-Jul Sep-Jan Aug-Nov Jul-Dec Jun-Aug Oct-Dec Sep-Dec Jul-Sep Oct-Dec Nov-Jan 84/85 3.500 700 800 3.400 400 1. Merseyside L42 2AE.35 To be introduced early 1989 'B' ('Coarse Count') 53. The bulk of Latina cotton is still hand-picked but machine-picking is on the increase.100 500 1.3/16" staple is grown.800 87/88 2. Latina normally produces a high grade crop with a staple length of 1.. Annex 4 CIF North Europe quotations for principal growths Published and primed by COTLOOK LTD.300 900 1.300 5.

DPL Midd.1988/89 American (Std.00 64.50 Unch 55.50 74.50 60. Midd. Mic) Orleans/Texas Midd. 1-3/32" Call/Ariz.00 58.50 NQ NQ 1988/89 64.00 -0.00 (Dec/Jan) 57. 1-3/32" Spanish Midd.50 .75 0. 1-3/32 Shankar-6. 1 White. 1-1/32" Orleans/Texas SLM 1-1/32" *Memphis Terr. 55. I White.75 0.75 0.50 NQ (Jan/Feb) 68.25 0.50 0. 1-3/32" Central American *Midd.50 -1. 1-1/16" 57. l-3/32" RG" EEC Greek Midd.50 67.75 (Dec/Jan) 58.00 Unch Unch 58.50 1.50 52. 1-1/16" Turkish *Adana St.50 -1.50 0. 1-3/32" *Calif/Ariz.00 (Dec/Jan).25 Paraguayan *Midd.25 0.50 61.25 -0. 1-1/16" RG *Izmir/Ant St.00 61.75 0.75 NQ 1987/88 1988/89 (Apr/May) 60. 1-3/32" Brazilan *Type 5/6.75 0.* SJV SM 1-1/8" Latina *Midd. 1-3/32" Russian *Vtoroi *Tretii Pakistan *Punjab SG 1505 1-3/32" *Sind/Punjab SG Afzal 1-1/32" Indian Hybrid-4. 3 NQ - NQ 1988/89 52. 1-3/16 Chinese *Type 329 -Type 527 Tanzanian 'AR' Manza No.75 0.50 56. 1-3/32" Argentina *Grade C-1/2.50 1.

50 Unch Australian *Midd.00 Unch Unch PRICES WITH DRAWN PERIODIC ANNOUNCEMENT OF INITIAL SELLING RATES FOR 1988/89 SEASON NQ 132. 1-3/32" NQ - LONG-STAPLE COTTONS 1987/88 Egyptian (official basis) Giza 45 6000/FG Giza 76 6000/FG Giza 70 6000/FG Giza 77 6000/FG Giza 69/75/61 6000/FG 1987/88 Sudan Barakat Grade X4B Shambat-8 Grade 3SH RG Peruvian Tanguis Grade 3-1/2" Pima Gr. 1-7/16 Russian Pervyl 39/40 114.00 -1. Quotations for Shoutern belt cottons (as identified is the Cotlook Production Estimate) will not be considered for index purposes before January 1.Not Quoted * 'A' Index is average of cheapest 5 of 11 styles so marked. taking nearer shipment when two are quoted. taking nearer shipment when two are quoted.50 1987/88 1988/89 (May/June) 62.50 0.  'B' Index is average of cheapest 3 of 7 styles so marked.00 1988/89 NQ (Jan/Feb) 162.(Jan/Feb) African 'Franc Zone' *Midd.Nominal NQ . 1-3/32" 58. 17/16" Indian DCH-32.00 1987/88 74.00 1.00 2.00 67.00 N . .1. 1-9/16" American Pima Grade 3.

but that will would usually expect to succeed with bind that were slightly lower.30 71. cash against documents on arrival of vessel.54 (69. When cotton of a particular growth is set offered in volume. Our prices are therefore emphatically not the levels at which a seller is guaranteed to conclude business.30 53.7 decitex and 38 mm staple).40 53. for first quality fibre (1.10 Tues (Nov 1) 58.35 111. who have no trading involvement of any kind.30 53.35 53. we collect offering prices from many sources.52/1.05 53.94 Annex 6 Polyester fibre prices The range of prices ruling in the six markets mentioned. They are expressed in terms of the respective domestic currencies per kilo.34 Mon (Oct 31) 58.0) 1.17 Month ago (Oct 3) 56.5) 45/46 (73.65 Week ago (Oct 27) 58.0) China (Taiwan Province) NT $ 34/35 (52. November 1987 This week United States $ 1. They are CIF. However. we indicate that fact by designating the price 'Nominal'.20 Year ago (Nov 3) 75.5) . the US cent equivalent per lb (calculated on the day of quotation for the five markets other than the US) for the average of the quoted range is shown in parenthesis.10 110. to indicate the competitive level of offering prices.35 111.25 132.0) Japan Yen 210/250 (77. During the compilation of our reports. not unaffected by our understanding of the latest developments at origin and by a 'Liverpool' concest of quality.15 53. for the purpose of comparison with prevailing raw cotton prices.49/1.5) 200/230 (77.40 52. Europe FOB values US cents per lb July '82 = 100 This week: Thurs (Nov 3) 58. It is for this reason that our indices are calculated from the cheaper element of the prices in the selection. 1-3732") ('Coarse Count') (20's/30's) CIFN. It will be appreciated that when a growth is selling freely our price indication will be very closely in line with trading levels. Our assessment of them is inevitably a somewhat subjective process. There are occasions when the most competitive offer of a particular growth is share prevailing values for cotton generally. Annex 5 Cotlook Indices Raw cotton Yarn 'A' index 'B' index 100% cotton (Mid. compare below with the prices reported in November last year. including profit and agent's commission.61 (71.CIF North Europe Quotations for Raw Cotton: The Cotlook quotations are set by the editorial stuff.35 Fri (Oct 28) 58.35 Wed (Nov 2) 58.

