Course Introduction and Lecture slides for "Practice of International Trade", Department of International Business, Tunghai University. Utilizing the Export Import Management System V. 2.0 from JAI International (USA).
Separation of Lanthanides/ Lanthanides and Actinides
Practice of International Trade EIMSO2 Lecture V3
1. Export Management System Online www.eimso2.com Developed by: Dr. Basil J. Janavaras Professor of International Business Minnesota State University, Mankato, USA funded by Tunghai International Business for the Practice of International Business Course
2. Suggestions to Start: Preview all four Modules to see the big picture Print & review our Case Example (Select Bedding) Review Porters 5 Forces Model: eLearning Document (Mindspring) EIMSO link or International Business textbook Review SWOT Models: eLearning Document (Mindspring, Southwest Airlines) Management textbooks or online sources Print out & follow complete EIMSO User Guide (help)
4. Overview Choose Industry & Company Conduct internal analysis Determine international experience (if any) Conduct Porters 5 Forces analysis: evaluate the profitability or power dynamics of the specific industry Select a specific product line or service of the chosen company (to export) Analyze companies readiness to export Conduct a SWOT Analysis Evaluate your company’s competitive position Briefly state conclusions and recommendations for Module 1 Module 1: Company Situation Analysis
5. 1.1 Company Analysis (a) Background (b) Mission (c) Sales/Profits for 3 Years (d) International Strategies No. of countries (resources, risk, experience) Sales, Assets, HR Operating Subsidiaries (e) Intl. Situation Experience Motives Company Selection Choose a company that you know about or have an interest in Select one that has information readily available Public traded company or private one that you have a relationship with Try to find a company from Taiwan or Asia
6. Describes a companies movement into foreign markets: Concentration Strategy (low) Diversification Strategy (high) Many markets, quickly, and increasing resources gradually to all Expensive, requires extensive management for success Licensing / franchising entry strategies can reduce resource requirements one or a few foreign markets until it develops a strong competitive position there Less resource intensive Less risk intensive 1.1 d Corporate Level International Strategy
7. Prefer Prefer FactorBroad(Diversification) Narrow (Concentration) if: if: 1. Market growth rate low high 2. Market sales stability low high 3. Need for product adaptation low high 4. Need for promotion low high and distribution adaptation 5. Program control requirement low high 6. Resource Constraints low high Source: “Marketing Expansion Strategies in International Marketing,” Journal of Marketing, Spring 1979, p.89. Diversification vs. Concentration Strategies: Product and Market Factors
20. Global Structure (product, geography, function)1.2 International Involvement Organization Key: Export functions closer to the C.E.O show more resource, attention and commitment to international business
22. Indirect / Direct INDIRECT: Occurs when the exporting company uses an external organization located within the same country. May use a separate department to correspond, but does no engage in any international sales activities DIRECT: Direct sale to importer or buyer in foreign market. Merchants (take ownership) vs. Agents (do not)
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24. Today Foreign Sales % of Total Sales Foreign Assets % of Total Assets Overseas Subsidiaries % of total subsidiaries Geographic Dispersion of International operations Executive's International Experience How international the company can be? How international the company wants to be? 1.2a International Involvement Degrees/Gap Analysis Future Desire
29. Suppliers can limit your profits if they are powerful enough to dictate prices to you (E.g. Microsoft)
30. New entrants (competitors), often with lower cost structures and hungry for success can require you to increase investments/upgrades to maintain your position (E.g. Ryan Air UK, GolBrasil)
31. Substitute offers can someday lure your customers away (E.g. Magellan GPS vs. the iPhone or Blackberry)1.3 Industry Analysis
32. Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Rivalry among existing Competitors
33. Supplier & Buyer Power Supplier Power: how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you or the cost of switching from one to another. The fewer the supplier choices you have, and the more you and the more you need suppliers' help, the more powerful your suppliers are. Buyer Power: how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, they are often able to dictate terms to you.
