THE INTERNATIONAL SUPPLIER CONUNDRUM

TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING (5/6)

THE INTERNATIONAL SUPPLIER CONUNDRUM

(Fifth in a series)

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota , Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

Terrorism exposes firms to high levels of uncertainty and risk. Growing threats produce higher costs and more disruptions for the international marketing organization. Terrorism highlights the vulnerabilities produced by global sourcing, international distribution, and reliance on independent agents abroad. Unfamiliar settings also complicate intelligence gathering and corporate governance. Yet, firms need a globalizing marketplace.

Our survey of 151 multinational manufacturing firms reveals the threat of disruptions in international supply chains. Increased costs require management to include terrorist contingencies in decision-making. Advanced planning and strategic action can provide the firm with greater resources and capabilities for managing external shocks and adverse events.

Terrorism has become an ongoing challenge and now is part of the “new normal” of international marketing. Enemy groups can access and employ asymmetrically destructive power. In addition to loss of life and property, the growing ferocity of attacks sows panic and triggers new frictions for global commerce. Thus, operational, process, and strategic innovations that shield the firm are an increasingly prudent investment.

Natural disasters and man-made ones can be mitigated by investments which guard against terrorism. Such spillovers need to be considered environmental scanning is a key step in the planning process.

Globalization exposes MNEs to the risk of interdependence and imposes unanticipated perils. However, superior intelligence gathering alerts the firm to vulnerable areas and assists in forecasting as to where and how terrorists will likely strike next.

In international marketing, due to their longevity and fixed locations, channels and supply chains are particularly vulnerable. Sourcing, just-in-time systems, lean production, decentralized planning and supplier configurations, all need to be re-evaluated. For firms that rely heavily on independent suppliers, management needs to emphasize increased coordination, more reliable and transparent partners, and steps to improve trust and commitement.

Enterprise resilience refers to a firm’s ability to operate in risky environments and overcome discontinuities. Resilience requires flexibility, familiarity, and redundancy. To the extent that disruptions result in long-term shortages of needed materials and supplies, firms may opt to produce essential inputs themselves. Alternatively, in spite of cost, theoriticial preference for single source supplies, inputs should be sourced from a wider range of suppliers to provide for contingencies and limit exposure to risk. Even the best systems can fail under circumstances of suddenc stockouts without replacement planning.

Crisis management is effective when disasters are averted or when operations are rapidly sustained or resumed. As already suggested by strategist Sun Tzu, the most effective crisis management minimizes potential risk before an event. Planning for terrorism is akin to financial investors rebalancing portfolios periodically to optimize returns and reduce risks. Management might divest risky assests and increase holdings in other, geographically more safe locations or industries. Re-investments can to optimize the firm’s risk level and absorption capacity.

Innovations give rise to new safeguards in global operations. Management needs to develop metrics that trade off the costs and benefits of risk mitigation measures. For example, while the use of multiple suppliers is useful, it must be balanced against increased costs and the benefit of distribution circumvention. The task can be particularly complex when marketing internationally, because the foreign context introduces diverse contingencies that complicate analyses. But in a world which sometimes resembles a boiling caulderen of disruption and insecurity, such preparatory analysis is required for survival and prosperity. So it needs to be done!

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. He is a trade policy analyst and frequent public speaker. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

Today’s Spring Break

Today’s Spring Break

This spring, I wanted Michael Czinkota’s students to remember their “Marketing Across Borders” class while they traveled to azure beaches and Caribbean getaways. They were to connect their break experiences to some of the themes we have explored in class. Their responses offered an interesting – and illuminating – glimpse into how international marketing shapes the decisions of young travelers.

As digital natives, most of my students performed the research and planning for their trips online. Whether scoring cheaper flights or finding top restaurants, these young travelers turned to social media platforms and travel websites like AirBnb and TripAdvisor, to find affordable, and often all-inclusive, deals for hotels and flights. Students noted the power of word of mouth, which they far preferred over mass-market pamphlets, in guiding travel decisions. Much trust was placed in the reviews of peer travelers.

Much international travel was to Mexico, the Dominican Republic, and Germany.

But even when my students ventured outside their comfort zones, they still encountered elements of the familiar. They noted the prevalence of Japanese manufactured cars, such as Toyota, in countries like Mexico and Jamaica. For food, they found a preponderance of American brands – like McDonalds and Starbucks – that were almost identical to those in Cincinnati, Ohio.

A student, involved in a social justice immersion trip to Jamaica, found international marketing to be an important tool in business development. She found billboards with emotional global brand messages: “Kakoo loves Pepsi!”; “Jamaica, land we love; Honda, car we love.” Many messages were targeted toward tourists and rendered in English rather than local languages.