..80/3.50 cents per lb FOB in old crop and 47.50.0) Annex 7 Cotlook daily.United Kingdom Fed.577. Cotlook 88/89 A: 58.75 cents in new..63 55. Turnover _B_O_M_B_A_Y_ rather slow in absence new stimulus after Tuesday's CAB Meeting.5) Lire 2100/2300 (82. Tretii 55.00 B of Shambat 1SH SG and few hundred bales of RG so far.500T in premium quality price range TL 1875/1975 per kg. Amer 58. Cotlook 88/89 B: 53.15/3... of Germany Italy £ 95/1. including Pima..05 (81. Annex 8 New York cotton futures market Closing prices in US cents per pound on 3rd November 1988 December March May July October December 56...10 . Pak 1505 57.50.00 B of US styles from offers received at recent lender and also took up around 200T Chinese high grades from domestically-held stocks.75. IZ/AN 58.5) 3.00/1. _J_A_P_A_N_ on holiday.. C. Karachi spot values. K_H_A_R_T_O_U_M_ appears to have disposed of around 6. P_A_K_I_S_T_A_N_' _S basic MEP been increased by 0.00 (79.. S_I_N_G_A_P_O_R_E/M_A_L_A_Y_S_I_A_ subdued and enquiry H_O_N_G _K_O_N_G_ and_ _ _ _ _ _ _ _of mainly tentative nature..40(UP 25) Comp.63 56. but precipitation Chaco still disappointing. Aid rate payable to ginners within E_E_C_ been increased from 55. _S_P_A_I_N_ confirms wet weather recorded past few days several producing areas.5) DM 2.... Afr 58.75.14 56.10 (84...50. I_N_D_O_N_E_S_I_A_'_S_ PTI Sandang 2 booked around 6.. meanwhile.. Adana 52.. about maintained in routine trading and export offers standard qualities little altered..00.45 56. Vtoroi 58. and further rain forecast today..35 (UP 25) Comp.50. Copyright Cotlook Limited (Disclaimer notified) Underlying mood of caution persists most markers pending further pricing developments and clearer indication marketing intentions C_H_I_N_A. PakN/A 52. Trading activity _T_U_R_K_E_Y_ (USD tdy TL 1688.50. Rep.. Weather conditions _P_A_R_A_G_U_A_Y_ remain excellent.90 56.496 ECU'S per 100 kilos to 55. Good rains now fallen in Formosa and Santa Fe regions _A_R_G_E_N_T_I_N_A_. as a result of bids received at last Thursday's tender. Limited demand in evidence _ _ _ _ _ _ centered mainly on US descriptions.25 cent to 45.0) 2420 (83. Planting operations _ _ _ _ _ _ _ _ _ _ _advancing well in generally satisfactory weather..0) 1.53) remains of moderate proportions both Adana and Izmir with tdy's turnover latter market placed around 1.50 (84.

International Futures and Commodities Institute (IFCI).Source: Liverpool Cotton Services Limited. but not the obligation.Exercise prices (usually at least 3 are available for a given expiration date).Contract volume. options with life spans of more than one year are rarely available).Expiration dates (mostly up to six months or one year. Terminology The underlying asset is the commodity or financial instrument that can be bought or sold using the option. Options positions Option holder Option writer Pays the premium Receives the premium Has the right. The exercise price is the price at which the underlying asset can be bought or sold by exercising the option. . . What is an option? An option is a bilateral contract giving its holder the right. Staub. Exchange traded option contracts are standardized in terms of . .a specified asset .at a specified price .Delivery/settlement procedures (clearing house). Technical note: A short introduction to exchange traded options* * Lecture outline presented by W. but not the obligation to buy (sell) . to Has the obligation to deliver (take delivery of) the underlying asset .at or up to a specified date. The expiration date determines the rime during which the option can be exercised.

but not the obligation to buy the underlying asset at the exercise price until the expiration date  Call writer receives the premium and takes the obligation to deliver the underlying asset against payment of the exercise price if the call holder decides to exercise. the same expiration date and are of the same style (in other words. . Example: a call Jul 420 Gold Call and a Sept 400 Gold Call belong to the same class.Options giving their holder the right to buy (call) . Call and put There are two types of options: .Two options belong to the same series if they have the same underlying asset. Buying and writing puts Put buyer pays the premium and obtains the right.exercise the option if the option holder chooses to exercise. if they are identical). American and European options A European option can only be exercised by its holder at (or during a short period before) the expiration date.  Put writer receives the premium and takes the obligation to take delivery of the underlying asset and pay the exercise price if the call holder decides to exercise. . class and series . the same exercise price.There are two types of options: calls and puts.Two options belong to the same class if they have the same underlying asset and are of the same type. but not the obligation to sell the underlying asset at the exercise price until the expiration date.Options giving their holder the right to sell (put) Buying and writing calls Call buyer pays the premium and obtains the right. Option type. Date of purchase European option Expiration date  Exercise day .

same exercise price .To write an option: establish a short options position ...same expiration date (i. by buying an identical call .same options exchange .. profit of 2 x 100 x $20 = $400 Drawing a profit/loss diagram Objective: .An American option can be exercised by its holder at any time up to the expiration date. Offsetting an options position before expiration Long call Long put .same underlying asset ... same options series) Example 2 July: Sale of 2 Gold Sep 400 Calls for a premium of $20  Short position of 2 Gold Sep 400 Calls 20 July: Purchase of 2 Gold Sep 400 Calls for a premium of $15  No obligation (position closed). through the sale of an identical call .. Date of American option Expiration date Exercise period The four basic options positions Depending on his view of the market. the investor can choose among four basic options positions By buying a call: By buying a put: Long call Long put By making a short sale of a call: By making a short sale of a put: Short call Short put Terminology: .. through the sale of an identical put Short call Short put .e. by buying an identical put "Identical" is to say: ..Option writer: person who has (establishes) a short options position.

