International Business and culture

1. INTERNATIONAL
BUSINESS
and CULTURE
Part III: International Trade
1 – Foreign Direct Investments
2 – International Trade Policies
3 – International Trade Barriers

2. International Trade Environment
Trade Barriers:
To protect domestic industries from foreign
competition , to promote indigenous R&D ,
to conserve precious foreign exchange.
Tariffs:
Duties or Taxes imposed on imposed on
internationally traded goods when they
cross national borders.

3. Non Tariff Barriers (NTBs):
Used by developing countries to prevent
foreign exchange outflow = import quotas,
import licensing, foreign exchange
regulations used by developed countries to
protect domestic industries
International Trade Environment

4. Quotas:
Export Quota = If Govt feels export in
excess may affect domestic market.
Import Quota = to restrict the quantity of
imports.
Tariff Quota = combination of tariff & quota.
International Trade Environment

5. Quotas:
Unilateral Quota = A country, unilaterally,
fixes upper limit of quantity of a particular
commodity.
Bilateral Quota = after negotiations betn
importing & supplier countries.
Mixing Quota = The producers are obliged
to utilize domestic raw materials up to
certain proportion in production of a
finished product.

6. Licensing:
Licensing authority issue import license to
prospective importer to obtain foreign
currency to pay for imports.
Administered Protection:
Safeguards = A common form of
administered protection to restrict
temporarily against surges threatening
viability of domestic industries.
International Trade Environment

7. Customs Procedures:
Consular Formalities: Cumbersome ,
expensive. Export documents to be
certified by consular of importing country ,
in exporting country.
Monetary Controls: Restrictions on opening
of L/Cs.
Environmental Protection Laws : Use of
child labour , sweat shops.
International Trade Environment

8. Commodity Agreements:
Inter Governmental agreements regarding
the production & trading of certain primary
products to stabilize the prices.
Quota Agreements = To prevent a fall in
commodity prices by regulating their
supply.
International Trade Environment

9. Commodity Agreements:
Buffer Stock Agreement = To stabilize
commodity prices by maintaining
demand-supply balance.
Bilateral Contracts = To purchase & sell
certain quantities of a commodity at
agreed prices between a major importer &
exporter .
International Trade Environment

10. Cartels :
Agreements betn producers located in different
countries or different govts to restrict
competition , to control prices.
Common in Oligopoly markets where relatively
small no. of producers.
Organization of Petroleum Exporting Countries
(OPEC),
Automobiles manufacturers,
International Air Transport Assn ( IATA)
International Trade Environment

11. State Trading:
Import & export transactions of a state
owned agency involving purchase of
goods for commercial resale.
STC , MMTC
International Trade Environment

12. Intra Regional Trading Blocs
based on economic integration:
Free Trade Area = Grouping of countries to
bring about free trade betn them. Each
member is free to decide its policy with non
members.
Customs Union = Eliminates all trading
restrictions among members & adopts a
uniform commercial policy against non
members.

13. Common Market = Allows free movement of
labor & capital within market besides
Customs Union characteristics.
Economic Union = Besides Common
Market conditions, it achieve some degree
of harmonization of economic policies.
Economic Integration = Ultimate form of full
economic integration where all members
are bound by decisions of super authority.
Intra Regional Trading Blocs
based on economic integration:

14. European Union :
By far the most successful regional economic
integration.
Euro , the common currency. Bring single interest
rate , eliminate currency risk , could bring big
investors to equity & bond markets.
Equal price thro out Euro area.
Saves on cost of hedging against exchange rate
risks.
Govts can now hold their foreign exchange reserves
in Euro besides USD.

15. Other Regional Groupings
The North American Trade Agreement (US, Canada,
Mexico) NAFTA
Gulf Cooperation Council (GCC)
The Association of South East Asian Countries
(ASEAN) : Indo , Malaysia , Philippines, Sing., Thai,
Brunei
The Caribbean Common Market ( CARICOM )
South Asian Association for Regional Cooperation
(SAARC) ; India , Bangladesh, Pakistan , Nepal ,
Bhutan , SL , Maldives, ISFTA

16. GATT / WTO :
GATT was converted from a provisional
agreement into a formal international
organization called WTO on 1 Jan 1995
as a result of Uruguay round. WTO will
serve as a single institutional framework
encompassing GATT & all results of
Uruguay Round.

