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COMM 300: International Business

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Notes from Readings

4/5/2006 - Great Quota Hustle Case

Description

Quotas are a restriction placed on international the quantity of a particular imported good from particular countries. To enforce these quotas, the US monitors paperwork and employs "Jump Teams" that make random inspections at foreign manufacturers.

The effect

Impact on consumers

By restricting imports from foreign industry, quotas reduce competition and have the economic effect of increasing prices for the consumer of the restricted product.

Impact on domestic industry

By restricting imports, the domestic industry experiences less competition from foreign firms. Because there are fewer competitors, firms are able to charge higher prices. Therefore, the domestic industry benefits from quotas. However, because quotas reduce competition, there is a reduced incentive to innovate domestically, and often the industry falls behind internationally.

Impact on international industry

International industry is limited by quotas, which prevents them from fully meeting domestic demand. The few companies within the international industry that do export to the target company, however, do benefit from reduced competition in the domestic industry.

To avoid quotas, may international industries take "circuitous boat trips" or produce goods in other companies that don't have quotas, in an attempt to increase the possible quantity of imports.

The net domestic effect

With quotas, there often is a cost to the consumer and a benefit to the industry. To determine if the quota has a net positive effect to the domestic country, you must consider both this cost and the benefit.

Are quotas better than Tariffs?

Quotas lead to higher prices through reduced competition. The costs of these higher prices are paid by the consumer, and benefit the suppliers (both domestic and international). Therefore, economically, one can conceptualize quotas as a rent payment from consumers to domestic and international producers.

Tariffs also lead to higher prices by increasing the costs of the more competitive international firms. These costs are also paid by the consumer. However the tariff benefits the domestic government (through tariff payments) and the domestic industry (through the sale of goods that aren't tariffed at higher prices). Therefore, one can conceptualize quotas as a rent payment from consumers to the domestic government and industry.

Therefore, I would argue that tariffs are generally better because there is no "international drain" of benefits.

4/5/2006 - Nike, Inc

Description

It was found that Nike has been sourcing working to sub-contractors that have unethical employment practices. It was accused that these employees were working in harsh and unsafe conditions, for excessively low pay.

These wages, however, were at least minimum wage in the foreign countries and often considered a valuable position by workers in that country. Annual employee turnover at some factories was as low as 1%.

Response

Nike's initial response was:

  • Ignore the problem (STEP 1) "we don't set policy within the factories. It's their business to run."
  • Eventually draft a supplier code of conduct (STEP 2) for future conduct (seems voluntary)

Eventually Nike responding with a Corporate Social Responsibility (STEP 3) division, which included the following programs:

  • MESH (manufacturing employer standards h...)
  • MLS

CSR also recommended the following actions

  • Stance against fines for disciplinary shortcoming
  • Protection from discrimination against pregnant workers
  • Requirement of "simple, clear, written, and mandatory personal protective equipment policy"
  • Provision of annual leave at the worker's request
  • Strict monitoring of timekeeping through use of time clocks
  • Compensation of workers during their training period with a fair wage strucutre
  • The agreement of the subcontracted factory to undergo a independent labor practices assessment audit and a Nike inspection before approval.

Outside folks & Andrew Young develop outside reports (STEP 4)

Critics response to reports? Were they really outside folks?

Examine position on wages (STEP 5) & implement media campaign

Nike then implements an Open Door Policy (STEP 6)

Conduct surveys (STEP 7)

Surveys found that the image was tarnished, but sales and stock performance weren't affected
Concern is voiced that over time, particularly with customers we don't have now (e.g. new customers) - how are they reading this?

Reaction to Nike's Response

Despite Nike's response, the public has remained skeptical. I believe this is largely because of Nike's initial defensiveness against the issue. As we learned in Crisis communication with Professor Pentz-Harris, Nike made some critical misteps when as this issue unfolded. These include:

  • An initial refusal to accept responsibility for the crisis
  • A delayed reaction to improve the situation, and meet the critics demands - at least half-way.

4/10/2006 International market entry

Market entry examples

GM / GM Daewoo

GM Daewoo has pursued a multidomestic market entry strategy. Evidence of this is seen in the recent purcahse of Daewoo, a bankrupt Korean car manufacturer. GM Daewoo now manufacturers all asian GM cars, and has helped GM better reach markets in Korea, China & Japan.

