Unit 4

GLOBAL PRODUCTION

Performing activities in different countries and reintegrating them through production systems.

The globalization of production means that the world has become the global village and the
producers can get the benefit from the different culture and cheap labors all around the world.

Decisions concerning global production:

Location decision
Scale of operations
Cost of production
Make or buy decisions
1. Location decision

The location decisions vary from country to country. Every country has different factors
influencing location decisions. There are two basic things for locating manufacturing facilities:

a. Concentrating them in centralized location

b. Concentrating them in decentralized location

2. Scale of operations

As well as its location, the consideration of any particular facility must also include a
determination of the scope and scale of its operations. This involves deciding exactly what goods
and services should be produced at that location and what quantities of those goods and services
should be produced.

3. Cost of production

Local factor prices have a crucial influence on the cost of goods manufactured. This particularly
applies to production processes with a high share of value added. Labor costs are the key
location parameter in most manufacturing sectors.

Cost of production includes the following costs:

a. Labor costs:There is no denying that locations in developing and newly industrialized

economies have very significant labor cost advantages. This will remain the case in the
 long term, despite the rising salaries in some of these countries due to their booming
economies.

b. Capital costs and depreciation:

There is no market price that allows direct evaluation of the cost of capital for a given
investment location. Investment in production plants will always represent a certain
financial risk.

c. Cost of materials:

Materials generally account for between 50 and 80 percent of the cost of goods
manufactured. A distinction has to be made between product specific processed
materials from suppliers and standardized intermediate products and raw materials.

4. Make or buy decisions

The make-or-buy decision is the act of making a strategic choice between producing an item
internally (in-house) or buying it externally (from an outside supplier).

The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually
arise when a firm that has developed a product or part—or significantly modified a product or
part is having trouble with current suppliers, or has diminishing capacity or changing demand.

Make or buy decision is always a valid concept in business. No organization should attempt to
make something by their own, when they stand the opportunity to buy the same for much less
price.

a. Significance of making:

 Lower Costs

It may pay a firm to continue manufacturing a product or component part in-house if the
firm is more efficient at that production activity than any other enterprise.

 Proprietary Product Technology Protection

Proprietary product technology is technology unique to a firm. If it enables the firm to

produce a product containing superior features, proprietary technology can give the firm
a competitive advantage.

 Improved Scheduling
 The weakest argument for vertical integration is that production cost savings result from it
because it makes planning, coordination, and scheduling of adjacent process easier.

b. Significance of Buying

Strategic Flexibility

The great advantage of buying component parts from independent suppliers is that the firm
can maintain its flexibility, switching orders between suppliers as circumstances dictate.

Lower Costs

Although vertical integration is often undertaken to lower costs, it may have the opposite
effect. When this is the case, outsourcing may lower the firm's cost structure.

Offsets

Another reason for outsourcing some manufacturing to independent suppliers based in

other countries is that it may help the firm capture more orders from that country.

GLOBAL SUPPLY CHAIN MANAGEMENT

Supply Chain Management (SCM) is the management of the flow of goods and services.

Global supply chain management combines the functions of product procurement, production,
warehousing and distribution, from raw material suppliers to consumers.

Driving forces of Global supply chain management

• Global market forces

• Technological forces

• Global cost forces

• Political and economic forces

1. Global market forces

Pressures created by foreign competitors, as well as the opportunities created by foreign

customers. Presence of foreign competitors in home markets can affect their business
significantly. Much of the demand growth available to companies is in foreign and emerging
markets. Increasing demand for products throughout the world through the global proliferation
of information.

2. Technological forces
  These forces are related to the products. Various subcomponents and technologies
available in different regions and locations. Successful firms need to use these resources
quickly and effectively.

 Locate research, design, and production facilities close to these regions.

 Frequently collaborate, resulting in the location of joint facilities close to one of the
partners.

3. Global cost forces

 Cost forces often dictate global location decisions

 Costs of cheaper unskilled labor more than offset by the increase in other costs
associated with operating facilities in remote locations.

 In some cases cheaper labor is sufficient justification for overseas manufacturing. Other
global cost forces have become more significant. Cheaper skilled labor is drawing an
increasing number of companies overseas

4. Political and economic forces

Political and economic forces may greatly affect the drive toward globalization. There are also
several other political and economic factors. Exchange rate fluctuation, Regional trade
agreements, Tariff system are some of the forces.

