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).

Anti-Corruption War: Western Ways Doomed to Fail

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Co-authors: Anna Astvatsatryan, Michael R. Czinkota

In November of 2014, leaders of the Group of Twenty (G20) vowed to implement an anti-corruption action plan. Although the proposed strategies might improve the situation for G20 member states, using the same toolkit will not work in the developing world. One needs to take into account culture, traditions, and historical circumstances, when crafting anti-corruption strategies for the developing world.

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Sailors On the Ship Europa: No Easy Cruise Ahead

They say more marriages might survive if the couple realized that sometimes the better comes after the worse. Unfortunately, political partners tend to have little patience and loyalty. We have seen the referendum in Scotland that nearly tore the United Kingdom asunder. Now the British exit (BREXIT) from the European Union is rearranging the deck chairs on the ship Europa.

While sailors on the ship, marketers do not have the captain’s power to change the game, but they can help to achieve a less painful adjustment by understanding and preparing for the major transformations and significant effects in marketing on both sides of the Atlantic.

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The Stages of the Product Cycle

Product cycle theory is both supply-side (cost of production) and demand-side (income levels of consumers) in its orientation. Each of these three stages that Vernon described combines differing elements of each.

Stage I: The New Product

Innovation requires highly skilled labor and large quantities of capital for research and development. The product will normally be most effectively designed and initially manufactured near the parent firm and therefore in a highly industrialized market due to the need for proximity to information and the need for communication among the many different skilled-labor components required.

In this development stage, the product is nonstandardized. The production process requires a high degree of flexibility (meaning continued use of highly skilled labor). Costs of production are therefore quite high. The innovator at this stage is a monopolist and therefore enjoys all of the benefits of monopoly power, including the high profit margins required to repay the high development costs and expensive production process. Price elasticity of demand at this stage is low; high-income consumers buy it regardless of cost.

Stage II: The Maturing Product

As production expands, its process becomes increasingly standardized. The need for flexibility in design and manufacturing declines, therefore the demand for highly skilled labor declines. The innovating country increases its sales to other countries. Competitors with slight variations develop, putting downward pressure on prices and profit margins. Production costs are an increasing concern.

As competitors increase, as well as their pressure on price. The innovating firm faces critical decisions on how to maintain market share. Vernon argues that the firm faces a critical decision at this stage—either to lose market share to foreign-based manufacturers using lower-cost labor or to invest abroad to maintain its market share by exploiting the comparative advantages of factors costs in other countries. This is one of the first theoretical explanations of how trade and investment become increasingly intertwined.

Stage III: The Standardized Product

In this final stage, the product is completely standardized in its manufacture. Thus, with access to capital on world capital markets, the country of production is simply the one with the cheapest unskilled labor. Profit margins are thin, and competition is fierce. The product has largely run its course in terms of profitability for the innovating firm.

The country of comparative advantage has therefore shifted as the technology of the product’s manufacture has matured. The same product shifts in its location of production. The country possessing the product during that stage enjoys the benefit of net trade surpluses. But such advantages are fleeting, according to Vernon. As knowledge and technology continually change, so does the country of that production comparative advantage.

World’s Top Languages

jeopardyQ: What is the world’s top language by number of speakers? Can you name the top ten?

Answer: Chinese is the world’s most spoken language with 1.2 billion first language speakers. English comes third after Spanish.

No of first language speakers
1 Chinese 1,197,000,000
2 Spanish 414,000,000
3 English 335,000,000
4 Hindi 260,000,000
5 Arabic 237,000,000
6 Portuguese 203,000,000
7 Bengali 193,000,000
8 Russian 167,000,000
9 Japanese 122,000,000
10 Javanese 84,300,000

 

Source: https://www.ethnologue.com/statistics/size