34. Competitive Rivalry & Substitution Competitive Rivalry: The number and capability of your competitors – if you have many competitors, and they offer equally attractive products and services, then you’ll most likely have little power in the situation. If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
35. Threat of New Entry Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
36. Desire to gain market share puts pressure on prices downward Raises costs of Capital / Borrowing Therefore, the threat of new entry (competitors) puts a cap on the profit potential Barriers: Economies of scale Threat of New Entrants
37. Porters Five Forces New Entry Competitive Rivalry Suppliers Buyers Substitutions Worksheet
38. One of the least profitable industries because all five forces are strong: Established rivals: compete intensely on price (online reservation systems change continuously, Expedia, Travelocity, Bing) Customers are fickle, always searching for the lowest fare, regardless of carrier (airline independent – non loyal, miles only go so far) Suppliers; Plane (Boeing) and Engine Manufactures (GE, Pratt & Whitney) are few and strong, so are labor unions (highly trained employees) New Competitors enter the market every year Substitutes: HSR, Bus, Car Porters Five Forces Example: Commercial Aviation
40. A theory explaining the relationship between principals, such as a shareholders, and agents, such as a company'sexecutives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent reconcile different tolerances for risk. Agency Theory Who is your agent?
41. End User Description: Gender, Age, Income, Education, Frequency of Purchases Household Types (large, multi-family, singles) Differences between Domestic and Target Markets Customizations required (physical, energy, package, user guide) 1.4 Target Market Profile
49. Strengths = Internal to Company or Product Weaknesses = Internal to Company or Product Opportunities =external provided by market) Threats =external attacks from market forces Trends = What is happening over time (3-5 yrs) Provides us a better insight over time. 1.7 SWOT + “T”
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51. Brief summary of significant results or new insight based on analysis in this Module
56. Decision on what next steps to pursue (go – no go) and how new information may be useful in next step (need to pre-view Module 2)Conclusion and Recommendation
58. Research & Select Countries Select Criteria relevant to determine market success Determine a “weighted value” of importance for each criteria Conclusion and recommendations Report Generation Module 2 Agenda
59. Consider Module 1 Analysis: Choose 3-10 countries based on Product demand indicators or proxies Similar target market as domestic market Similar cultural and behavioral characteristics Positive economic and per capita income statistics Should indicate a high sales potential These countries become your “short list” From 230 to as few as three. Country Selection
75. Derived Marketing Data Estimate consumption based on GDP Use other countries as a guide If positive slope, tells us that GDP is important to demand Can be used for planning sales over time Emerging economies with changing GDP’s
76. Weighted Criteria Each criteria = X% Enter Year, unit of measure, and the value Should total 100% Positive criteria to demand don’t check box Negative impact on demand (e.g. unemployment, corruption), check box= √ Transparency International: http://www.transparency.org/ Survey: http://www.transparency.org/news_room/in_focus/2008/cpi2008/cpi_2008_table Country Evaluation
77. US Commercial Service www.export.gov Doing business in> www.doingbusinessin.org See EIMSO website resources CIA Factbook Yahoo.finance.com Sources
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79. Brief summary of significant results or new insight based on analysis in this Module
84. Decision on what next steps to pursue (go – no go) and how new information may be useful in next step (need to pre-view Module 3)Conclusion and Recommendation
89. Consider all sources of information: Government Trade offices (www.export.gov) Associations, Journals, Reports, Newspapers Provide leads or contact names. Trade Fair Schedules (by country) Names and coordinators of industry leads/contacts Distributors from online databases Alibaba, ebay, Make a list and prioritize from strong to weak. 3.1 Contacts
104. Consider differences in frequency or size of package or culture and buying habits (household, individual extended households)Selling price of the product (your estimate, can be changed) 3.2 Market and Company Sales Potential
109. Result is Total Market PotentialStart with detailed existing sales data for your competitors product Add up data from multiple competitors Result is Total Market Potential 3.2 Market Estimation Bottom Up Multiply TMP by your sales success percentage to get your estimated (forecast) sales number.