Global supply chain issues

External environment
Supply
Distribution
Extended & unreliable transit times
Multiple consolidations
Multiple freight mode and cost options
Retailing
Consumer
1. External environment

One key influence is the development of a number of different economic unions. In some
instances the formation of these unions may be felt to hold an important political element but
experience has shown that there will also be significant economic changes-most of these,
hopefully beneficial ones.

2. Supply

There have been many companies important developments in supply and inbound logistics.
These have resulted from both technological and organizational changes.

3. Distribution

In many ways there have been fewer changes in the distribution elements of the supply chain
than in most of the other elements. Major development has been technology based. The major
advantage is that outsourcing allows a company to specialize in its own core business, be it
manufacturing or retailing without spreading its resources to cover distribution as well.

4. Extended & unreliable transit times

Owing to the length and increased uncertainty of international logistics pipelines, both planned
and unplanned inventories may be higher than optimal. A comparison of the length of domestic
and international product pipelines and their associated inventories.

5. Multiple consolidations

Consolidation is one of the key ways in which costs in pipelines can be lowered. Economies of
scale are achieved when goods produced in a number of different facilities are batched together
for transport to a common market. The location of consolidation points depends on many factor

6. Multiple freight mode and cost options

Each leg of a journey between manufacture and the market will have a number of freight mode
options. These can be broken down in simplistic terms into air, sea, rail and road. Within each of
these categories lies a further range of alternative options. Each of them can be assessed for
their advantages and disadvantages in terms of cost, availability and speed

7. Retailing

As retail sector opens up on a huge scale logistics companies are planning significant
investments to expand their portfolio of services. It is expected that in the next two years the
logistics sector will have undergone major changes offering a wide spectrum of services.
8. ConsumerThe challenge is to provide the consumer with better value in return for their
dollar. While the firm may see global sourcing as a means to reduce material and component
costs, the only value that is relevant for consumers is a reduction in total landed cost.

QUALITY

Quality is the degree to which a commodity meets the requirements of the customer at the start
of its life. Quality is sometimes defined as 'meeting the requirements of the customer.

Quality issues in international business

National & international standards

Legal requirements
Failure analysis
Standardization
Process capability
Quality control
Quality circles
Delivery
Usual instructions

• National & international standards

National & international standards often indirectly affect the quality and reliability
requirements of products. In some cases the standardization of one item affects others.

• Legal requirements

These often relate to safety which, in turn improve reliability and enhance the quality of an item.
Therefore international marketers should clearly understand and make customers aware of the
quality and reliability implications of any appropriate legal requirements.

• Failure analysis

A catastrophic failure of a product or system, within its specified environment, is completely

unacceptable. Therefore it is important that a failure analysis is carried out at the conceptual
phase in the design of the product.

• Standardization

Standardisation can be advantageous for the following reasons:

 1. To stipulate suitability
2. To reduce the number of varieties
3. To simplify quality control
4. To reduce transportation and storage costs.

• Process capability

The process capability of a manufacturing organization, to meet the levels of quality specified in
a product design is of extreme importance. Such matters are taken into account:

1. What machine tools

2. Skills and experience of shop floor personnel

3. Appropriate plant.

• Quality control

Inspection whilst generally ensuring that a product is to a required standard does not produce
quality and in fact only rejects unsatisfactory items. Where management considers quality
assurance to be of prime importance, designers should have sufficient confidence in production
to specify their actual requirements rather than be cautious.

• Quality circles

Basically a quality circle consists of a small group of employees who carry out similar work
under a supervisor, this group meets for a short time usually once in a week. Investigate reasons
for quality problems, recommend solutions, take corrective actions.

• Delivery

The manner in which a product is packaged for delivery can have an effect on its quality and
reliability in some situations involving storage .Transport is a concern in detail design of many
components and large items of capital equipment especially in the process industries.

• Usual instructions

Customers are notorious for the misuse of equipment that they purchase, in many cases this
occurs as a consequence of using products beyond specified conditions. However it is most
important that each occurs and every customer receives clear and concise instructions in the use
of a product.

GLOBALIZATION OF MARKETS
This refers to the process of integrating & merging of the distinct world markets into a single
market.

Global marketing

• It means marketing activity carried on across the national boundaries. Thus it includes
activities that direct the flow of goods from one country to the users of another country.

