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In August 2005, President George Bush signed into law a comprehensive free trade agreement among Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the
The agreement includes a
wide array of tariff reductions
aimed at increasing trade and
employment among the
Argentia, Bolivia, Brazil, Chile, Paraguay, and Uruguay)
The second largest common marketing agreement in the Americas (after NAFTA)
The treaty calls for a common market that would eventually allow for the free movement of goods, capital, labor, and services among the member countries, with a uniform external tariff
Because Mercosur members were concerned about sacrificing sovereign control over taxes and other policy matters, the agreement envisioned no central institutions similar to those of the European Union institutions.
Latin American Integration Association (LAIA)
·The long-term goal of the LAIA is a gradual and progressive establishment of a Latin American common market
· There was is the differential treatment of member countries according to their level of economic development
· The provision that permits members to establish bilateral trade agreements among member countries
Caribbean Community and Common Market (CARICOM)
· It has worked toward a single-market economy and in 2000 established the CSME (CARICOM Single Market and Economy) with the goal of a common currency for all members.
· The introduction of a common external tariff structure was a major step toward that goal.
o The EMU, a provision of the Maastricht Treaty, established the parameters of the creation of a common currency for the EU, the euro
o Established a timetable for its implementation
o In 2002, a central bank was established, conversion rates were fixed, circulation of euro banknotes and coins was completed
o The 12 member states employed the euro beginning in January 1, 2001, some did not join voluntarily
The most basic economic integration and cooperation is the regional cooperation for development (RCD)
Governments agree to participate jointly to develop basic industries beneficial to each economy
Each country makes an advance commitment to:
· Participate in the financing of a new joint venture
· To purchase a specified share of the output of the venture
requires more cooperation and integration than the RCD
It is an agreement between two or more countries to reduce or eliminate customs duties and nontariff trade barriers among partner countries
Members maintain individual tariff schedules for external countries.
provides its members with a mass market without barriers to impede the flow of goods and services
represents the next stage in economic cooperation
It enjoys the free trade area’s reduced or eliminated internal tariffs and adds a common external tariff on products imported from countries outside the union.
exist between France and Monaco, Italy and San Marino, and Switzerland and Liechtenstein, to name some examples.
agreement eliminates all tariffs and other restrictions on internal trade
Adopts a set of common external tariffs, and removes all restrictions on the free flow of capital and labor among member nations
It is a unified economy and lacks only political unity to become a political union
The EU evolved from the development of a common market, the European Economic Community (EEC)
the most fully integrated form of regional cooperation
It involves complete political and economic integration, either voluntary or enforced
Two new political unions came into existence in the 1990s:
· The Commonwealth of Independent States (CIS), made up of the republics of the former Soviet Union, and
The European Union (EU)
Association of Southeast Asian Nations
· A multinational regional trade group including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam
the Asian-Pacific Economic Cooperation;
· A forum that meets annually to discuss regional economic development
· For managers selling capital equipment and big-ticket industrial services, understanding the concept of derived demand, which can be defined as demand dependent on another source, is important.
· Ex) The demand for Boeing 747s is derived from the worldwide consumer demand for air travel services.
· Airbus and Boeing competed for the new account.
· The Boeing plane was more expensive.
· Boeing 777 watch pitched as a revenue machine.
· Iberia decided to choose Airbus’s A340-600s.
· Boeing posted on its Website a statement that criticized Iberia’s decision.
· Airbus nosed ahead thanks to its planes’ lower price and common design.
· By offering guarantees on the planes’ future value and maintenance costs, plus attractive financing terms, Airbus edged out Boeing’s aggressive package.
· Iberia’s news release crowed about Airbus’s price guarantees on the planes—a detail Leahy considered confidential.
· The study revealed that consumers use relatively few types of thoughts when discussing products made in various countries (product brand, positive quality, negative quality, high price, low price, and Fashion/style/craftsmanship) and the depth of consumers’ cognitive structures (beliefs, myths, etc.) varies greatly from country to country.
· Cognitive structures most developed in the United States. Rich cognitive structures exist for Japanese products. Cognitive structures for Russian products are product- specific, for example Vodka. Products from Japan hold a quality of uniqueness.
· In-depth personal interviews identified respondents’ knowledge, beliefs, myths, and other relevant cognitions related to a diverse set of 11 countries and their products
· The article introduces the concept of country equity as a new way of thinking about global brands and discusses managerial implications related thereto.
process includes the physical handling and distribution of goods, the passage of ownership (title), and the buying and selling negotiations between producers and middlemen and between middlemen and customers.
· always evolving and new patterns are developing and marketing channels are not the same throughout the world.
