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Accounting & Financial Management
AFM 333
Darcy Delamare

Framework for Marketing in the international firm • Environment of international business (culture, politics, legal, monetary and the financial environment of the firm) • Global Marketing Strategy – target customer segments and positioning • International Marketing Program Standardization/Adaptation 1. Global branding/product development 2. International pricing 3. International distribution 4. International marketing communications • Trade offs between standardizing & adapting and how to best coordinate marketing across multiple markets • Standardization – global positioning strategy – reduces costs/adaptation, improved planning/control and consistent image (global brand) • Adaptation (national prefs, laws/regulations, living standard/economic conditions, infrastructure) – costly but meets needs precisely, unique appeal, government regulations and achieve greater success in combating customer resistance • Balancing act between the two – one offering, one world is not feasible International Pricing, Communication and Distribution • 4 Factors affecting international pricing 1. Nature of product/industry – specialized/tech edge = price flexibility 2. Location of product facilities – low cost labor = cheaper prices 3. Type of distributions – some export distributors mark up price 4. Foreign market considerations – climate and other market considerations may require product modifications, which increases cost and price. • Internal - Profit/market share expectations, costs, degree of control management • External – cost expectations, purchase power, customer costs, landed costs, importers cost • Steps of Setting Prices Abroad 1. 1 Estimate landed price = all costs associated with shipping 2. 2 Estimate price importer/distributor will charge 3. 3 Estimate target price range – floor/ceiling prices 4. 4 Assess sales potential at likely price 5. 5 Select pricing strategy 1. rigid cost plus pricing = price + flat cost % 2. Flexible cost + pricing = price + whatever costs are 3. Incremental pricing = price to just cover variable costs 6. 6 Check consistency with current prices (product lines, customers and markets) 7. 7 Implement pricing strategy/tactics and continuously monitor performance while adjusting prices • International Price Escalation – multilayered distribution system causes end price to be significantly higher than domestic prices in the host country, giving the exporter a significant disadvantage. Strategies to combat are as follows: 1. Shorten distribution channel 2. redesign product to remove cost 3. ship parts unassembled = lower tariffs 4. reclassified tariff class 5. move production/sourcing • Transfer Pricing – repatriate profits, shift profits to low tax country, typically centralized + direct by CFO – this is influenced by taxes, tariffs, accounting rules for income, political stability, profit repatriation restrictions and strategic importance • Media availability/quality may vary internationally – Global vs Local Ad Agency • Distribution – most inflexible – once established hard to change 1. Independent intermediaries (for exporter, subsidiaries for FDI and seek to minimize channel length International Financial Management – transactions in different currencies/diverse environments • Restrictions on cash flows, country risk and varying tax/accounting systems • Access funds via bond market, stock exchange, banks, venture capital – whatever cheapest • International Financial Management Tasks 1. 1) Decide on Capital Structure 2. 2) Raise Funds a) Global Money Market (Short term) b) Global Capital Market (Long term) 3. 3) Working Capital and Cash Flow Management 1. Trade credit – sub differs payment for inventory received from parent 2. Dividend remittances – transfer sub funds to parent 3. Royalty payments – compensation to owners of IP 4. Fronting loan – made through a bank to circumvent government restrictions 5. Transfer pricing 6. Centralized depository 7. Multilateral netting 4. 4) Capital Budgeting (investment projects) 5. 5) Currency Risk Management 1. Transaction Exposure – currency risk when AP/AR are in forex 2. Translation Exposure – translating the financial statements • Current Rate Method – translate FS at current forex rate • Temporal Method – LT Asset/Lia at Historical, Short term at Market rate 3. Economic Exposure – Foreign Exchange Rate fluctuations • Hedging instruments – forwards, futures, options, swaps • Minimizing currency risk – expert advice, centralize currency management, decide on risk tolerance, forex forecasting, monitor currency changes, wary of unstable currencies, monitor LT/regulatory trends, distinguish exposures and emphasize flexibility 6. 6) Management diversity of Accounting/Tax Practices 1. Direct Tax – profits, intracorp transfer, cap gains, royalties, interest, dividends 2. Indirect tax – license or franchise product/services or charging interest
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