• Global marketing is the process of adjusting a company's marketing strategies to

adapt to conditions in other countries.

Global Marketing Mix/ Marketing strategy for Global markets

For formulating its international marketing strategy every organization follows a five step
procedure. This includes,

Targeting & segmenting markets

Product strategy
Price strategy
Promotion strategy
Place strategy

• Targeting & segmenting markets

Market size is not only a function of population in a given country but is more specifically
related to how many people are likely to consume a particular product. When targeting and
segmenting markets companies have three basic alternatives including segmenting by country,
identifying some segments on a global basis or combining the previous approaches.

The most common way of identifying market segments within a country is through demographic
factors such as income, age , gender, and religion.

• Product strategy

Accordingly any MNC must start its operations by choosing an appropriate international
product strategy. The first thing is to decide is what kind of product it is going to market.
Product modification, facilitating a departure is justified in view of following considerations:

 Technical factors
 Legal factors
  Physical factors
 Economic factors
 Tastes and preferences

• Price strategy

Prices have to be country specific. The rate of exchange in a given country is often taken as a
constraint for designing pricing tactics and strategies Other factors like cost of production,
transport and selling costs, local taxes and tariffs are also considered for international prices.
Two areas to be considered for pricing:

Transfer pricing: This has reference to pricing of business that takes place between two
subsidiaries of the same MNC’s.

Dumping: This is a form of price discrimination. A firm may decide to sell its product at a lower
price abroad and at high price at home.

• Place strategy

Multinational organizations should always sell their products at a place that is most convenient
for the customers. Organizations should fix distribution channels according to the affordability
and convenience of the customers in the host country.

Distribution system mix makes it possible to reach mass markets and creates place and time
utility. On the international level the marketer has to deal with greater time lags.

• Promotion strategy

Next in focus is the international promotional strategy. Sales promotion is a very broad strategic
area which works through tactical operation of media planning, advertising, customer relations
and the like. There is not much difference between domestic and international promotion
strategies. The basic idea is to create product knowledge, brand awareness and brand loyalty of
the customers.

Importance of global marketing

 Diversification opportunities

International marketing provides a large number of diversification opportunities as the country

can now reallocate some of a firm’s resources to new products, and thereby can spread
investments in different categories of products as well.

 Expansion opportunities
International marketing provides a lot of expansion opportunities because now country has to
serve the new economy which ultimately demands expansion both in the field of production and
marketing of products and services.

 Increased market share

Countries can substantially increase their market share through international marketing by
serving the new markets internationally and thereby the new customers also.

 Career opportunities

International marketing is now becoming a subject for study in many colleges which in turn
provides many career opportunities to students in the form of representatives in various fields of
product distribution.

 Global recognition

International marketing helps a country in achieving global recognition through the sale of
product in the overseas market and building a brand image for the goods supplied.

 Investment opportunities

International marketing provides good investment opportunities in terms of adopting a new

technology, building infrastructure and undertaking the modern methods of marketing in that
country.

 Increasing standard of living

International marketing provides good opportunities in raising the standard of living of people
by bringing the new technology to the domestic economy and thereby upgrading the quality of
products.

 Mobility of factors of production

International marketing provides the mobility of factors of production as now the country can
easily shift its production sites to different countries and suppliers can be found in every
moment.

 Cooperative agreements

International marketing enables all parties to bring their major strengths to the table and
emerge with better products, services and ideas than they could produce on their own.

 Market saturation
International avoids market saturation by lengthening product life cycle in other countries.

 Reaching new customers

Firms that heavily depend on long production runs can expand their activities far beyond their
domestic market and benefit from reaching many more customers.

CHALLENGES OF GLOBAL MARKETING

Self reference criterion

Market differences
Political and legal differences
Cultural differences
Economic differences
Language differences
National controls and barriers
High costs of distance
Management myopia
Infrastructure differences

 Self reference criterion

The primary obstacles to success in international marketing are a person’s self reference
criterion and an associated ethnocentrism.SRC is an unconscious reference to one’s own cultural
values, experience and knowledge as a basis for decisions.

 Market differences

In every product category differences are still great enough across national and cultural
boundaries to require adoption of at least some elements of the marketing mix. Global
marketing does not work without a local team who can adapt the product to local conditions.

 Political and legal differences

The political and legal environment of foreign markets is different from that of the domestic.
The complexity generally increases as more number of countries is included in the company’s
business portfolio.

 Cultural differences
Cultural differences constitute one of the most difficult problems in international marketing.
Many domestic markets however are also not free from cultural diversities.

 Economic differences

The economic environment may change from country to country. The currency unit varies from
nation to nation. This may sometimes cause problems of currency convertibility besides the
problems of exchange rate fluctuations.

 Language differences

An international marketer often encounters problems arising out of the differences in the
language. Even when the same language is used in different countries, the same words or terms
may have different meanings or connotations.

 Infrastructure differences

The availability and nature of the marketing facilities available in different countries may vary
widely.

 High costs of distance

It is not uncommon for transport costs to account for 10% of the total cost of a product. When
the markets are far removed by distance the transport cost become high and the time required
for affecting the delivery tends to become larger.

 Management myopia

In many cases management simply ignores opportunities to pursue global marketing. A

company that is myopic or nearsighted and ethnocentric will not expand geographically. Myopia
is also a recipe for market disaster, if headquarters attempts to dictate when it should listen.

 National controls and barriers

Trade restrictions, particularly import controls form a very important problem which an
international marketer faces. Every country protects local enterprise and interests by
maintaining control over market access and entry.

PRODUCT

A product is often considered in a narrow sense as something tangible that can be describes in
terms of physical attributes, such as shape, dimension, components, form, colour and so on.
Product is anything that can be offered to a market that might satisfy a want or need.
A product is a bundle of physical or chemical properties which has some utility.

A product is a bundle of physical services and symbolic particulars expected to yield

satisfactions or benefits to the buyer.

Product decisions for Global Markets

1) Identification of Products for International Market

2) Developing Products for International Markets
3) Market Segment Decision
4) Product Mix Decision
5) Product Specifications
6) Positioning and Communications Decisions
7) Product Elimination
8) Product Diversification
1) Identification of Products for International Market:

The firm has to carry out preliminary screening, that is, identification of markets and products
by conducting market research. A poorly conceived product often leads to marketing failures. It
was not a smooth sailing in the Indian market for a number of transnational food companies
after the initial short-lived euphoria among Indian consumers.

The basic mistakes that these firms made were:

i) Gross Overestimation of Spending Patterns of Indian Consumers

ii) Gross Overestimation of the Strength of their Transnational Brands
iii) Gross Underestimation of the Strength of Ethnic Indian Products
2) Developing Products for International Markets:

Various approaches followed for developing products for international markets are as follows:

i) Ethnocentric Approach
ii) Polycentric Approach
iii) Regiocentric Approach
iv) Geocentric Approach
3) Market Segment Decision:

The first product decision to be made is the market segment decision because all other decisions
—product mix decision, product specifications, and positioning and communications decisions—
depend upon the target market.
4) Product Mix Decision:

Product mix decision pertains to the type of products and product variants to be offered to the
target market.

5) Product Specifications:

This involves specification of the details of each product item in the product mix. This includes
factors like:

 Product Attributes: quality, styling, and performance.

 Packaging: product protection and promotion. (colour, size, appearance)
 Labelling: labelling is to provide information.
 Service Policies: pre-sale services and post-sale services.
 Warranties: a written guarantee of a manufacturer’s responsibility
6) Positioning and Communications Decisions:

Positioning is the image projected for the product. Communication refers to the promotional
message designed for the product. Obviously, both positioning and marketing communication
are very much interrelated. For the same product, sometimes the positioning and
communication strategies differ between markets.

7) Product Elimination:

Product Elimination is one of the most important product related decision. Too many product
introductions can risk overburdening the firm’s marketing system. There is a constant need for a
regular review of the range and for elimination decisions to be made where a product is either in
its decline stage or simply failing to generate sufficient profit.

8) Product Diversification:

Diversification means seeking unfamiliar products or unfamiliar markets, or both, for the
purpose of expansion. Diversification requires substantially different and unfamiliar knowledge,
thinking skills, and processes. Thus, diversification is at best a risky strategy, and a company
should choose this path only when current product/market orientation seems to provide no
further opportunities for growth

Product Development
 Product development is a specialized activity. It is done to improve the existing product
or to introduce a new product in the market. It is also done to improve the earlier features or
techniques or systems.

New-product development

New-product development means to introduce a brand-new product in the market. It

means to add a fresh product to an existing line of products.