· when companies with marketing facilities or contacts in different countries with excess marketing capacity or desire for a broader product line sometimes take on additional lines for international distribution.
1. Middlemen Services
2. Product Line Breadth
3. Costs and Margins
4. Channel Length
5. Nonexistent Channels
6. Blocked Channels
8. Power and Competition
Japanese distribution has four distinguishing features:
1. Channel control by manufacturers,
2. A business philosophy shaped by a unique culture, and
3. Laws that protect the foundation of the system—the small retailer
4. A structure dominated by many small middlemen dealing with many small retailers—high density of middlemen
Control is maintained through the following elements:
1. Inventory financing with credits extending for several months.
2. Cumulative rebates
3. Merchandise returns that are allowed to the manufacturer.
4. Promotional support to intermediaries in the form of displays, advertising layouts, and management education programs.
shows even greater diversity in its structure than does wholesaling.· The rate of change appears to be directly related to the stage and speed of economic development, and even the least developed countries are experiencing dramatic changes.Supermarkets of one variety or another are blossoming in developed and underdeveloped countries
Large dominant retailers can be sold to directly, but there is no adequate way to reach small retailers who, in the aggregate, handle a great volume of sales.
Selling directly to the consumer through mail, by telephone, or door-to-door is often the approach of choice in markets with insufficient or underdeveloped distribution systems.
Efforts to improve the efficiency of the distribution system, new types of middlemen, and other attempts to change traditional ways are typically viewed as threatening and are thus resisted.
· The internet is an important distribution method for multinational companies.
· One of the most challenging aspects of Web sales is delivery of goods.
· It involves the direct marketing from a manufacturer, retailer, service provider, or some other intermediary to a final user.
· It is a form of direct selling; however, because of its newness and the unique issues associated with this form of distribution, it is important to differentiate it from other types of direct marketing.
· It reduces procurement costs by making it easier to find the cheapest supplier, it allows better supply chain management, and it makes possible tighter inventory control.
1. Culture-The Web site and the product must be culturally neutral or adapted to fit the uniqueness of the market.
2. Adaptation (especially language)-A Web site should be translated into the languages of the target markets.
3. Local contact information-Companies fully committed to foreign markets are creating virtual offices abroad.
4. Payment form-The consumer should be able to use a credit card number—by email, by fax, or over the phone.
5. Delivery-Postal delivery can be used in the United States. For more rapid but more expensive deliveries, FedEx, UPS, and other private delivery services provide delivery worldwide.
6. Promotion-You need to advertise your presence and the products or services offered.
· Merchant middlemen buy low and sell high. An agent works for commission and the buyer and seller work together. Agent middlemen arrange sales in the foreign country but do not take title to the merchandise. Merchant middlemen actually take title to manufacturers’ gods and assume the trading risks, so they tend to be less controllable. Merchant middlemen are criticized for not representing the best interests of the manufacturer.
· Home country middlemen are located in the producing firm’s country and provide marketing services from a domestic base.
1. Screening based on the following: reputation, creditworthiness, markets served, products carried, number of stores, store size
2. the agreement that details terms of the contract and the functions to be performed on behalf of the foreign manufacturer
The capital or investment cost of developing the channel and the continuing cost of maintaining it. Marketing costs must be considered as the entire difference between the factory price of the goods and the price the customer pays for the merchandise.
The financial ramifications. Use of distributers or dealers may lessen the capital investment, but manufacturers often have to provide initial inventories on consignment, loans, floor plans, or other arrangements.
Another major goal is full-market coverage to gain the optimum volume of sales obtainable in each market, secure a reasonable market share, and attain satisfactory market penetration. To achieve coverage, a company may have to use many different channels—its own sales force in one country, manufacturers’ agents in another, and merchant wholesalers in still another.
· Leaving the exporting country
3. Physical distribution---international shipping and logistics, packing, insurance
· Entering the importing country
1. Tariffs, taxes
2. Nontariff barriers
· Three barriers to exporting that face even the most enthusiastic international traders: managerial, organizational, and external.
· Export regulations may be designed to conserve scarce goods for home consumption or to control the flow of strategic goods to actual or potential enemies. Import regulations may be imposed to protect health, conserve foreign exchange, etc.
· The US requires no formal or special license to engage in exporting as a business, permission or a license to export may be required for certain commodities and certain destinations.
· Products exported from the US require a general or a validated export license, depending on the product, where it is going, the end use, and the final user.
· The responsibility of determining if a license is required rests with the exporter. The exporter must select the proper classification number known as the Export Control Classification Number (ECCN), the exporter must decide from the Commercial Control List (CCL) if the items have end use restrictions, the exporter is responsible for determining the ultimate end customer, and the exporter is responsible for using the Commerce Country Chary (CCC) to see if a license to export is needed.