Profit/loss diagram for a long call Profit/loss diagram for a short call Profit/loss diagram for a long put Profit/loss diagram for a short put Summary .Supposing that the position is kept up to the expiration date.The four basic options positions Characteristics of basic options positions Expectations regarding the future price of the underlying: Futures Call options Put options Bearish "Short" "Short" Long Bullish Long Long "Short" . represent profit/loss for all prices of the underlying at expiration.

Profit and loss potential: Long call Short call Long put Short put Profit potential Unlimited Limited Practically unlimited* Limited Loss potential Limited Unlimited Limited Practically unlimited* * In the case of the put we use the expression "practically unlimited" because the price of the underlying cannot fall below zero. Should it be negative.Exercise price (If the figure is positive. which means that the profit/loss potential is limited although substantial. the intrinsic value is equal to zero. It is always positive.Price of underlying (If the figure is positive. (for a put) the exercise price is lower than the price of the underlying.) Put intrinsic value = Exercise price . Should it be negative. An option is at-the-money if the exercise price is equal to the price of the underlying. Intrinsic value is equal to zero. An option is out-of-the-money if (for a call) the exercise price is higher than the price of the underlying.) In-the-money At-the-money Out-of-the-money An option is in-the-money if it has intrinsic value. the intrinsic value is equal to zero. Components of the option premium Option premium = intrinsic value + time value Time value The intrinsic value of an option is the profit the option holder would make if he decided to exercise his option immediately. Call intrinsic value = Price of underlying . Price of underlying lower than Price of underlying equal to Price of underlying higher than exercise price exercise price exercise price Call out-of-the-money at-the-money in-the-money Put in-the-money at-the-money out-of-the-money In-the-money At-the-money Out-of-the-money CALL .

e. However. time is not the only factor affecting the time value of an option. the time value is necessarily equal to zero. the premium equals the option's intrinsic value. .In-the-money At-the-money Out-of-the-money Put Time value Option price . i.Intrinsic value = Time value At expiration. the higher the time value. The longer the time to expiration.

Dividends/Yield 6 . The price of underlying asset .Time value Factors influencing the option premium 1 . the value of an option is lower the closer the expiration date.Time 2 .The price of the underlying asset 3 .Price volatility of the underlying asset 5 .The interest rate Time All other factors remaining equal.The exercise price of the option 4 . The loss of time value is faster as the expiration date approaches.

Call The higher the price of the underlying asset. Put . the higher the option premium.

Put . the lower its premium. the lower the option premium. the option premium is close to the intrinsic value of the option. Exercise price .e. the higher the exercise price of a call.Call Comparing two calls with the same underlying asset.The higher the price of the underlying asset. the lower is its time value. The more the options is in-the-money or out-of-the-money. i.

the higher the likelihood that the option will end up in-the-money. the higher the premium. therefore.Comparing two puts with the same underlying asset. Volatility of the underlying asset The higher the price volatility of the underlying asset. Call Put . the higher the exercise price of a put. the higher its premium.

275 520 105 Est vol 2. The higher the "riskless interest rate"..00 Open Interest 7.62 150..95 125.37. .43 125. Lifetime Open High Low Settle Change High Low COFFEE (CSCE) ... Lifetime Open .80 +0.467 8...98 +0.16 150. Dec 126..0 125. . October 1988.) Summary .13 +0.. . -319. 123.25 127.70 126.50 112.50 -1. . cents per lb..75 112.684 2. vol Tues 5.70 125.00 126..500 lbs.00 Mr 89 126. (The impact of day-to-day interest rate fluctuation can be neglected for practical purposes.Factors affecting the option premium Call premium Put premium + + Longer time to expiration + Higher price of underlying + + Higher volatility of underlying + Higher exercise price + Higher interest rate + Dividend Examples of coffee.183.50 114. the lower the put premium.00 114..434.86 126.88 143.70 125. sugar and cotton options* Source: Futures and Options World. open int 20... Chicago.77 -0.Interest rate The higher the "riskless interest rate".51 129.44 May 125.25 101.132 1.00 Sept .52 145. the higher the call premium. 125.00 Dec .25 118.760.40 125.90 125.85 150.70 124.13 July 124.28 +0.

GOLD (EOE) .50 50. Ja 89 21..00 22. cents per lb.12 +0.130 Nov . .27 68.30 55.275 July 22.90 May 55.00 42.66 9.574.65 55.20 8.38 10..20 70.475 12.50 42.00 42.42 +0.80 21.97 -0. Examples of gold and silver futures options* Source: Futures and Options World.00 34.00 440 0.62 56. open int 7.10 6.60 21.81 10.00 0.90 +0.01 22.10 15.25 14.01 22. 9.80 -0.80 1.051..50 7.000..00 10.59 2.112.38 9.87 24.50 50. 78..876.10 troy ounces..Last Puts .000 lbs.26 Oct 55.557 3.152.64 7.65 Mr 89 55.16 +0.93 9.00 22.20 48.061 Mar 21.07 +0. cents per lb.80 30.40 5..60 21.29 9.00 52. .000 lbs.21 13.36 +0.45 9.DOMESTIC (CSCE) .103 902 3.53 9.90 48.83 10.15 55.00 +0.92 55.75 259 Est vol 10. -698.. ..92 +0.216 May 9.00 23.62 379 Est vol.852.75 102 Mar 10.00 4.16 55.00 420 4.07 10..65 56.75 +0.50 21.30 2.00 9.40 8. +64. open int 35.80 56.17 9.WORLD (CSCE) .46 55.00 460 0.01 22.112.52 65. vol Tues 287.29 9.. vol Tues 5.79 21. . .54 9.60 21.452 3.50.75 Open Interest 12. . dollars per troy ounce) Strike Calls .80 55.79 9. Dec 54.03 July 55.35 Dec 55. Lifetime Open High Low Settle Change High Low COTTON (CTN) .50 400 23.80 4..00 42. 21.45 65.10 65..30 8.00 22.80 777 Sept 22.952 May . Chicago.000 lbs. 22.00 Call volume: 325 contracts Call open interest: 21170 .686 July 9.95 55.00 22.35 68.01 .08 22. Lifetime Open Open High Low Settle Change High Low Interest SUGAR . October 1988. vol Tues 6.24 13.00 7.35 55.. open int 114.75 1..00 18.50 13.355 Est vol 5.00 22..00 17.60 21.Open High Low Settle Change High Low Interest SUGAR .65 55.70 8.95 1..70 49.85 +0.60 ...Last Price Nov Feb May Nov Feb May 390 32.39 7.87 +0.80 21. 21.90 55..01 22.25 13.332.10 10.81 -0.68 9.60 21.66 73.01 22..678 Oct 9.00 0.90 +0.01 22.29 54.44 21.00 43. Jan .50 5.. 22..79 +0.73 49..90 55.40 55.12 9.10 55..60 21.897 Mr 90 9. cents per lb. -451.50 21.

