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Final exam review Contents: 1) Marketing in Global Firm a) Global marketing strategy, global marketing segment, elements of marketing program b) Understanding the differences between standardization and adaptation c) Factors affect international pr

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Arts and Business
Mark Arnason

Marketing in Global Firm The environment of international business (Diverse cultural, political, legal, monetary, and financial environment of the firm) Global marketing strategy (middle layer of the circle) 1) How to position itself in foreign markets and which customer segments to target 2) Degree to which its marketing program elements should be standardized and adapted Global market segment A group of customers that share common characteristics across many national markets Elements of marketing program (4ps) - Global branding and product development - International Pricing - International marketing communications - International distribution Adaptation firm efforts to modify elements of the international marketing program to accommodate specific customer requirements in a particular market (local responsiveness/multi-domestic industries) Standardization firm efforts to make the marketing program elements uniform, with a view to targeting entire regions of countries, or even the global marketplace, with a similar product or service (global integration/global industries) Standardization Adaptation Pursue when: Pursue when there are distinct: - Similar market segments exist across - National preferences countries - Laws and regulations - Customers seek similar features - Living standards and economic - Product have universal specifications conditions - Business customers have converging - National infrastructure expectations Complete standardization --------------------------------------------------------Complete Adaptation Advantages Advantages - Cost reduction - Meet needs of customers more - Improved planning and control precisely - Ability to portray a consistent image - Enjoy unique appeal and build global brands - Complying with such government regulations as health and technical standards - Achieve greater success in combating customer resistance Factors affect international pricing 1) Nature of the product or industry (A specialized product, or one with a technological edge, gives a company greater price flexibility) 2) Location of the production facility (Locating manufacturing in countries with low-cost labor enables a firm to charge cheaper prices/locating factories in or near major markets cuts transportation costs and may eliminate problems created by foreign exchange fluctuations) 3) Type of distribution system (Some export distributors mark up prices substantially which will harm the manufacturers image and pricing) 4) Foreign market considerations (Climate and other market conditions may require the firm to modify a product or its distribution/Foreign government intervention: i.e. tariffs) Three Pricing Strategies 1) Rigid Cost-plus pricing a. Set a fixed price for all export markets (Favored by less experienced exporters) b. Management adds a flat percentage to the domestic price to compensate for the added costs of doing business abroad c. The export customers final price has a markup to cover transporting, marketing the product, and profit margins for intermediaries and the manufacturer d. Fail local market conditions: buyer demand, income level, competition 2) Flexible cost-plus pricing a. Management includes any added costs of doing business abroad in its final price b. Prices are adjusted to accommodate local market and competitive conditions, such as customer purchasing power, demand, and competitor prices 3) Incremental pricing a. The firm may set prices to cover only its variable costs (not its fixed costs) in highly competitive markets b. Management assumes that fixed costs are already paid from sales of the product in the firms home country International Price Escalation refers to the problem of end-user prices reaching exorbitant levels in the export market caused by multilayered distribution channels, intermediary margins, tariffs, and other international customer costs (the retail price in the export market may be two or three times the domestic price, creating a competitive disadvantage for the exporter) Five key strategies to combat international price escalation 1) Shorten the distribution channel 2) Product can be redesigned 3) Ship its products unassembled 4) Re-classified using a different tariff classification 5) Move production or sourcing to another country (lower production costs/currency rates) Transfer pricing (Intra-Corporate Pricing) - Refers to prices that subsidiaries and affiliates charge one another as they transfer goods and services within the same MNE - They generally differ from the market prices that the firm charges its external customers - Reasons for transfer pricing: o repatriate profits from countries that restrict MNEs from taking their earnings out of the country o shift profits out of a high corporate tax country to a low corporate tax one o minimize foreign exchange risks (e.g. by moving funds out of countries where a currency devaluation is forecast) Transfer pricing factors (The country has to be buying at or below cost and sell at a higher price) - (Little or no) Restrictions on profit repatriation - (low) Corporate income-tax rates - (High) Tariffs for the product in question - (High) Political stability - (High) Strategic importance to the MNE - (Favorable) Accounting rules for calculating income AFM in the Global Firm International Financial Management refers to the acquisition and use of funds for cross- border trade, investment, and other commercial activities. The firms ability to minimize risk and seize opportunities depends on its financial management skills (Geographic diversification gives the firm the opportunity to tap capital at a lower cost, minimize overall tax obligations, achieve efficient scale of financial operations, and gain greater bargaining power with lenders) International Financial Management Tasks The greater the scale of international operations for the firm, the greater is the relevance of these international financial management tasks. 1) Decide on the capital structure (decide ideal long term mix of debt vs. equity financing ) a. Capital structure is the mix of long term equity financing and debt financing firms use to support their international activities. It affects the profitability and stability of the firm and its international operations b. Equity financing the issuance of shares of stock to raise capital from investors and the use of retained earnings c. Debt financing the borrowing of money from banks or other financial intermediaries, or selling corporate bonds to individuals or institutions to raise capital (can add value to the firm because some governments allow firms to deduct interest payments from their taxes).
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