· The exporter must establish that the end user is not listed in the List of Denied Persons.
Permits exportation of certain products that are not subject to EAR control with nothing more than a declaration of the type of product, its value, and its destination.
may be imposed to protect health, conserve foreign exchange, serve as economic reprisals, protect home industry, or provide revenue in the form of tariffs
may be imposed on imports of harmful products, drugs, medicines, and immoral products and literature. Products must comply with government standards.
an absolute restriction against trade with a country, or trade of specific goods, can also be implemented.
used to impose limitations on the quantity of certain goods imported during a specific time. The most important reasons to set quotas are to protect domestic industry and to conserve foreign exchange.
taxes or customs duties levied against goods imported from another country. (1) Ad valorem duties are based on a percentage of the determined value of imported goods. (2) Specific duties are a stipulated amount per unit weight or some other measure of quantity. (3) A compound duty combines both specific and ad valorem taxes on a particular item.
· A government imposed limit on the quantity of goods that can be exported out of a country.
· Countries may themselves impose restrictions on firms exporting to specific countries.
· US government officials have been arranging voluntary export restrictions with the Japanese steel and automobile industries to limit sales to the US.
Presented at the port of exit; includes the names and addresses of the principals involved, the destination of the goods, a full description of the goods, and their declared value.
Some countries require consular invoices obtained from the country’s consulate and returned with two to eight copies in the language of the country, along with copies of other required documents before certification is granted.
It is the ownership document. It is also the most important document required for establishing legal ownership and facilitating financial transactions. It acts as a contract for shipment between the carrier and shipper, it acts as a receipt from the carrier for shipment, and it acts as a certificate of ownership or title to the goods.
Every international transaction requires a this, a bill or statement of goods sold.
a key document in export trade.
Export of import licenses are additional documents required in export trade.
1. Most common; know who issues and how you are going to get paid. They are opened in favor of the seller by the buyer. They shift the buyer’s credit risk to the bank issuing the letter of credit. The seller can draw a draft against the bank issuing the credit and receive dollars by presenting proper shipping documents. An irrevocable letter of credit means that once the seller has accepted the credit, the buyer cannot alter it in any way without permission of the seller. The US bank will accept full responsibility to pay regardless of the financial situation of the buyer or foreign bank.
The seller assumes all risk until the actual dollars are received. The typical procedure is for the seller to draw a draft on the buyer and present it with the necessary documents to the seller’s bank for collection. They are also known as dollar drafts.
Usually a sign for being ripped off. Partial payment in advance is not unusual.
Sales on open accounts are not generally made in foreign trade except to customers of long standing with excellent credit reputations or to a subsidiary or branch of the exporter.
seller pays freight, insurance to destination or foreign port.
seller is going to pay cost of moving goods to foreign port and freight costs.
most common term, seller is responsible from point of origin, to move to dock and put on ship, seller is not responsible for shipping cost, freight cost, and insurance.
Named point of origin---cost at point of origin, when taking out it becomes the buyer’s responsibility, seller is not responsible for moving, docking, or loading on ship.
areas where goods can be imported for storage and processing with tariffs and quota limits postponed until the products leave the designated areas. Foreign trade zones, free ports, and in-bond arrangements are all types of these facilities.
US extend their services to thousands of firms engaged in a spectrum of international trade-related activities ranging from distribution to assembly and manufacturing.
· The design and management of a system that directs and controls the flows of materials into, through and out of the firm across national boundaries to achieve its corporate objectives at a minimum total cost.
· The inflow of raw material, parts, and supplies through the firm
· The foreign freight forwarder arranges for the shipment of goods as the agent for an exporter. The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics.
· The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics.
· A freight forwarder double-checks all assumptions made on the export declaration, such as commodity classifications, and will check the list of denied parties and end uses
· The movement of the firm’s finished products to its customers, consisting of transportation, warehousing, inventory, customer service/order entry, and administration.
· the achievement of the optimum system cost consistent with customer service objectives of the firm.
· It is the coordinated transport of freight using multiple methods of transportation (air, inland, water, ocean, pipeline, rail, and road).
· Airfreight has shown the fastest growth rate for freight transportation even though it accounts for only a fraction of total international shipments. Ocean shipping is least expensive for heavy bulk items. It is also the most frequently used for these items.
A relationship between a shipper and third party which, compared with basic services, has more customized offerings, encompasses a broader number of service functions and is characterized by a longer-term, more mutually beneficial relationship
the largest sector is the value-added warehousing and distribution industry
EX: UPs that can process and store inventory and then ship it withing two hours to the precise plant location where it is needed
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