Process/Steps in New product development

1. Idea generation

The first step in new-product development is idea generation.New ideas can be generated by:

1. Conducting marketing research to find out the consumers' needs and wants.
2. Inviting suggestions from consumers.
3. Inviting suggestions from employees.
4. Brainstorming suggestions for new-product ideas.
5. Getting feedback from agents or dealers about services offered by competitors.
6. Studying the new products of the competitors.
2. Idea screening

Most companies have a "Idea Committee." This committee studies all the ideas very carefully.
They select the good ideas and reject the bad ideas. Before selecting or rejecting an idea, the
following questions are considered or asked:

1. Is it necessary to introduce a new product?

 2. Can the existing plant and machinery produce the new product?
3. Can the existing marketing network sell the new product?
4. When can the new product break even?
If the answers to these questions are positive, then the idea of a new-product development is
selected else it is rejected. This step is necessary to avoid product failure.

3. Concept testing

Concept testing is done after idea screening. It is different from test marketing.In this stage of
concept testing, the company finds out:

1. Whether the consumers understand the product idea or not?

2. Whether the consumers need the new product or not?
3. Whether the consumers will accept the product or not?
Here, a small group of consumers is selected. They are given full information about the new
product. Then they are asked what they feel about the new product. They are asked whether they
like the new product or not.

4. Business analysis

Business analysis is a very important step in new-product development. Here, a detailed

business analysis is done. The company finds out whether the new product is commercially
profitable or not. Under business analysis, the company finds out...

1. Whether the new product is commercially profitable or not?

2. What will be the cost of the new product?
3. Is there any demand for the new product?
4. Are there any competitors of the new product?
5. How the total sales of the new product be?
6. How much profit the new product will earn?
So, the company studies the new product from the business point of view. If the new product is
profitable, it will be accepted else it will be rejected.

5. Product development

At this stage, the company has decided to introduce the new product in the market. It will take
all necessary steps to produce and distribute the new product. The production department will
make plans to produce the product. The marketing department will make plans to distribute the
product. The finance department will provide the finance for introducing the new product. The
advertising department will plan the advertisements for the new product. However, all this is
done as a small scale for Test Marketing.

6. Test marketing

Test marketing means to introduce the new product on a very small scale in a very small market.
If the new product is successful in this market, then it is introduced on a large scale. However, if
the product fails in the test market, then the company finds out the reasons for its failure. It
makes necessary changes in the new product and introduces it again in a small market. If the
new product fails again the company will reject it. It is a safety device.

7. Commercialization

If the test marketing is successful, then the company introduces the new product on a large
scale, say all over the country. The company makes a large investment in the new product. It
produces and distributes the new product on a huge scale. It advertises the new product on the
mass media like TV, Radio, Newspapers and Magazines, etc.

8. Review of market performance

The company must review the marketing performance of the new product.It must answer the
following questions:

1. Is the new product accepted by the consumers?

2. Are the demand, sales and profits high?
3. Are the consumers satisfied with the after-sales-service?
The company must continuously monitor the performance of the new product. They must make
necessary changes in their marketing plans and strategies else the product will fail.

Challenges in Product Development

1. Global Competition
2. Time
3. Market Potential
4. Technological Change
5. New features
6. Market size
7. Resistance to change
1. Global Competition

Global competition is often a major factor impacting the challenges of new product
development. Since the playing field is large and diverse, often spanning the globe, it may be
very difficult for companies to gather intelligence on competitors. A company may invest heavily
in a new product, yet be unaware that an overseas competitor is set to release a similar product
imminently.

2. Time

The companies today are facing time as one of the critical challenges in new product challenge.
Introducing the new product at the right time reduces the ambiguity about the failure of the
product. Giving the market a product at a time when there the need for such a product/service is
not required is surely a planned way to head for the edge.

3. Market Potential

A company needs to know their current and future competitors. In today’s economic climate
only two products will be successful in any given market. Unless your product is far superior to
your competition, you will not be able to enter a market successfully or retain your leadership in
the market. While it is initially fine to get to know your competition from searching online, it
cannot replace feedback from customers who use the product.

4. Technological Change

Rapid advancement of technology may be considered by many to be among the top challenges of
new product development. A technological arms race may put product developers in a
precarious position of uncertainty. Product developers may not know what the next
development might be.

