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).

Tariffs Can Be Good

Tariffs Can Be Useful

Michael R. Czinkota

President Trump has announced tariffs against steel and aluminum imports to help domestic industries long suffering from import pressure. Pundits have bemoaned these steps as inappropriate and precursors to a trade war. But other dimensions in play make these announcements useful.

Shifts in policy and diplomatic direction are implemented with great difficulty in Washington. Bureaucrats typically far outlast their current team of policy makers. It is therefore quite difficult for a well-intentioned appointee to implement change and witness its result.

Trade is only one of the economic components of government, and just one section of many policy parameters. New policy makers go through all the same motions as those before them, the initial touching of base, the mutual assurances of collaboration, and the plans to develop a joint vision.

But, little if anything happens. Things just chug along without new outcomes. More time brings new issues which take priority over earlier pressing concerns. Existing trade structures may eventually become acceptable to many leaders, which makes changing them even more difficult.

Shifts of global issues are slow in coming. To speed things up and to get results, there has to be a spotlight. Issues have to affect a number of important countries simultaneously, and lie on the surface of the policy cauldron.

For progress to occur different issue trade-offs between countries have to be possible. There has to be some “give” in exchange of some “take”. Governments have to decide whether their greatest preoccupation lies with economies that “grow”, that “make”, that “create” or that “coordinate”, and then place their negotiating chips accordingly. There has to be timing immediacy to move things along and to have government leaders and their bureaucracies address, analyze, understand and endorse changes. For all this, there needs to be an anvil focus.

The tariffs open the world outlook onto a new direction: they command attention from all trading partners; they require a specific response instead of the typical speechwriter niceties. New thoughts on the purpose and capability of trade can lead to an active re-analysis of policy steps and agreements.

Much of today’s trade understanding has been in place since the international institutions of Bretton Woods were formed in 1944. Surely, after 74 years, policy makers, firms, their long range planners, and academics should be able to come up with some helpful innovations.

All this is likely to precipitate shifts, adjustments, and new conditions. There will be new global actions and perhaps even entirely new paths and expectations for both international and domestic business transactions, lifestyles and relationships.

Change will lead to adjustment. Maybe there will be more domestic vacations, shorter college times, fewer flowers in winter, more eating of white asparagus, and more living within extended families. We just might wind up with adaptations  which make society more productive and life more pleasant.

As President Trump’s announcements and communications capture the attention of world leaders, they can astutely trigger progress and new approaches. Recognizing that a crisis could happen tends to clear the mind.

The benefit of the tariff announcements depends on the new processes and changes which they trigger. Then the threat of tariffs can be a useful means to an end. Strong admonishment with flexible rescission can make all boats rise.

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).