In terms of favorite topics, many of my students’ broached food. There was a fascination with the globalization of food products. Students were delighted to taste the delicious meals of the world. “Food trends from around the world had penetrated the Costa Rican market: Breakfast places were serving cold brewed ice coffee, kombucha, acai bowls, avocado toast, and homemade vegan bread. Australians own the best taco joint in Tamarindo. A woman from Minnesota was the chef at a local breakfast café. Markets served poke bowls (sushi bowls from Hawaii), arepas (shredded beef sandwiches from Venezuela), and traditional French pastries.”

Students saw a choice of goods that were produced in the U.S. but tasted differently abroad. In the Dominican Republic, there were different taste versions of Coca Cola. Snacks of choice, such as Doritos, were sold at two different prices depending on whether they were sold in American or Mexican packaging. In Puerto Vallarta, Mexico, the point of sale changed in supermarkets. Oreos were sold alongside American cereals rather than in the cookie section!

All these observations contribute to a wider understanding of international marketing forces that shape tourism for young travelers today. Travel can be good – it gives more perspective, more context and more variety. Surely, there will be more alternatives and new experiences, which make life more meaningful, spicy and more interesting.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

Georgetown University students, Dina El-Saharty and Lisa Burgoa, contributed to this report.

An Example of Midterm: The Tomato: Vegetable or Fruit?

Today, we had a midterm in the “Marketing Across Borders” course in the McDonough School of Business at Georgetown University. Students were asked to elaborate on the trade consequences of a Supreme Court Decision “Nix vs. Hedden” 1893. Our working title is “The Tomato: Vegetable or Fruit?”.

Here is my summary of the case, please feel free to comment or send us your analysis of this case and I will respond to you. Enjoy!

The Tomato: Vegetable or Fruit?

In 1893, the U.S. Supreme Court grappled with an international legal question that continues to confound to this day — does a tomato qualify as a vegetable or a fruit?

Though many associate the tomato with the stews, salads, and sandwiches that are typically the domain of vegetables, any botanist will tell you that the plant meets the scientific definition of a fruit: a seed-bearing structure that  develops from the ovary of a flowering plant.

But in the U.S. Supreme Court case Nix vs. Hedden, the judges unanimously arrived at a different definition. They ruled that imported tomatoes should be taxed as vegetables, which had a 10 percent tariff when they arrived on American shores, rather than as fruit, which carried no tariff.

Though the court acknowledged that a tomato is technically a fruit, it went on to write that according to the “common” definition most people use, tomatoes fall under the same category as other vegetables such as lettuce, cabbage, and carrots. In other words, a tomato counts as a vegetable because most people thought it was.

A more recent example of changing definitions in trade policy arose during a trade war between Vietnam and the United States that started in 2001. When cheap imports of Vietnamese catfish threatened to put U.S. producers, who had higher costs, out of business, American lobbyists and lawmakers scrambled to find a way to bar Vietnamese producers from the market.

The coalition persuaded Congress that the word “catfish” only applied to U.S. varieties, not Vietnamese imports, even though there was no biological difference between the fish. Thus, when Congress normalized trade relations with Vietnam, its definition of “catfish” excluded basa or tra, the names applied to Vietnamese catfish.

Even today, the questions explored by the Nix v. Hedden case continue to have implications. What does this Supreme Court case – along with the example of the Vietnamese catfish – tell us about trade policy? Who ultimately defines a product, and how could altering definitions affect trade policy? Do tariffs still play a role in modern-day international trade, and can marketers make a difference?

Please analyze this case.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

DOES TERRORISM CAUSE POVERTY? OR THE REVERSE?

TERRORISM, COMPETITIVENESS AND INTERNATIONAL MARKETING (4/6)

DOES TERRORISM CAUSE POVERTY? OR THE REVERSE?

(Fourth in a series)

Valbona Zeneli, Marshall Center, Germany

Michael R. Czinkota , Georgetown University USA and University of Kent, UK

Gary Knight, Willamette University, USA

In light of the limited empirical research of terrorism effects on the internartional activities by firms, we undertook a two-phased exploratory investigation. First, we conducted qualitative interviews with internationally-active firms on terrorism to develop a broad understanding of what companies and managers see as the key salient issues. We also conducted discussions, generally 45 to 60 minutes in length, via telephone and at company sites, with senior managers of  nine firms with extensive international operations. These interviews provided a clearer picture of managers’ concerns about and response to terrorism, and facilitated the creation of a survey used in the second phase of our research.

Respondents worried about interruptions of supply chains, distribution channels, and logistics due to terrorism. Concerns also focused on the trustworthiness and reliability of foreign suppliers and intermediaries exposed to terrorism. Attention also rested on corporate capabilities which allow firms to prepare for potential disruptions and delays due to terrorism, and keep resources available to protect from and counteract terrorism.