110. Total Potential Market x Success factor Estimate your sales achievement based on competitors distribution strategy Direct vs. non direct competitor sales is a key factor Direct have better success, typically Due to closeness and information exchange from producer to consumer 3.2 Market Estimation
111. A: Top three Export Competitors: See Module 1.2 for your original competitor list Choose one domestic and one international minimally Who is the most dangerous competitor? Local or international What are customers buying preferences (local or import)? 3.3 Competition
112. B: Export methods Refer to export method chart for competitors for each country – recall for your own strategy. C: Market Coverage National, regional or local/city market coverage D: Export methods by Competitor Choose known export methods for your competitor E: Final review of competitors by country The more direct their methods, the more difficult for our plan 3.3 Competition
113. Export regulations Country Entry Conditions Administrative to Infrastructure The Best Target Market Country Conclusion (summary) & Recommendations Module 3 Agenda (part II)
114. Determine if an Export License is required National security (e.g. cellular telephones, ATM’s) Shortage (e.g. rice in Vietnam during 2008) Search Google: “US Cellular Phone Export License” 3.4 Export Regulations
119. Consider the process for getting an import license (sometimes your distributor will do this), consider how difficult this task will be. Score 1 for difficult or 5 for less difficult
121. Score 1 for very high tariff’s or low quotas or 5 for low tariffs or no quotas.3.5a Country Entry Conditions
122. Convertibility of currency (e.g. can you exchange it easily and inexpensively at a bank) Score 1 if no, 5 if yes (favorable). Country’s current account standing (balance of payments) Score 1 if no, 5 if yes (favorable). Country’s currency is stable? Score 1 if no, 5 if yes (favorable). 3.5b Foreign Exchange Performance
123. Banking system is efficient, available, useful, helpful? Score 1 if no, 5 if yes (favorable). Energy reliability and accessibility? Score 1 if no, 5 if yes (favorable). Internet connections and availability (speed, performance) Score 1 if no, 5 if yes (favorable). Telecommunications systems & Transportation (highways, air cargo system, waterways, railways) Score 1 if no, 5 if yes (favorable). 3.5c Country Infrastructure
124. Regulated distribution channels, protection bias? Score 1 if no, 5 if yes (favorable). Channels provide national accessibility (geographic reach)? Score 1 if no, 5 if yes (favorable). Existing channels are capable to distribute our product? Score 1 if no, 5 if yes (favorable). “Capability Analysis” Others? 3.5d Market Channel Conditions
125. Is it easy to establish a presence (company, office)? Score 1 if no, 5 if yes (favorable). “Doing Business In” Country has anti-trust legislation (competition laws) in place? Score 1 if no, 5 if yes (favorable). Country is a member of the WTO? Score 1 if no, 5 if yes (favorable). Intellectual property protection & Level of corruption Score 1 if none, 5 if yes (favorable). 3.5e Legal Environment
127. More than just market numbers and costs (tariff’s & transportation) Include administrative realities & bureaucracy Include legal protection & distributor strength Include telecoms and transportation This weighting will calculate the best market based on all criteria you will rank (weight) 3.6 The best target market
130. Conclusion: A summary or important information for each section (at least the critical ones) Talk especially about unique factors or items which you do not agree with the computer results Recommendation: What choice your group will make regarding #1 country to export to (so far) 3.7 Prepare your Conclusion (summary) and Recommendation
136. Goals: To determine the most effective entry strategy and develop a marketing plan based on previous analysis of: Company goals, resources and strengths & weaknesses Product and target market, and Available distribution alternatives Topics: Entry Mode compared to company goals Product / Market Strategy Distribution Strategy Shipping Pricing and Payment Plans Promotion Projected Profit/Loss Statement 4.0 Module Introduction
137. Consider your realistic market entry options (likely export oriented) Estimate how each different entry mode would effect your sales success Estimate on a comparative basis to the other options Which are better, (higher score) which are worse (lower score) Enter your numerical ranking. This weighting will calculate the best entry option for you. 4.1 Entry Mode
138. Enter scores for each potantial market entry alternative 5 = good / favorable 1 = not good / unfavorable Ex. Would Corporate Owed Retail stores be good for sales? Only choose potential entry options. Consider how that entry alternative would impact sales. Also consider long term market knowledge development.
139. Entry Mode Choice Evaluation How would using “Company Owned Retail Sales” effect your export sales: 1= not well, 5 very well? How would using “Company Owned Retail Sales” effect your control over the export sales process? What effect would using “Company Owned Retail Sales have on your companies international experience? What effect would using “Company Owned Retail Sales have on your competitive capability? What effect would using “Company Owned Retail Sales have on your competitive capability? How would using “Company Owned Retail Sales” help
140. Calculate weights to find a quantitative ranking. Explain your choice in 4.1b. Speak about your best option, then remaining options.