15.Last Price Dec-c Mar-c 600 58.000.70 Est.000 troy ounces.0 70.0 33.90 10.0 Est. 2.0 27. Tues vol.40 22.50 15. 49.0 49.90 22.50 12.1 5. 721 puts Open interest Tues.10 3.00 410 14.70 29. 4.60 25.20 10.5 41.5 57.0 675 1.90 1.0 700 0.608 calls.Last Puts .0 3.00 11.9 25.0 74. 67. 3.80 23. Tues vol.30 430 0.20 5.30 420 5.00 Mar Jun Sep Dec hours delivery c 8.5 725 0.406 calls.0 May-c 92.Last Price Dec Mar Jun Dec Mar Jun 550 110 125 140 5 10 10 600 60 75 100 10 20 25 650 30 55 65 35 45 50 700 14 30 50 75 75 80 750 12 25 40 125 125 130 Call volume: 0 contracts Call open interest: 1939 Put volume: 0 contracts Put open interest: 934 GOLD (CMX) 100 troy ounces.Last Dec-p Feb-p Apr-p 0.90 450 0. 2.Put volume: 35 contracts Put open interest: 12489 SILVER (EOE) .70 15. 50.Last Price Dec-c Feb-c 400 24.7 33.305 calls.2 19.000.0 18.00 440 0.5 11.20-14.0 18.10 2.116 puts Open interest Tues.0 650 11.60 SILVER (CMX) 5.099 calls.10 8.90 23.0 Examples of futures and options quotations FUTURES US Dollar Index size tick size months $500 x index $ 5.952 puts Puts .10 0.0 19.40 .40 16.5 0.0 40.0 43.0 77.0 42.620 puts Puts .80 31. cents per troy ounce Strike Calls .20 4.0 59. vol.0 51.5 625 33.80 8.00 Apr-c 37.5 34.5 11.Last Dec-p Mar-p May-p 0.70 16.250 troy ounces.5 59. 2.0 75.10 3. vol. dollars per troy ounce Strike Calls .30 6.70 15.0 67.00 5. cents per troy ounce) Strike Calls .60 5.

paid in advance. 1.000 $10.1 A FUTURE is a legally binding contract to deliver/take delivery on a specified date of a given quality and quantity of a commodity at an agreed price.000 lbs 15.000 lbs 15. Prices for grain and cotton were very unstable. In 1865 the Chicago Board of Trade began collecting INITIAL MARGIN and VARIATION MARGIN to make sure that speculators fulfilled their obligations. .000 50. Liverpool.00 10.00 10.00 $15.00 $15. City University of London. 1.30-15. In 1876 a system of CLEARING was devised and the organization to do this was at first the Cotton Brokers' Bank (1878) and merged into the Liverpool Cotton Association in 1882.45 8. The variation margin is one day's actual loss (or gain). paid in arrears.20-15.000 lbs $500 x index $100.00 $ 7. The initial margin is enough money.50 $ 5.45 a forward contract the two parties have to trust each other. Introduction 1. 1.000 lbs 50.20-14.625 Mar Jun Sep Dec Mar Jun Sep Dec Mar May Jul Oct Dec Jan Mar May Jul Sep Nov Mar May Jul Oct Dec Jan Mar May Jul Sep Nov Mar Jun Sep Dec Mar Jun Sep Dec 8. whereas the collection of margins on a futures contract removes all credit.4 What distinguishes a futures contract from a forward contract? (i) CREDIT .00 p p p p f f f f All NYCE's financial contracts are traded on Finex.000 $100.30-15.45-14. Original version written by Dr.Ecu Five Year US Treasury notes Cotton Orange juice OPTIONS Cotton Orange juice US Dollar Index Five Year US Treasury notes Ecu 100. Source: New York Cotton Exchange. Gordon Gemmill.625 $ 5.00 10. Futures and hedging trading in cotton * * Paper adapted and presented by a staff member of the International Institute for Cotton. 1. to cover one day's potential loss.20-15.3 By 1867 there was a large market in Liverpool in "cargoes to arrive" and in 1869 the Cotton Brokers' Association had published rules for "contracts in cargoes to arrive".40 8.00 $ 7. the exchange's financial instruments subsidiary.20-14.2 Futures trading began during the American Civil War.40 8.50 $ 5. Business School.15-14.

system of payment. cocoa. oil Paris Sydney Kuala Lumpur Hong Kong 1.12 63.sugar.forward prices are not always known.grains.94 61.(ii) STANDARDIZATION . dosing prices.most futures contracts are not delivered. location.forward contracts have terms to suit the two parties. whereas futures prices are published.30 63. but re-sold (or repurchased) prior to delivery because their purpose is to cover price-changes rather than to obtain the goods.80 64.000 lb contract. coffee. (iv) PURPOSE OF TRADE . 5.02 . etc. cocoa. prices in cents per lb) July Oct Dec March May July 62.5 Where are the futures markets? Chicago . oil London . delivery month. whereas futures contracts specify a standard quality.sugar. soyabeans.6. cattle. COTTON. coffee.6 What do futures prices "Look Like"? New York Cotton Exchange. 1. pigs New York . (iii) PUBLIC PRICES .85 (50.55 62.

. Arbitrages Arbitrages are riskless trades which bring prices to their "correct" levels. buy futures in London. The concept of basis strengthening can be summarized as the basis becomes more positive. .1 Time arbitrage "Cash and carry" March 20 buy spot cotton at $0.2 Space arbitrage Not possible in cotton. 5. The concept of basis weakening can be summarized as the basis becomes more negative. The basis can be either positive or negative.5.03/lb i.5990 and sell July futures at $0. sell futures in New York and hope to make a profit on difference in prices. 5. BASIS = CASH PRICE minus FUTURES PRICE. 5.00 %.less storage costs You would do this if storage costs were less than 5 % over the 4 months.6290 July 31 deliver cotton gain = $0.e. In other products. The basis The term "basis" is used to describe the difference between the price of the commodity in the actual market and the price of the futures contract in the same commodity.

The distance-associated component of the basis may be described as the costs of transporting the physical commodity to a different location. Is the price sufficiently volatile? 3. availability of transportation facilities and unexpected factors such as labour disputes may result in a difference between the cash price and the futures price.1 Simple trade . Trade occurs around "rings" or "pies" and traders shout bids and offers to each other across the middle. Is the cash market large enough? 2. The time-associated component of the basis may be described as the costs of carrying the physical commodity for a future date. The Clearing House is responsible for collecting the initial margin from each buyer and seller and collects/pays out variation margin every day. Speculation (trading) with futures 4. Are there enough independent buyers and sellers? 4. Costs of carry consist of the costs of storage. interest. Changing supply and demand factors in different local markets. The basis is generally more predictable than both cash prices and futures prices. 2. The Clearing House is also responsible for organizing delivery of the goods and payment. insurance. 3. 3. Each member of a market acts as a clearing house to his own customers. * The distance-associated component. Why some commodities have futures and others none 1. Changes in the cash price and the futures price of a commodity: have a tendency to move in concert with each other. Can the commodity be standardized? 5. Organization of futures markets 1. Are existing forward contracts flexible enough anyway? 4. Transportation costs reflect the fact that the commodity may be produced in a location different from that where it is delivered.The basis is comprised of two components: * The time-associated component. calling them for margin as required. Fluctuations in the basis tend to be less volatile than fluctuations in cash and futures prices. etc. 2.

94 + $ 61. Facilitates the flow and transfer of funds. The futures exchange determines the daily settlement price for each contract traded.g.01 x 10 x 50.$ 62.00 buy 1 lot October at $ 58.expect October to rise relative to July March 1 sell 1 lot July at $ 60.500/lot. so $ 15.View . The role of the Clearing House Daily settlement and marking-to-the-market 1. 2.59/lb gain = $ 0.01/lb on 10 lots = $ 0. 3.21/lb 4.40 June 5 buy 1 lot July at $ 62. The clearing house uses the daily settlement price to credit the accounts of clearing members showing a net gain on their positions as a result of favourable price movements. The principle of daily cash settlement permits the trader to withdraw any profit resulting from his futures trading on a daily basis. Assures the financial integrity of the market.3 Spreads between commodities Some traders do "exotic" spreads (which are really just two trades).000 total) (value of cotton controlled = $ 30.000) March 20 buy 10 lots July at $ 0.000 4.55 gain = $ 60.$ 58. Administers daily evaluation and settlement of profits and losses.expect July price to fall March 1 sell 10 lots July at 60.00 cents/lb (each lot is 50. "Yellow Toyota" = sell Japanese yen/buy corn. Provides a mechanism for delivery or cash settlement. e.55 . and debit the accounts of clearing members showing a net loss due to adverse price movements.00 . 5.2 Spread between months View .94 sell 1 lot October at $ 61.000 lb) (initial margin = $ 1. Acts as a counter party to the futures contract.40/lb = $ 0.000 = $ 5. . 4.000 x 10 = $ 300.

80 High 55. This is a feature of exchanges on which instruments that cannot be owned or deposited are traded.051.29 55. 5.10 55. 3.90 +45 56.16 55. Assures the financial integrity of the market by guaranteeing the contract.80 55.35 May 55. matching the data of executed buy and sell trades (and updating positions).65 55.876. Order flow and matching of trades.30 55. open int 35.87 +27 55. Clearing and position keeping. 4. vol Tues 5. acts as the counter party to the futures contract.46 55. one must understand two parts of the system: 1. You know that in 3 months you will have to sell a large amount of cotton to meet the cash needs of the company.000 LBS.07 +52 Est vol 5. The role of the Clearing House A Clearing House provides 5 essential services: 1. 2.92 Mar 89 55. Provides a system of daily evaluation and settlement of profits and losses.MARKING TO THE MARKET COTTON (CTN) 50.60 56. Risk and inventory management You are the manager of a cotton trading company. severing the link between the buyer and seller and permitting a trader to conduct an offsetting transaction without having to locate and obtain the agreement of the original party.90 Dec 55.15 Low 54. Thus: .000. Upon the execution of an order. CENTS PER LB. Provides a mechanism for delivery or cash settlement.90 56. To understand the functioning of a futures exchange.40 July 55. 2.16 +20 55.95 56.75 +35 55. Open Dec 54.65 Oct 55. -698. Facilitates the flow and transfer of funds.85 +10 55.62 Settle Change 55.

00 Sell futures at $ 60. futures at $ 62. As a result of the hedge: If the cotton market drops. futures at $62. Your risk is a decline in the cotton market.00 Futures market Buys N. It released him from the necessity of a "back-to-back" deal.00 Sells futures at $63.Institutional investors .Y.00 gain = $1.00 May Buy cotton at $61. Hedging 6.1 Merchant's hedge Cash market Mar 1 Merchant agrees to sell cotton to manufacturer for August delivery at $63.50 (market has risen) 10 loss = $1. you avoid a loss.Individual investors Trading floor participants: . You place a short hedge by selling cotton futures. Expected price is $ 63. 6. If the cotton market rises.50 Mar Buys cotton needed at cif equivalent price of $64.Private/public enterprises .50 .Locals: trade on their own account (provide greater liquidity). you are unable to profit. What he lost on the cash market. .50 1 gain = $ 1.2 Consumer hedge Cash market Mar Manufacturer has an order for July which requires cotton to be bought in 1 May. You can hedge this risk with cotton futures.00 The futures contract was used as a temporary substitute for a cash-market purchase by the merchant.50 loss = $ 1. 6. The trading process and market participants Market participants: . he recouped on the futures market.Y.Floor brokers: Execute orders for non-members as their agent.You have a long position in the cash market.50 Futures market Buy N.

in these or other cash-.50 on futures). because the price will go further.2 They allow hedging to occur (insurance).62$ 0. and it should not be relied upon as such. Opinions expressed are our present opinions only. Do futures markets matter? 8.prices (they claim) tend to remain in narrow bands. or not.The manufacturer was worried that prices might rise. Their decisions are based upon rules such as: 5-day versus 3-day moving averages of prices trend lines . Sideways. Technical analysis per closing Oct 31. the 9-week consolidation-pattern is bearish (rising wedge): . N. long-term forecasts of prices. but once they "break-out" then buy/sell.Y.and options-markets. We may have positions. 7. by using the futures market he was able to lock-in the price of $ 63. PRICE is then forecast as a function of: CLOSING STOCKS/CONSUMPTION 7. The material is based upon information which we consider reliable but we do not represent (hat it is accurate or complete. 8. however.50 paid in May plus loss o $ 1. whereas they actually fell. They concentrate on forecasting CLOSING STOCKS from SUPPLY. 1988 * * This material is for your private information. Cotton (December 88) Main-trend: (2030 weeks) Short-term trend: (20-30 Bearish.00 on 1 March (== $ 61. Forecasting the futures price 7. based upon the "fundamentals" of supply and demand. buy and sell.00."if price rises 5 % buy and follow trend" support and resistance . you should watch futures prices as an indicator of supply/demand balance. and we are not soliciting any action based on it. 8.1 Fundamental analysis Fundamental analysts make medium.63 per lb.65.2 Technical analysis Technical analysts make short-term (one hour to two weeks) forecasts based only upon the recent movement of the price. DEMAND and OPENING STOCKS. Even if you do not use futures.1 They help to determine the "correct" price for a commodity. with a target of $ 45. with a target of $ 57. such as $ 0. Nevertheless.

$ 60. $ 2nd resistance 60.65 activates a $ 59. If stopped out.75 target range.50.Closing above $ 57.00.75 range.6S $ Minor resistance 56. .00 .75 $ 1st resistance 37. with a protective stop above $ 57.65 (basis close).60 $ NY close Oct 31 55.$ 60.Closing below $ 53.) Trading-strategy: Work from the short side (top-picking) along the major bearish trend.50. (Failure to confirm the rally highs.55 reconfirms the long-term target of $ 45. go short again in the $ 59. Technical are starting to display bearish divergences as compared to the most recent priceindicators: action.60 $ 1st support 54.days) .75 2nd support $ 53.55 $ 3rd support 52.

A.94 70.2 5 92.00 136.76 65. 1825 Eye Street N.4 6 85.S.00 p 10. 85 79.80 103.65 75.5 0 101.17 3 72. ½ s SM FG MM Turk ey Izmir (12 MIR) SM Austral 1½ ian M U. Pakist Guatem U.8 2 72.20-15. A.S.625 months Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar May Jul Oct Dec Jan Mar May Jul Sep Nov Mar May Jul Oct Dec Jan Mar May Jul Sep Nov Mar Jun Sep Dec Mar Jun Sep Dec hours delivery c 8.00 10.94 66.45 p 10.41 89.000 lbs $5.25 96.) Cro p Yea r (Au g.20-15.86 86.49 84.23 75.14 84.45-14.89 92.40 8.000 lbs $5.02 88.INC.7 9 63.23 83.July ) 197 8-79 197 9-80 198 0-81 198 1-82 M1" SM 1 1/10 .08 77. Texa Sind Terr.55 73. NY 10048 Tel: (212) 958-2650 Tlx: 961312 Fax: (212) 839-8061 FUTURES US Dollar Index Ecu Five Year US Treasury notes Cocoa Orange juice OPTIONS Cocoa Orange juice US Dollar Index Five Year US Treasury notes size tick size $500 * index $5.50 50.33 90.63 93. 20006 (202) 466-5460 New York Cotton Exchange New York Cotton Exchange Four World Trade Center New York.00 15.Suite 1040 Washington.20-14.FUTURES INDUSTRY ASSOCIATION . 00 79.6 9 101.2 C.80 137.28 72.W.00 $100. the exchange's financial instruments subsidiary.C.625 50.21 87.I.15-14. 1 3/32 Calif .9 9 90.S. D.36 75.6 94.00 p 10.00 115.00 $100.00 15.40 8.00 f f f f All NYCE's financial contracts are traded on Finex.0 8 83. .000 $15. COTTON CASH PRICE UNITED STATE Average Spot Cotton Prices.000 lbs $7.23 83.87 72.46 6 76.T. 1 1/10 3 1/32 No. c/Lb.50 $500 * index $5.45 8.30-15.3 85.20-14.6 5 73.000 lbs $7. Gree Egyp Mexi Nicara Syri USSR Tanza Orlea an ala SM Memp ce t co gua SM a Pervy nia ns N.F. 77.20-14.000 $15.3/32 U S.5 5 .91 92.7 75.000 $10.30 81.30-15.52 83.33 7 101.00 Ecu 100.40 p 8.09 72. Northern Europe In Cents Per Pound (Equivalent U.47 72. his SM Giza SM SM i.

20 54.00 54.81 66.05 37.143 11.245 14.41 75.94 34.1 75.32 136. 1 Sept 1 Oct 1 NOV.2 7 38. 1 466 451 445 435 451 463 506 495 500 503 523 520 462 425 429 418 421 420 497 525 5238 535 534 547 461 421 419 408 411 404 515 540 540 543 546 543 563 569 587 605 613 590 503 501 487 504 506 508 583 615 620 613 610 600 638 632 633 644 644 630 573 565 539 546 539 Year 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1985 1 Net Weight bales. '86 Oct.02 N.0 76.820 11. 1 Oct. Dec.94 85. 1 Dec.476 15. N.39 75.02 70.20 65.25 43.0 68.96 51.544 14. Per Harv.55 40. Apr.75 36.75 Preliminary.0 90.70 87.7 0 36.535 13. 81.102 7.776 7.38 77.8 5 8 8 47.98 111. '86 Sept .689 11.953 7. y Range 1980 High 67.676 10.42 86.0 69.638 13.496 11.A.30 44.74 110.981 10.06 46.7 5 52.272 13.0 70.A. Source: International Cotton Advisory Commerce Cotton "2" NYCE United States Government Crop Forecasts and Actual Cotton Crops Forecast of Production (1.44 76.0 48. U.875 13.09 94.3 5 41.734 10.982 13.44 27.7 94.000 Bales of 480 Lbs.59 78.34 29.0 91. Jan.856 14.80 111.497 7. 1 10.0 6 58.733 11.310 10.1 71.224 11.4 86.780 13.14 86.15 45. Acre Aug.365 11.80 43.771 12.00 111.50 50.37 134.44 46.725 12. May Deliver y e .271 13.1) Aug 1 Sept.70 0 0 0 5 0 0 0 0 0 0 0 2 0 0 0 .2 59.00 44. Nov.62 50. Low & Closing Prices of May Cotton Futures at New York In Cents per Pound Year Year Prior of Delivery Delivery Year Life of of Deliver Mar.55 37.00 54.7 66.792 Actual Crop 10.9 0 4 9 90.15 95.812 11.20 43.560 15.841 13.7 5 76.432 Forecasts of Yields Actual Yield (In Lbs.30 29.292 13.4 90.0 7 73.3 1 56. High.18 74. Apr. .302 13.00 87.589 11.0 7 87.710 14. '65 1 2 68.375 10.006 9.1 77.35 53.54 33.9 65.317 13.873 10.47 74.3 0 53. Feb.569 13.00 53.029 11.646 11.122 15.789 15.A.506 10.2 67.70 28.581 14.00 53.9 73.4 90.832 14.09 55.389 10.629 11.9 0 4 0 75.4 0 90.89 54.507 15.69 46.14 92.947 12.5 0 67.125 14.7 5 44.6 0 1 5 36.83 67.D.92 55.50 63.96 52. Sourer: Crop Reporting Board. Mar. Generally prompt shipment.251 9.7 5 43.276 13.264 13.4 84.7 87.9 0 44.85 111.875 9. 1 Nov.10 111.7 5 37.63 50.155 10. 1 Dec.810 7.527 12.S.356 14.4 84.198 2-83 198 3-84 198 4-85 198 5861 July '85 Aug.655 13.550 7.4 68. May Jun July Aug Sept Oct.891 10.11 65.