The second phase of our research was an online survey of a sample of international firms headquartered in the United States but active in many countries around the world. The survey aimed to validate earlier findings, to better understand perceptions about terrorism, and to assist with the planning and responses that managers are undertaking when confronted with terrorism.

The unit of analysis was the firm. For standardization purposes, company resources were assessed as ‘annual revenues per employee’, where total annual revenues were divided by number of employees for each firm. We used 5-point Likert scales.

In conducting the survey, we collaborated with a large trade association and its members. About one-third of the group’s 8,000 members are engaged in international marketing. We sent all members an e-mail and requested members active in international marketing to complete the questionnaire at a separate website. This approach ensured responses from a relatively random sample of U.S. firms engaged in international marketing. Results were received from 551 member firms, a response rate of about 21% considered acceptable for unsolicited research participation.  We then selected firms active in manufacturing (as opposed to services) in order to focus on companies working in the international marketing of physical goods.  This step resulted in a final sample size of 151 manufacturing firms engaged in international marketing.

To achieve research robustness, we assessed respondent representativeness in two ways: A wave analysis compared the scores from a sample of early respondents to those in a sample of late respondents.  Second, we compared randomly chosen samples of responding and nonresponding firms.  In both cases, the tested variables did not reveal any significant differences between samples thus, nonresponse bias was not expected to affect study results. Moderated regression analysis was used to assess the research hypotheses.  We found normal probability distribution and no outlier observations, suggesting no violation of the normality assumption.

In internationalizing firms, it appears that the threat or occurrence of terrorism is associated with immediate increases in international marketing costs and with disruptions in international supply chains.  Management becomes likely to include terrorism as a detrimental factor in international marketing planning, and in the design of global distribution channels.

Finally, the more resources held by the firm, the more willingly terrorism and its repercussions will be recognized. The trend appears to be that particularly among informed and wealthy firms a terrorism presence creates early and significant corporate responses. Terrorism seems to be a key causal factor in fomenting poverty much more so than poverty creating terrorism.

A significant insight!

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).

A World without international marketing?

A World without international marketing?

-Michael R. Czinkota

 Sometimes we only know what we lost when it has left us. I put this thought to the test it in my class of Georgetown University students. In our course “Marketing Across Borders”, we worked on the question: “What would life look like without international marketing?”. The answers offered various perspectives reflecting their interest and training in international affairs. The range was broad, addressing the impact of international marketing in the context of diversity, choices, cultural exchange, and international quality standards.

            On a personal level, students saw substantial impact of international marketing on their lives. Some mentioned that international marketing and its activities creates thousands of jobs around the world.This was seen as highly relevant to themselves, but they included their parents as well since such a change clearly involved today and the future. Some students said that without International Marketing a life would be simpler but not necessarily in a good way. International Marketing was seen to bring to life a variety of products that enrich consumers and make them more productive.

Some respondents highlighted the exposure to new thoughts and ideas that International Marketing brings to people around the world. Such exposure motivates the competition between companies to supply better quality combined with better value. This competition leads to innovation in products across different markets around the world. Without International Marketing, the high quality standards we have today would diminish due to decreasing competition.

            Companies would also feel  the absence of International Marketing. Expansion across borders will be harder and would have to rely without marketing heavily on word of mouth communication. Exports and imports will be far less than today’s value since international activities will be less profitable. Selling products to other cultures in which they are not interested will be difficult. Companies will have fewer opportunities to learn and develop from others as well. Problems will be caused by a lack of willingness to adjust or a lack of motivation to develop and compete. In consequence, the world won’t be as efficient as today.

            There was the hypothesis that International Marketing is likely to reduce poverty and increase international cooperation. These benefits would disappear when foreign direct investment decreases. Sales in foreign markets would diminish without the lubricating effect of international marketing. Less cultural awareness of others would be the consequence of a decline in intercultural communication. Companies would be less socially responsible and transparent as they won’t be inspired by other international companies who serve international communities. This would newly insert more psychic distance between cultures and countries, and reduce the attention paid to common problems and actions taken for the public good.

            Finally, we explored what students would miss most, where does the pain threshold begin: We know about the wide variety of products that are moved and brought to market thanks to marketing. So how about the loss of video games, cars, music tourism or even commercials. These items were touched on, but the core of items one would miss the most were Food, Food, and Food again.  Students were quite varied in their thinking as long as the items whose loss was deplored dealt with sustenance or alimentation. Leading among products held dear were chocolate, snacks, noodles, candies and anything else which could be eaten by chopstick. Quite a broad base from students whose parents were only introduced to new eating utensils. Food and its variety tend to give staying power to globalization and also encourage cross fertilization. Let it give new opportunity to a life with spice.

Michael Czinkota teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE).