International Marketing and Management

1. International Marketing and Management Lecture 2

2. Plan: 1. Topics for revision: • Five forces analysis • SWOT analysis 2. International Finance and Economics 3. International Trade

3. Marketing Environment • The marketing environment surrounds and impacts upon an organization. • Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology.

4. External environment analysis The external environment can be audited in more detail using • PEST Analysis. • SWOT Analysis, • Michael Porter's Five Forces Analysis

5. PEST Analysis

6. Michael Porter's Five Forces Analysis

7. Five Forces Analysis • Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example, Dell would analyse the market for Business Computers i.e. one of its SBUs. • Five forces analsysis looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.

8. The threat of entry. • Economies of scale e.g. the benefits associated with bulk purchasing. • The high or low cost of entry e.g. how much will it cost for the latest technology? • Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up? • Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects. • Government action e.g. will new laws be introduced that will weaken our competitive position? • How important is differentiation? e.g. The Champagne brand cannot be copied.

9. The power of buyers. • This is high where there are a few, large players in a market e.g. the large grocery chains. • If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains. • The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another.

10. The power of suppliers. • Where the switching costs are high e.g. Switching from one software supplier to another. • Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft. • Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places.

11. The threat of substitutes • Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists. • Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies. • We could always do without e.g. cigarettes.

12. Competitive Rivalry • This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram.

13. Practice task: Practice task: Analysing the environment - Five Forces Analysis - Exercise. The market for on-line education.

14. SWOT Analysis

15. SWOT • SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors.

16. In SWOT, strengths and weaknesses are internal factors. A strength could be: • Your specialist marketing expertise. • A new, innovative product or service. • Location of your business. • Quality processes and procedures. • Any other aspect of your business that adds value to your product or service. A weakness could be: • Lack of marketing expertise. • Undifferentiated products or services (i.e. in relation to your competitors). • Location of your business. • Poor quality goods or services. • Damaged reputation.

17. In SWOT, opportunities and threats are external factors. An opportunity could be • A developing market such as the Internet. • Mergers, joint ventures or strategic alliances. • Moving into new market segments that offer improved profits. • A new international market. • A market vacated by an ineffective competitor. A threat could be: • A new competitor in your home market. • Price wars with competitors. • A competitor has a new, innovative product or service. • Competitors have superior access to channels of distribution. • Taxation is introduced on your product or service.

18. SWOT Analysis Examples • Wal-Mart SWOT Analysis • Starbucks SWOT Analysis. • Nike SWOT Analysis

19. Wal-Mart SWOT Analysis. • Strengths - Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store. Weaknesses - Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control. Opportunities - To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region. Threats - Being number one means that you are the target of competition, locally and globally.

20. Starbucks SWOT Analysis • Strengths - Starbucks Corporation is a very profitable organization, earning in excess of $600 million in 2004.Weaknesses - Starbucks has a reputation for new product development and creativity. Opportunities - New products and services that can be retailed in their cafes, such as Fair Trade products. Threats - Starbucks are exposed to rises in the cost of coffee and dairy products.

21. Nike SWOT Analysis • Strengths - Nike is a very competitive organization. Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without bullets. 'Weaknesses - The organization does have a diversified range of sports products. Opportunities - Product development offers Nike many opportunities. Threats - Nike is exposed to the international nature of trade.

22. SWOT - TOWS • SWOT analysis can be very subjective. Do not rely on SWOT too much. Two people rarely come-up with the same final version of SWOT. • TOWS analysis is extremely similar. It simply looks at the negative factors first in order to turn them into positive factors. So use SWOT as guide and not a prescription.

23. SWOT Analysis - Exercise. • Highly Brill Leisure Center.

24. International Finance and Economics.

25. Foreign exchange • Foreign exchange is a currency issued by a foreign government. Foreign exchange is required to pay for imported goods and to meet foreign debt repayment obligations. The exchange rate is the price of one currency in terms of another.

26. Exchange rates • Exchange rates are either fixed by governments or determined by the forces of demand and supply in the marketplace. Countries differ in the way they maintain their currency value in the foreign exchange market. In some countries, Central banks intervene in this process regularly while in others they don't.

27. Risk • Risk can be defined as uncertainty surrounding a particular event or item. Thus the changes in economic fundamentals, government policies, relationship between the trading countries are some risks specific to the international business community apart from general risks of changes in tastes and preferences of consumers, changes in technology, etc.

28. International Trade

29. Trade Theories • Theory of Absolute Advantage Adam Smith proposed the theory of Absolute Advantage in 1776. According to this theory, countries should produce and export surpluses of goods in which they have absolute advantage and buy whatever else they need from other countries. Adam Smith believed that this would lead to specialization and the resultant increase in productivity.

30. Trade Theories • Theory of Comparative Advantage David Ricardo, an English economist, came out with the Theory of Comparative Advantage in 1817. According to this theory, each country should produce that good, in which it has a comparative advantage. A country will be better off by concentrating on the production of goods in which it has the lower relative labour costs, or higher relative labour productivity. Ricardo's theory was based on only one factor of production-labour and was criticized because it ignored other factors of production such as land and capital.

31. Trade Theories • The Hecksher-Ohlin theory aimed to remedy this deficiency by explaining trade in terms of relative factor intensities.This theory proposed by Posner, considers the possibility of trade between two countries having the same factor endowments and consumer tastes. According to this theory, improvement in technology is a continuous process and the resulting inventions and innovations in existing products give rise to trade between these countries.

32. Trade Theories • The International Product Life-Cycle (IPLC) theory, proposed by Vernon, explains various stages in the life of a product and the resultant international trade.According to this theory, innovations are generally made in the richer, more developed countries. In the early stages of a new product's life cycle, it is produced and exported by the country which introduced the innovation. In the second stage of the life of the product, production may shift to other developed countries, where the factors of production are available and thus offer a cost advantage.In the third and the final stage, production shifts to less developed countries and the country that originally exported the goods now becomes the importer.

33. The World Trade Organization • The WTO came into existence on 1st January 1995 but its origins lie in the General Agreement on Tariffs and Trade (GATT) that was in force since 1948.

34. GATT - WTO • GATT evolved through many rounds of negotiations. While GATT was limited to issues related to trade in goods, the WTO goes further to include trade in services, and in traded inventions, creations and designs (intellectual property).

35. WTO • the World Trade Organization (WTO) is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

36. Benefits of the WTO • Some of the benefits of the WTO are that it helps in maintaining peace, makes life easier with a system based on rules rather than on power, lowers the cost of living, broadens choice, boosts incomes and employment, and protects governments from narrow interests.

37. Funding institutions. • International Monetary fund • The World Bank

38. International Monetary Fund • The IMF concentrates on providing a sound framework for economic development and cooperation between member nations, and concentrates its efforts on establishing an environment of international monetary cooperation. In order to achieve its purpose, the IMF performs three main operations.

39. Three main operations of the IMF • Surveillance • Financial Assistance • Technical Assistance

40. The World Bank The World Bank is actually a group of five associated development institutions. • International Bank for Reconstruction and Development (IBRD), • International Development Association (IDA), • International Finance Corporation (IFC), • Multilateral Investment Guarantee Agency (MIGA), • International Centre for Settlement of Investment Disputes (ICSID).Each of these agencies specializes in a specific task to help to improve the living conditions in its member countries.