17. Uruguay Round Agreement :
Expanded the scope of multilateral trade
negotiation by including services, intellectual
property rights , copyrights, trade marks
,Patents, Industrial designs (TRIPs) , trade
related investment measures ( TRIMs ), as
against only goods in past.
GATT replaced by WTO.
Under WTO, there are agreements related to 3
major areas – GATT , GATS ( General
Agreement on Trade in Services incl. financial
services, telecommunication , transport,
professional services ) , TRIPs.

18. Uruguay Round Agreement :
WTO has more effective dispute settlement
mechanism.
Liberalized trade in agriculture particularly in
developed countries.
All members countries are required to adopt
product patent. The patent period for all products is
20 years.
Complaint : Developed countries will appropriate
about 70% of additional income generated by
implementation of UR because of their high level of
participation in trade & main part of liberalization
has been in goods interest to them.

19. Anti Dumping Measures :
A product is regarded as dumped when
its export price is less than the normal
price in the exporting country or its cost
of production plus reasonable amt of
other costs. These measures can be
employed only if dumped imports cause
serious damage to domestic industry in
importing country.

20. International Trade Centre (ITC):
For technical cooperation with developing
countries in trade promotion. Directly
responsible for implementing financial projects
in developing countries related to trade
promotion.
Advise developing countries on marketing
communications, publicity activities. Planning &
executing trade missions. Improve import
operations & techniques to optimize foreign
exchange reserves.

21. Indian Laws regulating Foreign
Trade :
Foreign Trade (Development & Regulation )
Act 1992
Foreign Exchange Management Act
Antiquities & Art Treasures Act
Tea Act
Indian Coffee Act
Customs Act
Export ( Quality Control & Inspection ) Act

22. Indian Laws regulating Foreign
Trade :
Multi Fibre Arrangement ( MFA )
It restricted international trade in Textiles betn
importing developed economies & exporting
developing economies. The main objective was to
safeguard domestic industry. Increased productivity
reduced employment in developed world in addition
to low cost imports,
MFA was against the principle of non-discrimination.
Consumers had to pay high price due to restrictions.
It was faced out in 1995.

23. International Marketing Environment
What makes a successful business strategy in one
market a failure in another , is different business
environment.
Reason = different regions, culture , preferences ,
beliefs , customs ,climatic conditions. Successful
companies are those who adapt to these differences.
The root cause of most International business
problems is Self Reference Criterion , an unconscious
reference to one’s own cultural values, experience,
knowledge as basis for decisions.( Ex : American
companies’ failure in Japan with American market
strategies )

24. Economic Environment : Business in a
foreign country depends upon its level of
development of economy ,economic
resources , size of economy, economic
policies, economic conditions.
Social Environment : Religious aspects ,
language , traditions , values & beliefs ,
tastes & preferences , buying & consumption
habits. ( Ex. Mac in India , Colors in various
countries )

25. Demographic Environment : Size of
population , population growth rates , age
composition , income levels. Ex : Declining
birth rate , a boon to tourism industry.
Political Environment : Is winning over top
brass of a party or Govt. a strategy to obtain
business ?
Are important industries reserved for Public
Sector ?
Any restriction on foreign equity participation
?

26. Enmity: Arab countries do not do business
with companies dealing with Israel . India
and Pak
Any restrictions on advertising of a product ,
product comparison , use of children in ads.?
Technological Environment : Labour
abundant countries opt for labour intensive
technology.