6 0 Clos 73.4 1 82.3 0 66.2 5 66.4 2 82.1 5 78.7 4 69.5 0 83.6 0 69.6 6 82.0 5 66.0 0 37.0 0 90.4 8 59.7 0 78.2 0 65.3 0 82.8 0 80.3 0 70.4 0 65.6 5 64.3 5 90.0 e 0 64.6 0 33.0 8 82.2 0 66.2 0 76.2 0 67.2 0 81.6 0 80.4 0 66.9 6 70.3 0 75.2 0 83.4 5 76.0 0 79.8 0 82.15 97.5 0 81.3 7 96.1 1 65.4 0 95.7 0 66.7 0 79.7 e 4 High 67.2 0 94.5 0 73.9 2 75.0 0 60.0 0 79.9 0 82.7 5 Clos 84.9 7 65.7 0 63.9 5 63.7 0 68.1 5 72.6 e 5 High 80.1 2 66.6 2 63.6 0 75.1 3 68.2 5 83.9 0 45.0 0 75.6 5 64.6 0 58.3 2 60.4 2 70.6 5 61.26 70.2 5 69.2 0 64.0 0 68.9 3 64.4 5 78.6 5 72.0 0 90.4 5 69.4 5 69.9 0 59.8 0 81.3 5 78.0 0 75.8 5 Low 77.5 e 5 High 46.7 7 93.3 0 69.4 8 48.3 4 50.0 0 Clos 65.7 0 96.6 0 83.3 9 60.7 7 93.2 5 80.7 7 71.5 2 65.2 5 31.6 0 Low 74.7 0 81.7 5 64.5 4 77.6 6 66.4 0 67.9 5 65.7 0 65.2 5 74.0 3 84.3 5 Clos 67.0 5 85.0 0 68.5 5 61.1 5 66.9 6 46.3 5 52.4 5 77.5 5 66.2 5 60.0 0 67.0 5 85.5 0 67.5 0 81.4 5 64.6 9 79.7 0 Low 40.1 8 64.4 0 65.9 0 Low 82.3 0 75.9 5 97.7 0 81.1 0 79.3 0 40.3 5 83.5 0 73.1 5 75.9 0 68.5 6 34.1 0 59.5 0 69.0 5 38.4 4 47.5 5 69.5 0 63.0 9 66.0 5 78.3 0 80.8 0 78.0 0 67.2 9 68.5 5 67.0 0 67.9 0 35.4 0 63.6 0 59.9 4 71.7 0 75.9 0 65.9 0 65.5 3 66.7 5 86.1 0 59.3 6 76.Y.75 79.3 0 60.9 0 59.5 0 82.5 0 69.8 0 60.2 5 73.2 2 93.9 0 83.9 0 67.80 - Source: N.6 0 67.6 5 Low 73.8 0 84.2 0 80.5 0 66.7 5 67.0 5 67.3 1 80.7 5 85.0 e 0 High 84.6 0 66.2 0 71.9 0 69.5 0 84.1 2 89.4 0 79.6 0 62.2 5 77.4 5 67.25 63.6 0 65.0 0 77.4 5 60.7 5 77.3 9 68.8 8 66.8 0 78.0 0 72.7 0 36.4 0 68.0 1 65.7 5 64.2 e 0 High 74.50 63.8 5 77.7 5 66.4 3 71.40 66.11 77.9 8 71.1981 1982 1983 1984 1985 1986 1987 Low 66.6 5 93.4 0 71.6 2 75.3 5 67.0 5 78.5 0 68.1 5 79.9 9 89.80 84.2 5 35.2 6 67.1 5 61.1 2 86.8 0 71.5 e 3 High 74.1 3 40.8 0 60.4 5 66.0 0 64.5 5 Low 66.7 9 74.1 0 66.7 6 63.3 2 81.1 5 78.2 5 73.4 0 66.6 0 82.4 0 78.5 0 52.6 0 63.6 2 68.50 65.0 0 75.5 0 74.5 1 47.9 5 62.4 5 64.5 0 Clos 74.9 2 76.5 0 83.4 2 74.00 87.2 0 71.6 0 69.5 0 Clos 41.7 5 52.8 1 66.6 7 87.1 5 65.2 7 79.2 5 60.2 0 90.9 0 69.4 0 32.4 0 38.6 6 63.5 0 74.0 0 63.5 2 41.4 5 68.3 0 77.6 0 74.8 5 62.1 4 67.3 3 78.2 5 63.3 0 33.2 6 71.9 5 60.9 0 66.0 0 73.4 2 67.7 3 63.4 0 73.2 5 65.3 9 70.8 0 63.8 5 63.9 5 65.9 0 63.7 0 Clos 81.6 7 88.55 58.7 5 62.1 5 74.9 8 66.7 0 86.9 0 76.5 5 36.6 0 74.3 6 69.7 4 68.0 0 64.5 0 Clos 77.0 6 59.2 0 80.6 5 80.8 0 67.2 5 63.5 0 78. Cotton Exchange .5 0 60.3 3 68.2 8 64.4 5 77.8 e 0 High 81.0 0 83.2 0 83.2 0 78.3 0 75.7 0 92.1 0 65.7 4 73.6 0 Low 70.2 5 71.5 5 38.2 5 67.9 2 79.7 5 74.4 0 68.6 0 68.0 8 70.3 0 69.4 0 81.7 0 86.4 0 75.6 6 81.67 71.

112 Apr.165 28.386 25. 290. 286.433 74.65 121. 38.078 30.531 20.61 7 3 9 90. Mar.025 130.596 24.13 3 150.24 2 97. Total 278.534 Dec.Y. Techniques for carrying out global marketing research and defining competition and market entry strategies are presented.691 34.545 94.544 32.11 94.014 23.187 1. 54.604 41.47 90.011 23.753 26.98 111.54 224.109 34.406 Oct.034 191.596 14.29 7 103.433 31. Nov.652 30.742 75.560 57.052 33.665 35.98 111. 206.230 36.046 63.30 1 99.239 15.196 20.108 31. 57.276 27.618 1.121 27.1 2 17 66.859 24.419 21.711 26.597 63.651 22.83 89.793 27. Cotton Exchange Volume of Trading of Cotton Futures at New York In Contracts Yea r 198 0 198 1 198 2 198 3 198 4 198 5 198 6 Jan.03 2 127.861 27.035 Source: N.312 96.522 8 0 47.246 19.402 21.631 173.381 22.29 2 104.61 2 3 5 95.747 55.137 26.212 18.44 4 123.321 Aug.4 1 3 47 115.660 20.026 30.05 71.702 June 27.152 57.39 175.492 73. Dec.674 101. 45.956 120.208 29.015.75 0 2 9 51.95 153.73 133.931 Apr.69 7 139.569 16.65 3 106.175 9 95.814 30.06 128.547 22.070 29. .Y. introduces the concepts associated with global marketing.479 64.584 26.985 1.729 39.211 23.44 7 126.13 2.24 99. Product pricing. cultural.624 Mar.988 1. 44.326 Feb.782 31.2 9 6 2 50 Source: N.576 20.524 42.550.678 20.78 0 65.642 Sept.11 3 2 6 139. This text.286 24.543 636.947 Feb.101 20.941 39.121 May 31.272 22.93 143.069 188. 35.740 34. Oct.44 8 61.Month-End Open Interest of Cotton Futures at New York In Contracts Year 1980 1981 1982 1983 1984 1985 1986 Jan.576 77.2 02 137.69 2 132.255.597 151.047 31. Global agricultural marketing management.97 113.370 32.35 113.748 23.568 19.137.81 54. 40. 49.32 186.523. and logistics and control aspects of global marketing are presented.046 32.758 16.990 29.505 July 39.363 23.90 1 166.961 21.461 23.1 41 40. This text should be of use to all involved in planning or undertaking global marketing in the corporate sector as well as to educational and training institutions preparing people to engage in export marketing. promotion and distribution issues are reviewed.581 30.675 33.060 17.68 2 117.286 29.022 26.415.157 117.432 Nov.519 63.422 33.606 47.30 3 100.829 51. Cotton Exchange This is the third of four texts on marketing and agribusiness prepared by an FAO project for use in universities and colleges.265 9 156.978 31.907 1. highlighting the importance of understanding the economic.06 116.671 26.62 0 124.734 19.709 May June July Aug.520 54. legal and political environment in planning and undertaking global marketing. in specialist courses for students or in short courses given to industry staff.21 8 1 139.06 173. 46. Sept.790 23.949 30.89 5 1 61.614 21.05 8 156.009 24.2 3 13 98.

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