141. Focus on your specific markets Enter data in sections that relate to your target market Add additional factors if not present E.g. “other” Place a check mark in activate box. Use the information from 4.2a section to complete 4.2c Describe the market using bullets Consider your target market, potential distributors and create a promotion plan Goal is what you will accomplish Objective is how you will do it Time is the date of completion 4.2 a, b, c Product / Market Strategy
142. Short sentence to describe target customer… Marketing goals should be very specific for your chosen target market Target market & marketing goals
144. Channel Issues Describe any specific licenses or known legal/admin threats with regard to distributors – this can be critical. Choose the best channel (check all that apply) Discuss the relative advantages and disadvantages from your top choices Remember, your top choice may not be interested Remember, your top choice may not be available - legal Remember, your top choice may not be capable – financial or technical 4.3 Distribution Strategy & Plan
145. Port of origin (EXW – Taichung, Taiwan) ExWorks [From Factory]– All risk to Buyer from Factory Determine the shipping origination (city, port). Port of destination (CIF – USSEA – Seattle, USA http://www.worldportsource.com/countries.php http://www.worldportsource.com/ports/CHL.php Transportation Carrier Costs Air Ocean Motor / Truck Rail 4.4a-c Shipping Details
147. Choose required shipping documents Based on your product and country and transportation Export Price List Commercial Invoice Bill of Lading Ocean Bill Shippers Export Declaration Dock Receipt Certificate of Origin See EIMSO for examples. Insurance Certificate Power of Attorney Pro Forma Invoice Packing Slip Air Bill Truck Bill of Lading Shippers Instructions 4.4d Documentation Requirements
149. Channel Issues Describe any specific licenses or known legal/admin threats with regard to distributors – this can be critical. Choose the best channels (check all that apply) Discuss the relative advantages and disadvantages from your top choices Remember, your top choice may not be interested Remember, your top choice may not be available - legal Remember, your top choice may not be capable – financial or technical 4.5 Pricing/Payment Methods
150. 4.5a-c Export Price EXW Taichung, Taiwan Price: Cost Plus Pricing (Fixed? + Variable + Profit) Decide if fixed costs are to be included or not based on weather there is existing unused factory capacity Seek data from online sources: “XXX manufacturing costs” iPhone example : http://www.dslreports.com/forum/r18978878-iPhone-manufacturing-cost Our tea example = No fixed costs to start, variable is $2=Profit is $3 Shipping Costs: Use from Section 4.3 Wholesale Price: Total Cost * Wholesale Markup Cost of Tea = US$5 * 50% Markup = US$7.50 Retail Price: Wholesale Price * Retail Markup Wholesale Price US$7.50 * 50% Markup = $11.25
151. ExWorks (Factory) Price 1,000 units. Cost (2) + Profit (3) Add -Shipping -Forwarder -Duties = Landed Cost in Country Enter Markup’s = 50% or so. Export Price
152. 4.5 d-e Terms of Sale & Payment Methods Determine INCOTERM for Shipping & Legal Responsibility issues E.g. EXW ExWorks, CIF Cargo Insurance Freight, FOB Free on Board Consider shipping method and competitive situation Consider liability and ownership of cargo Choose best payment alternative Consider existing relationship, economy, value of goods Consider common practice in industry Letter of credit is most popular export financing method
153. Consider advantages and disadvantages of each alternative, then choose your best option. Incoterms and Financial Optoins
154. 4.6 Promotion Select promotional options & estimate costs: Consider international coach travel expenses for 1 individual at US$5,000/week. Consider/estimate costs to deliver trade show materials. Consider relationship building practices in each country, cost of entertainment, local travel, shows and memberships if desired. Consider internet as a required mechanism localized for language and cultural access. Mobile internet access should also be evaluated.
156. 4.7a Projected Profit/Loss (P/L) Review Company Sales Potential and Total market Potential to estimate your unit sales and price. Initial years sales should be a fraction of ongoing; perhaps growing by 100% for the first two years Cost of goods sold may be found from Module 1.1c or your current estimate of the materials and labor involved in producing a unit of your product. Operating expenses may be found in 1.1c or may be estimated again. Manufacturing expenses may typically range in the 10-30% range; this is dependent on your industry. Calculate Net Profit.