Microsoft

Microsoft has pursued a home replication strategy. When microsoft enters international operating system markets, it uses its stock Windows OS, making only a few minor changes to it. By using the home replicaiton strategy, Microsoft is able to capitalize on economies of scale.

Building Global Skills Exercise

  1. Business strategies
    1. ATVs -focus strategy (mountain bikes)
    2. Rear-projection Color televisions - differentiation (high quality)
    3. Luggage - cost leadership (low end, low cost luggage)
    4. Writing instruments - focus (middle market segment)
  2. There are very few bases of relatedness
  3. We will keep the color television business, since it focuses on differentiation
  4. Existing competitors are: Toshiba, Sayno, Sony, Dell, & others
  5. Potential countries to expand into include: China, India, Countries in Western Europe. All these countries are modernizing and experiencing growth in income.
  6. Two other related businesses:
    1. LCD / Plasma TVs
    2. Projectors

4/12/2006 AFLAC

  1. AFLAC should definitely not use the same advertising campaign in Japan as it does in the US, for two reasons:
    1. AFLAC is using advertising in the two countries to acomplish very different goals. In the US, AFLAC is trying to raise awareness about its products. In Japan, AFLAC is trying to differentiate its products from new competitors, and maintain its industry leading position
    2. Corresponding to this the Japanese already have a brand awareness of AFLAC, and the introduction of a quacking duck might seem, well, wierd. Think of the introduction of a duck mascot for Coca Cola, McDonalds, or even Prudential.
    3. Japanese culture is different from american culture. Do they even have ducks in Japan?
  2. Very important. AFLAC must understand the Japanese, their culture & customs. AFLAC must be careful not to offend the Japanese or be percieved as forcing US culture on the nation. A good example of how AFLAC has handled this is the "made in the USA" Japanese efforts.
  3. Entered into a strategic alliance with Dai-ichi
  4. Challenges: foriegn cultures & customs, protectivists. Opportunities: the potential to take what was learned in Japan and expand globally.

Notes from Class

4/5/2006 and 4/10/2006

Tariffs

Types of Tariffs:

  • Add volorum tariff: A percentage (e.g. 15%) is added to the market value of the product. Used most in world.
  • Specific tariff: A tariff based on some measure such as the quantity or weight of goods.
  • Combination tariff:

Problem:

  • Difficult to enforce. Are Xmen toys or dolls?


Exporting

Direct exporting: The producer (e.g. Nike) would sell its shoes to a domestic customer (Distributor/Retailer) that would then sell the shoes in the local market

Indirect exporting: Did not give a definition here. Should look it up.


Export pricing alternatives:

  • Standard - cost pricing in domestic industry, with a 25% profit margin
  • Cost Plus - cost pricing in international industry, with a 25% profit margin (similar to standard).
  • Marginal cost - only consider the margin on marginal costs - similar to gross margin.

Dumping: selling goods in another country either below the cost of production, or below what you're selling them at in the host country.

The Jones Act

Ships transporting goods between two international ports must be US ships. Same is true of airfare.


Forms of Regional Economic Integration

Level 1: Free trade area

  • Liberalization of trade regulations for members
  • Removal of trade barriers (e.g., tariffs & quotas)

Level 2: Customs Union

  • Liberalization of trade regulations for members
  • Removal of trade barriers (e.g., tariffs & quotas)
  • Common tariffs on nonmember countries

Level 3: Common Market

  • Liberalization of trade regulations for members
  • Removal of trade barriers (e.g., tariffs & quotas)
  • Common tariffs on nonmember countries
  • Mobility of factors (labor, capital, technology)
    • Harmonization or mutual recognition of standards (such as licenses)
    • Free movement of citizens across borders

Level 4: Economic Union

  • Liberalization of trade regulations for members
  • Removal of trade barriers (e.g., tariffs & quotas)
  • Common tariffs on nonmember countries
  • Mobility of factors (labor, capital, technology)
  • Economic integration through harmonizing monetary and taxation policies, creating a common currency, and establishing a supernational governing authority.

Level 5: Political Union

  • Economic and political unification


Modes of Entry

LOOK AT PAGE 144 in coursepack

Licensing

Green Fielding

Wal-mart in Latin America

Brown Fielding

Acquiring an existing firm in the target country


Strategic Alternatives (pg 110-114)

Home replication

Making everything the same in all countries. Take product from home country and use in all countries

Multi-domestic strategy

You're doing business differently in each of these different countries

Global strategy

More centralized, like home replication except to don't try to replication the home product

Transnational strategy

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