Tariffs, Taxes and Channel Costs /International Marketing 10th/

Tariffs

When products are transported across national borders, tariffs may have to be paid. Tariffs are usually levied on the landed costs of a product, which include shipping costs to the importing country. Tariffs are normally assessed as a percentage of the landed value. The World Trade Organization (WTO), like its predecessor, the General Agreement on Tariffs and Trade (GATT), has gone a long way in reducing tariffs. However, they can still prove significant for certain products in certain markets. Tariff costs can have a ripple effect and increase prices considerably for the end user. Intermediaries, whether they are sales subsidiaries or independent distributors, tend to include any tariff costs in their costs of goods sold and to calculate operating margins on the basis of this amount. As a result, the impact on the final end-user price can be substantial whenever tariff rates are high.

Taxes

A variety of local taxes also affect the final cost of products.

Value-added tax (VAT) a tax that is levied at each stage in the production and distribution of a product or service based on the value added by that stage; the tax is ultimately passed on to the buyer

One of the most common is the value-added tax (VAT) used by member countries of the European Union (EU). This tax is similar to the sales tax collected by state governments in the United States but involves more complicated assessment and collection procedures based on the value added to the product at any given stage.

Each EU country sets its own VAT structure. However, common to all is a zero tax rate (or exemption) on exported goods. A company exporting from the Netherlands to Belgium does not have to pay any tax on the value added in the Netherlands. However, Belgian authorities do collect a tax, at the Belgium rate, on products shipped from the Netherlands. Merchandise shipped to any EU member country from a nonmember country, such as the United States or Japan, is assessed the VAT rate on landed costs, in addition to any customs duties that may be applied to those products.

Sin taxes taxes assessed on products that are legal but discouraged by society

Different countries also assess different sin taxes. These are taxes assessed on products that are legal but are discouraged by the society. Cigarettes and alcoholic beverages commonly fall into this category.

Local Production Costs

Up to this point, we have assumed that a company has only one producing location, from which it exports to all other markets. However, most international firms manufacture products in several countries. In such cases, operating costs for raw materials, wages, energy, and/or financing may differ widely from country to country, allowing a firm to ship from a particularly advantageous location in order to reduce prices by taking advantage of lower costs. Companies increasingly choose production locations that give them advantages in production costs as well as freight, tariffs, or other transfer costs.

Consequently, judicious management of sourcing points may reduce product costs and result in added pricing flexibility.

Channel Costs

Channel costs are a function of channel length, distribution margins, and logistics. Many countries operate with longer distribution channels than those in the United States, causing higher total costs and end-user prices because of additional layers of intermediaries. Also, gross margins at the retail level tend to be higher outside the United States. Because the logistics system in a large number of countries is also less developed than that in the United States, logistics costs, too, are higher on a per-unit basis. All these factors add extra costs to a product that is marketed internationally.

Full book is available here.

DEVELOPING A GLOBAL INFORMATION SYSTEM /International Marketing 10th/

Companies that already have become global marketers, as well as those that plan to do so, must look at the world marketplace to identify global opportunities. The forces that affect an industry must also be analyzed to determine the firm’s competitiveness. To evaluate the full range of opportunities requires a global perspective for market research. Researchers must provide more than data on strictly local factors within each country. All firms that market their products in overseas markets require information that makes it possible to perform analysis across several countries or markets. However, leaving each local subsidiary or market to develop its own database will not result in an integrated marketing information system (MIS). Instead, authority to develop a centrally managed MIS must be assigned to a central location, and market reports need to be sent directly to the firm’s chief international marketing officer.

The Brazilian Institute of Public Opinion and Statistics (IBOPE) is among the top 25 global research organizations. It has operations in 14 countries in North and South America.

Full book is available here.

Studying The Competition

Firms may investigate competitors in order to benchmark. Benchmarking involves identifying best practices in an industry in order to copy those practices and achieve greater efficiency.

Benchmarking the act of identifying best practices in an industry in order to adopt those practices and achieve greater efficiency

Keeping track of a firm’s competitors is also an important strategic function. This type of strategic intelligence can be critical to a firm.

To undertake effective research about its competition, a company must first determine who its competitors are. The domestic market will certainly provide some input here. However, it is important to include any foreign company that either currently is a competitor or may become one in the future. The monitoring should not be restricted to activity in the competitors’ domestic market but, rather, should include competitors’ moves anywhere in the world. Many foreign firms first innovate in their home markets, expanding abroad only when the initial debugging of the product has been completed.

Aside from general business statistics, a competitor’s profitability may shed some light on its capacity to pursue new business in the future. Learning about others’ marketing operations may enable a company to assess, among other things, the market share to be gained in any given market. Whenever major actions are planned, it is extremely helpful to anticipate the reactions of competitive firms and include them in the company’s contingency planning. Of course, monitoring a competitor’s new products or expansion programs may give early hints of future competitive threats.

Analysis that focuses solely on studying the products of key competitors can often miss the real strength of the competitor. To understand an industry and where it is headed over the next five years, it is important to study the core competencies in the industry. 

The whole book is available here.

HOST COUNTRY POLITICAL CLIMATE /International Marketing 10th/

The rapidly changing nature of the international political scene is evident to anyone who regularly reads, listens to, or watches the various news media. Political upheavals and changes in government policy occur daily and can have an enormous impact on international business. For the executive, this means constant adjustments to exploit new opportunities and minimize losses.

Besides the international company, the principal players in the political arena are the host country governments and the home country governments. Sometimes transnational bodies or agencies such as the European Union (EU) or the World Trade Organization (WTO) can be involved. Within a national market, the interactions of all these groups result in a political climate that may positively or negatively affect the operations of an international business. The difficulty for the global company stems from the firm being subject to all these forces at the same time. The situation is further complicated by the fact that companies maintain operations in many countries and hence must simultaneously manage many sets of political relationships.

Host country a country that contains an operational unit (marketing, sales, manufacturing, finance, or R&D) of an international company. Any country that contains an operational unit (marketing, sales, manufacturing, finance, or research and development) of an international company can be defined as a host country. International companies deal with many different host countries, each with its own political climate. These political climates are largely determined by the motivations and actions of host country governments and local interest groups.

Full book is available here.

National Sovereignty and the Goal of Self-Preservation /International Marketing 10th edition/

A country’s self-preservation is most threatened when its national sovereignty is at stake. Sovereignty is the complete control exercised within a given geographic area, including the ability to pass laws and regulations and the power to enforce them. Governments or countries frequently view the existence of sovereignty as critical to achieving the goal of self-preservation. Although sovereignty may be threatened by a number of factors, it is the relationship between a government’s attempt to protect its sovereignty and a company’s efforts to achieve its own goals that are of primary interest to us.

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Sovereignty supremacy of authority or rule free from external control

Subsidiaries or branch offices of international companies can be controlled or influenced by decisions made at headquarters, beyond the physical or legal control of the host government. Therefore, foreign companies are frequently viewed as a threat to the host country’s national sovereignty.

(It is important to recognize in this context that perceptions on the part of host countries are typically more important than actual facts.)

Many attempts at restricting foreign firms are now discouraged under agreements established by the WTO. Still, these agreements exclude a number of sensitive areas. Countries often limit foreign ownership of newspapers, television, and radio stations for reasons of preserving national sovereignty. They fear that if a foreign company controlled these media, it could influence public opinion and limit national sovereignty. Internet businesses can be especially vulnerable to government censorship. Google’s YouTube has been banned or temporarily blocked in China, Turkey, and Thailand in response to postings deemed insulting or threatening by the national governments of those countries. Google concedes that balancing free expression and local laws is a delicate task.

The whole book is available here.