157. First Year total unit sales & revenue Second year forecast & third year forecast OP Expenditure is your promotional expenses plus any other expenses incurred resulting from the specific export project Projected P & L
158. 4.7b-c Break Even Point & Scenario Planning How many units are required to break even? Based on a percentage of gross profit Unit sales calculated by dividing operating expenses by percentage of gross profit Profit & Sales Case Scenarios Choose best case: (I usually choose my actual planned for case here) Choose worst case: You may reduce sales by a fraction (25%, 50%, 75%) considering economic conditions, forecast errors, selling difficulties You should also consider if you selling expenses will rise This is often the case in emerging markets as estimates are difficult to identify
160. Conclusion / Summary: A summary sentence or important information for each section (at least the critical ones) Talk especially about unique factors or items which were not expected and changed your strategy Recommendation: What choice your group will make (go or no-go based on profitability) What would be the next steps to make this plan a reality? What is the timing involved for any next steps? 4.8 Prepare your Conclusion (summary) and Recommendation
164. Review & Refine Summary /Conclusion for each Module (1-4). Make sure you mention the important findings (learning's, insights, revelations) from each sub-module (e.g. 1.1, 1.4, 2.3, 4.1, etc). This information should explain and tell a logical story. This should be objective not persuasive. If there is missing data/information, make an assumption and state that the data was not available. Cite your data sources when appropriate – mention when you make an educated estimate (guess) Your plan should tell why your chosen product and country are the best options for an export project. Course Integration: Export Plan
165. Executive Summary Format Uses the same information from your Module Conclusion sections. Must be factual, reliable – well written. Re-format it when necessary into paragraph form. Use complete sentences, proof-read for grammar and spelling. Change your communication from objective to persuasive to suggest your audience agree with your final recommendation. Must tell a logical story.
166. 15-20 minutes – approximately 15-20 slides Everyone participates in the presentation Submit our presentation slides and your executive summary before your presentation. Goal is to explain and recommend a specific product for export to a specific country, including modules 1-4: Company Readiness – Industry Analysis Product Readiness – User Segments Market Selection – Company Sales Potential Costs (Marketing, Shipping, Documentation, COGS) P/L Presentation Contents
167. C.E.O Powerpoint Presentation Format Uses the same information from the Executive Summary. Simply re-format it into PowerPoint slides – 15-20 slides for a 15-20 minute presentation. Change your communication from objective to persuasive to suggest your audience agree with your final recommendation. Must tell a logical story; Recommendation is important. All group members must be able to discuss all sections. Sometimes people get sick or change jobs.
Degree of control and risk, information feedback. Payment.
The configuration of the five forces differs byindustry. In the market for commercial aircraft,fierce rivalry between dominant producersAirbus and Boeing and the bargainingpower of the airlines that place huge ordersfor aircraft are strong, while the threat of entry,the threat of substitutes, and the power ofsuppliers are more benign. In the movie theaterindustry, the proliferation of substituteforms of entertainment and the power of themovie producers and distributors who supplymovies, the critical input, are important.The strongest competitive force or forces determinethe profitability of an industry and becomethe most important to strategy formulation.The most salient force, however, is notalways obvious.For example, even though rivalry is oftenfierce in commodity industries, it may not bethe factor limiting profitability. Low returns inthe photographic film industry, for instance,are the result of a superior substitute product—as Kodak and Fuji, the world’s leadingproducers of photographic film, learned withthe advent of digital photography. In such a situation,coping with the substitute product becomes
New entrants to an industrybring new capacity and a desire to gainmarket share that puts pressure on prices,costs, and the rate of investment necessary tocompete. Particularly when new entrants arediversifying from other markets, they can leverageexisting capabilities and cash flows toshake up competition, as Pepsi did when it enteredthe bottled water industry, Microsoft didwhen it began to offer internet browsers, andApple did when it entered the music distributionbusiness.The threat of entry, therefore, puts a cap onthe profit potential of an industry. When thethreat is high, incumbents must hold downtheir prices or boost investment to deter newcompetitors. In specialty coffee retailing, forexample, relatively low entry barriers meanthat Starbucks must invest aggressively inmodernizing stores and menus.The threat of entry in an industry dependson the height of entry barriers that are presentand on the reaction entrants can expect fromincumbents. If entry barriers are low and newcomersexpect little retaliation from the entrenchedcompetitors, the threat of entry ishigh and industry profitability is moderated. Itis thethreatof entry, not whether entry actuallyoccurs, that holds down profitability.Barriers to entry.Entry barriers are advantagesthat incumbents have relative to new entrants.There are seven major sources:1.Supply-side economies of scale.These economiesarise when firms that produce at largervolumes enjoy lower costs per unit becausethey can spread fixed costs over more units,employ more efficient technology, or commandbetter terms from suppliers. Supplysidescale economies deter entry by forcingthe aspiring entrant either to come into theindustry on a large scale, which requires dislodgingentrenched competitors, or to accepta cost disadvantage.Scale economies can be found in virtuallyevery activity in the value chain; which ones
Anti-trust (Competition Law): It may prohibit agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels. It may ban abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal and many others. It may supervise the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licences or access to facilities to enable other businesses to continue competing.