Imm 2010 part b
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International trade benefits countries by allowing them to specialize in goods they can produce efficiently and trade for goods they cannot produce or are more expensive to produce domestically. Countries trade because no country can satisfy all its needs and wants from domestic production alone. When countries specialize and trade based on comparative advantage, global production is increased and both trading partners can gain.
Imm 2010 part b
- 1. 2010- SECTION-B 2. WHY DO COUNTRIES TRADE? IN WHAT WAYS ARE THEY BENEFITED BY INTERNATIONAL TRADE? Countries trade with each other when, on their own, they do not have the resources, or capacity to satisfy their own needs and wants. By developing and exploiting their domestic scarce resources, countries can produce a surplus, and trade this for the resources they need. Goods and services are likely to be imported from abroad for several reasons. Imports may be cheaper, or of better quality. They may also be more easily available or simply more appealing than locally produced goods. In many instances, no local alternatives exist, and importing is essential. The advantages of trade International trade brings a number of valuable benefits to a country, including: The exploitation of a country's comparative advantage, which means that trade encourages a country to specialise in producing only those goods and services which it can produce more effectively and efficiently, and at the lowest opportunity cost. Producing a narrow range of goods and services for the domestic and export market means that a country can produce in at higher volumes, which provides further cost benefits in terms of economies of scale. Trade increases competition and lowers world prices, which provides benefits to consumers by raising the purchasing power of their own income, and leads a rise in consumer surplus. Trade also breaks down domestic monopolies, which face competition from more efficient foreign firms.
- 2. The quality of goods and services is likely to increases as competition encourages innovation, design and the application of new technologies. Trade will also encourage the technology between countries. Trade is also likely to increase employment, given that employment is closely related to production. Trade means that more will be employed in the export sector and, through the multiplier process; more jobs will be created across the whole economy. 3. EXPLAIN THE DIFFERENCES BETWEEN INTERNATIONAL MARKETING AND DOMESTIC MARKETING In general terms, both domestic and international marketing involves: focusing on the needs and wants of customers identifying the best method of satisfying those needs and wants orienting the company towards the process of providing that satisfaction meeting organizational objective. Domestic marketing and International marketing are same when it comes to the fundamental principle of marketing. With the world shrinking at a fast pace, the boundaries between nations are melting and companies are now progressing from catering to local markets to reach out to customers in different parts of the world. Marketing is a ploy that is used to attract, satisfy and retain customers. Whether done at a local level or at the global level, the fundamental concepts of marketing remain the same.
- 3. DOMESTIC MARKETING- The marketing strategies that are employed to attract and influence customers within the political boundaries of a country are known as Domestic marketing. The focus of companies is on the local customer and market only and no thought is given to overseas markets. All the product and services are produced keeping in mind local customers only. It deals with only one set of competition and economic issues which make it more convenient to do. There are no language barriers in domestic marketing and obtaining and interpreting data on local marketing trends and consumer demands is easier and faster to do. It helps the company make decisions and develop marketing strategies that are more effective and efficient. The risks are also lesser with domestic marketing and it needs lesser financial resources. Local markets are not as broad as the international market though and most companies are aiming at doing business globally. INTERNATIONAL MARKETING: - When there are no boundaries for a company and it targets customers overseas or in another country, it is said to be engaged in international marketing. The environment within which marketing operates is continually dynamic and largely uncontrollable. For international marketing this difficulty is magnified; not only are the uncontrollable elements of the environment different from country to country, but the controllable elements of the marketing mix (4Ps of price, product, place, promotion) must be adapted to these differing environments.
- 4. The key difference between domestic marketing and marketing on an international scale is the multidimensional and complexity of the many foreign country markets a company may operate in. International marketing is the promotion and sale of a company’s products to consumers in different countries. It is very complex and requires a huge amount of financial resources. Every country has its own laws on business and a company that aims at entering into business in another country must first know about them. Consumer tastes and preferences may also differ so marketing strategies must be formulated to cater to the needs of different consumers. International marketing requires more time and effort, not to mention its being very risky too. The international market is very uncertain and a company must always be ready for changes that may suddenly occur. It requires a higher level of commitment to succeed in an international market. 4. DESCRIBE BRIEFLY THE MAIN CHANNELS OF DISTRIBUTION USED IN EXPORT MARKETING When a company chooses to export directly to foreign markets, it usually makes internal organizational changes to support more complex functions. A direct exporter normally selects the markets it wishes to penetrate, chooses the best channels of distribution for each market, and then makes specific foreign business connections in order to sell its product. Organizing for Exporting A company new to exporting generally treats its export sales no differently than its domestic sales, using existing personnel and organizational structures. As international sales and inquiries increase, the company may separate the management of its exports from that of its domestic sales.
- 5. The advantages of separating international from domestic business include the centralization of specialized skills needed to deal with international markets and the benefits of a focused marketing effort that is more likely to increase export sales. A possible disadvantage is that segmentation might be a less efficient use of corporate resources. When a company separates international from domestic business, it may do so at different levels in the organization. For example, when a company first begins to export, it may create an export department with a full or part-time manager who reports to the head of domestic sales and marketing. At later stages, a company may choose to increase the au tonomy of the export department to the point of creating an international division that reports directly to the president. Larger companies at advanced stages of exporting may choose to retain the international division or to organize along product or geographic lines. A company with distinct product lines may create an inter-national department in each product division. A company with products that have common end users may organize geographically. For example, it may form a division for Europe and another for the Pacific Rim. A small company's initial needs may be satisfied by a single export manager who has responsibility for the full range of international activities. Regardless of how a company organizes its exporting efforts, the key is to facilitate the marketer's job. Good marketing skills can help the firm operate in an unfamiliar market. Experience has shown that a company's success in foreign markets depends less on the unique attributes of its products than on its marketing methods. Once your company is organized to handle exporting, a proper channel of distribution needs to be carefully chosen for each market. These channels include sales representatives, agents, distributors, retailers, and end users.
- 6. Sales Representatives Overseas, a sales representative is the equivalent of a manufacturer's representative in the United States. The representative uses the company's product literature and samples to present the product to potential buyers. A representative usually handles many complementary lines that do not conflict. The sales representative usually works on a commission basis, assumes no risk or responsibility, and is under contract for a definite period of time (renewable by mutual agreement). The contract defines territory, terms of sale, method of compensation, reasons and procedures for terminating the agreement, and other details. The sales representative may operate on either an exclusive or a nonexclusive basis. Agents The widely misunderstood term "agent" means a representative who normally has authority, perhaps even a power of attorney, to make commitments on behalf of the firm he or she represents. Firms in the United States and other developed countries have stopped using the term and instead rely on the term "representative," since agent can imply more than intended. It is important that any contract state whether the representative or agent does or does not have legal authority to obligate the firm. Distributors The foreign distributor is a merchant who purchases goods from a U.S. exporter (often at a substantial discount) and resells it for a profit. The foreign distributor generally provides support and service for the product, thus relieving the U.S. company of these responsibilities. The distributor usually carries an inventory of products and a sufficient supply of spare parts and also maintains adequate facilities and personnel for normal servicing operations. Distributors typically handle a range of non-conflicting but complementary products. End users do not usually buy from a distributor; they buy from retailers or dealers.
- 7. The terms and length of association between the U.S. company and the foreign distributor are established by contract. Some U.S. companies prefer to begin with a relatively short trial period and then extend the contract if the relationship proves satisfactory to both parties. Foreign Retailers A company may also sell directly to foreign retailers, although in such transactions, products are generally limited to consumer lines. The growth of major retail chains in markets such as Canada and Japan has created new opportunities for this type of direct sale. This method relies mainly on traveling sales representatives who directly contact foreign retailers, although results might also be achieved by mailing catalogs, brochures, or other literature. The direct mail approach has the benefits of eliminating commissions, reducing traveling expenses, and reaching a broader audience. For optimal results, a firm that uses direct mail to reach foreign retailers should support it with other marketing activities. American manufacturers with ties to major domestic retailers may also be able to use them to sell abroad. Many large American retailers maintain overseas buying offices and use these offices to sell abroad when practical. Direct Sales to End Users A U.S. business may sell its products or services directly to end users in foreign countries. These buyers can be foreign governments; institutions such as hospitals, banks, and schools; or businesses. Buyers can be identified at trade shows, through international publications, or through Commerce's Export Contact List Service. (Contact your local EAC for more details). The U.S. company should be aware that if a product is sold in such a direct fashion, the company is responsible for shipping, payment collection, and product servicing unless other arrangements are made. Unless the cost of providing these services is built into the export price, a company could have a narrower profit than originally intended.
- 8. 5. BRING OUT THE DIFFERENCE BETWEEN F.O.B. AND C.I.F PRICES OF A PRODUCT. FOB and CIF are International Commercial terms, or Incoterms, as they are popularly known. There are lots of acronyms, all 3 lettered, and having a predefined meaning that is easily understood by both buyers and sellers in international trade. In fact, Incoterms is a registered trademark of the International Chamber of Commerce. However, people are always confused between CIF and FOB because of many similarities. This article attempts to differentiate between these two Incoterms to remove all doubts from the minds of readers. FOB FOB stands for Free on Board, and is a contract between the buyer and seller, where the seller has to load the goods himself on a vessel that has been nominated by the buyer. It is the duty of the seller to clear the goods for export, and the cost as well as risk is clearly divided between the buyer and seller when the goods are on the vessel. The details of the port and the vessel have to be intimated by the buyer to the seller. CIF CIF stands for Cost, Insurance, and Freight and seller has to pay all the costs along with freight to bring the goods to destination port. However, as soon as goods are loaded on to the vessel, the risk gets transferred on to the buyer. It also stipulates the seller to arrange for, and pay for insurance of the goods. What is the difference between FOB and CIF? Talking of differences, once goods have been loaded on to the vessel, they become a risk of the buyer in case of FOB. However, in case of CIF, seller not only brings goods to the port of destination, he also has to procure and pay for insurance against buyer’s risk of loss or damage to the goods during transit. Buyers, especially when they are new or when the freight volume is low, prefer CIF as they are assured that the seller is responsible for all fright and insurance issues. Though, importer has no
- 9. control over choice of vessel, routing and other shipping details, he is lured by the prospect of more savings and conveniences. However, once freight volume grows or when the number of shipments grows, CIF starts to pose difficulties and this is when importers prefer FOB. 6. DEFINE DUMPING. WHY DO COUNTRIES LEGILATE ANTIDUMPING LAWS AS BARRIERS TO TRADE. In international trade, the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market. That is refer to as Dumping. Why anti-dumping law? In a way, antidumping duties work like import tariffs. But antidumping is a trickier issue because it is always discriminatory. This implies that the domestic industry can strategically use this instrument to target only foreign firms it views as competitive rivals. And, being selective, antidumping measures also generate more negative effects than tariffs do. Consumers are clearly worse off because they have to bear the cost of duty. Imports become more expensive. Furthermore, there is no guarantee that the domestic producers will keep their prices at the initial levels. Depending on price elasticity, they can obtain higher profits by setting a new price higher than before but lower than those of dumped products.