27. Future of International Business :
Globalization of supply chain & operations.
International Investments
Information available to consumers on
global brands
Growth of world economy – BRIC, Africa,
ME
Rise of Internet & Information Technology

28. Information for Global Marketing
Decisions
Effective marketing strategies can only
be developed through achieving
adequate information about international
markets.
Information is critical, whether a firm is
only entering Intl markets, expanding Intl
operations, or rationalizing its global
activities

29. Ignoring the need for research - Case: 1
•A US company learned that ketchup was not
available in Japan -> shipped a large amount of its
ketchup, looking for “first mover” advantage.
•Japanese consumers prefer soy-based
condiments rather than tomato-based.
•The ketchup was not purchased. Some market
research before market entry would have saved
from this loss.
Information for Global Marketing
Decisions

30. Insufficient research - Case: 2
•Kentucky Fried Chicken entered Brazilian market
with hopes of eventually opening 100 stores. Initial
sales of the operation in Sao Paulo were
disappointing.
•Street corner vendors sold low-priced charcoal-
broiled chicken almost everywhere. This chicken
appealed to local tastes.
•In making the decision to enter the market, KFC
had not adequately researched possible
competition.
Information for Global Marketing
Decisions

31. Misdirected market research - case: 3
•A soft drink company conducted research in
Indonesia to determine market potential. Rather than
conduct research throughout the entire country, it
focused on the major urban areas.
•These results were projected to the entire
population.
Based on the research, the company established
large bottling and distribution facilities.
•Between rural and urban Indonesia, there are
however major differences.
•The company sales were disappointing; the product
was mostly bought by tourists and foreign visitors.
Information for Global Marketing Decisions

32. Failure to appreciate market differences - Case: 4
•Cummins Engine Company experienced
sluggish sales of its diesel engines in the
European market. Unlike the U.S. market, the
European market was highly integrated with
truck manufacturers making their own engines.
•This created a much more difficult competitive
environment to do business in.
•Research on the European market structure
would have been better prepared the firm for the
challenges.
Information for Global Marketing
Decisions

33. Inadequate market research - Case: 5
•CPC International wanted to introduce Knorr soups to the
US markets. It conducted test markets serving passersby
a portion of Knorr soup made from a Knorr mix.
•The taste tests showed remarkable interest in purchasing
the soup. However, sales were a disappointment.
•The research should have been conducted not only to
examine reactions to the taste but also on how receptive
the consumers were to preparing the soup from a dry mix.
•This kind of research would have revealed the US
consumers’ strong preference for canned soups.
Information for Global Marketing Decisions

34. Failure to appreciate cultural differences - Case: 6
•In the French household, coffee and its preparation have
an important role.
•Chase and Sanborn met heavy resistance when they
attempted to enter the French market with their instant
coffee.
•French consumers, to whom the ritual of preparing the
coffee was so important, rejected the instant coffee
concept.
Marketing research would have helped the company to
appreciate these ceremonial aspects of coffee making,
and understand how deeply ingrained the coffee
preparation was in the French culture.
Information for Global Marketing Decisions

35. Global Information Needs
Systematic collection on information is
crucial to successful strategy
development in international markets.
Uses of Information
Assessing new and continuing
opportunities and threats that emerge
in markets.

36. Global Information Needs
Lack of familiarity in markets and the
business environment in other countries,
and also the pace of change in the markets
and opportunities, make it essential that
these are investigated before plans for a
global market entry and expansion are
made.
Monitoring trends in market demand,
competition, government policies, and other
environmental factors
Information is needed to assess
performance globally and in specific

37. As in domestic data collection, two major types of
data can be collected:
primary data secondary data.
Information can also be collected from external
sources, outside the company, or from internal
company sources.
Secondary data are important i.e. in market entry
and expansion decisions:
government, economic, and social statistics
reports by trade associations, industry reports
other commercial publications
Global Information types

38. Computerized Intl Data banks, like PC Globe and
TSM Global Economic Data Base are valuable
sources of information.
Primary data are often expensive and difficult to
collect, especially in developing countries with no
well-developed research infrastructure.
I.e. Large scale surveys
This is why often greater reliance is placed on
expert opinion, qualitative research, or small-scale
studies, using convenience of judgement samples.
(There is, yet, a risk of false results in these)
Global Information types

39. Samples
Approval
Proforma Invoice
Expression of Interest in Product
Quotation, unit price
Order Confirmation
Inquiry
Order
Negotiations
Payment / LC
Start of Production
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40. Overview of Exports Documentation
Pre Shipment
Pre shipment Document to Movement of Cargo
CHA
Loading at Port Stuffing of Cargo
Obtaining B/L Insurance Policy
Copies of Documents Back to
Exporters
Preparation of Documents for Bank

41. Post Shipment
Submission of E.P.Copy of shipping
bill
documents to bank A.R.E. / Bank Certificate
Negotiation Claiming different
Benefits
Realisation
Obtaining Bank Certificate Maintenance of
statutory records
Overview of Exports Documentation

42. Documentation For Export Benefits
Pre Shipment
Jt. DGFT Customs Excise
Appln for To be done Bond / ARE 1
Advance By CHA Formalities
Authorisation/ (Stuffing
DFIA Permission
Appln for Etc. on the basis
EPCG Autho. of Shipping Bill)

43. Post Shipment
Jt. DGFT Customs Excise
Adv. Autho. Obtaining DBK Submission of
Completion (All Ind. Rate or Proof of Exports
Brand Rate) against Bond
Closure of file
Release of Bond OR
EH Appln + BG incase of
Adv. Autho. Rebate of Excise
Post Export Duty (Post Exports)
DEPB Verification of
DEPB
Documentation For Export Benefits

44. • Signed invoice
• Packing list
• Bill of Lading or Delivery Order/Airway
Bill
• GATT declaration form duly filled in
• Importers/CHA’s declaration
• Licence/Authorisations in original
wherever necessary
• Letter of Credit/Bank Draft/wherever
necessary
• Insurance document
• Import license
Important Documents–Imports

45. • Industrial License, if required
• Test report in case of chemicals
• Adhoc exemption order
• Catalogue, Technical write up,
Literature in case of machineries,
spares or chemicals as may be
applicable
• Separately split up value of spares,
components, machineries
• Certificate of Origin, if preferential rate
of duty is claimed under PTAs/FTAs
etc.
• No Commission declaration
Important Documents–Imports

46. • Signed invoice
• Packing list
• Bill of Lading or Delivery Order/Airway
Bill
• Importers/ CHA’s declaration
• Licence/Authorisations in original
wherever necessary
• Letter of Credit/Bank Draft/wherever
necessary
• Insurance document
Important Documents– Exports

47. • Test / Inspection reports in case
required
• Catalogue, Technical write up,
Literature in case of machineries,
spares or chemicals as may be
applicable
• Separately split up value of spares,
components, machineries
• Certificate of Origin, if preferential rate
of duty is claimed under PTAs/FTAs
etc.
• No Commission declaration
Important Documents– Exports

48. Group E Departure - The E-Term is the term in which the seller’s
obligation is minimum
EXW- Ex works ( named place)
Group F Main carriage unpaid -The F terms require the seller to deliver
the goods for carriage to deliver the goods for carriage as
instructed by the buyer.
FCA – Free Carrier ( named place)
FAS - Free alongside ship ( named port of shipment)
FOB - Free on Board ( named port of shipment)
Group C Main Carriage Paid -The C term requires the seller to contract
for carriage on usual terms at his own expenses
CFR – Cost and Freight ( named port of destination)
CIF - Cost Insurance and Freight ( named port of destination)
CPT- Carriage paid to ( named port of destination)
CIP - Carriage and Insurance paid to (named port of
destination)
INCOTERMS

49. Group
D
Arrival - Seller according to D terms is
responsible for the arrival of the goods at the
agreed place of point of destination
DAF – Delivered at frontier ( named place)
DES – Delivered Ex ship ( named port of
destination )
DEQ- Delivered Ex Quay ( named port of
destination )
DDU – Delivered Duty unpaid ( named port of
destination )
DDP – Delivered Duty Paid ( named port of
destination )
INCOTERMS

50. Agreed point
of delivery
-frontier
-terminal
-quay
Loading
Port of shipment
Ship’s rail
On board On board
Ship’s rail
Port of destination
discharge
Named
destination
Seller
Buyer
EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DAF
DES
DEQ
DDU
DDP
Seller’s risk Seller’s cost Buyer’s risk Buyer’s cost
Marine insurance
Compulsory insurance