5. New features

Competitive advantage needs to be articulated to your customers: how does the product (or
attributes of the product) meet your customers’ unmet need that no other product can. This is
the reason why customers will use your product over any other product. Knowing your
competition will validate or invalidate your competitive advantage and potential market
leadership.

6. Market size

It is also important to keep an eye on the market size as well as the market potential for the
product in meeting the business goals of the company. The last thing you want to find out is that
there is no market for the product or that the customer isn’t buying the product. In addition to
meeting a critical unmet need you need to be in a market where you sell a significant amount of
product to develop more products and expand your business.

7. Resistance to change

Most customers, so the argument goes, are intrinsically conservative and resist innovation.
Apart from the few early adopters, whose enthusiasm for new products knows no bounds, the
broad mass of customers sees innovation as risky and finds new unproven products less
attractive than tried and tested alternatives. Consequently, any innovative product, particularly
if it has a high technological component, will meet resistance and will sell slowly until it is
perceived as safe by potential customers.

PRICING

Price may be defined as the exchange of goods or services in terms of money. Pricing refers to
value determination process for a good or service. Without price there is no marketing tin the
society.

To manufacture price represents quantity of money received by the firm or seller. To a customer
it represents sacrifice& hence his perception of the value of the product.

FACTORS INFLUENCING GLOBAL PRICING DECISION

Internal Factors External Factors

1) Objectives of the firm 1. Competition

2) Product 2. Elasticity of Demand
3) Image of the firm 3. Consumers
4) Costs of the product 4. Economic conditions
5) Promotional Activities 5. Suppliers
6. Government

INTERNAL FACTORS

1) Objectives of the firm –

Internationally, pricing must consider costs, nature of markets and at the same time, it must be
consistent with the firm’s worldwide objectives, such as profit maximization, market share, for
example, if the objectives of a firm is to increase return on investment, then it may charge a
higher price, and if the objective is to capture a large market share, then it may charge a lower
price.
2) Product –The product plays an important role in fixing price. If a product is of superior
quality, then a firm may either adopt premium strategy or high value strategy. In premium
pricing, the firm would charge high price for high quality, and in the case of high value pricing,
the firm would charge moderate price for high quality.

3) Image of the firm –

The firms enjoying a good image in the market may charge a higher price, as compared to those
firms which do not enjoy reputation in the market. This is because; consumers have trust and
confidence in the firms enjoying name and reputation in the market.

4) Costs of the product

Cost is the most important factor to be considered in the process of price determination, since
cost constitutes a major part of the price. The export price should include direct cost like raw
material cost and indirect cost like distribution cost.

5) Promotional Activities –

Pricing is related to promotional activities. If a firm undertakes heavy advertising and sales
promotion, then price planning must ensure that these promotional costs will be recovered, at
least in the long term. It is often observed that highly advertised or promoted brands command
high price as compared to lowly promoted brands.

EXTERNAL FACTORS:

1) Competition –

Pricing decisions also depend upon competition in the export market. It is difficult to have
monopolistic conditions in the international market. In competitive market the exporters have
no control over pricing decisions. Price of a product is influenced by the competitive forces of
the market.

2) Elasticity of Demand –

The prices in every market are directly related to the demand for products. The demand may be
elastic or inelastic. Pricing depends on the degree of elasticity of demand. Highly elastic demand
for a product tends to keep its price low, because a slight change in the price may cause
considerable change in demand for such a product.

3) Consumers-
The types of consumers for whom marketing efforts are made play an important role in export
pricing. A product for young people or fashion oriented goods will carry a high price. Further the
composition of the consumers in terms of their income and paying capacity play an important
role in export pricing.

4) Economic conditions –

The economic conditions prevailing in the market must be considered while fixing prices.
During the times of recession when consumers have less money to spend, the marketers may
reduce

5) Suppliers-

Suppliers of raw materials and other goods can have a significant effect on the price of a
product. If the price of cotton goes up, the increase is passed o by suppliers to manufacturers.

6) Government:

It is also affected by the price control by the government through enactment of legislation, when
it is brought proper to arrest the inflationary trend in price of certain products. The price to
influence buying decision of the consumers. However, during economic boom, the marketers
may change a higher price.

Global pricing issues in International market

Government intervention
Greater market diversity
Price escalation in exporting
Currency value and price changes
Fixed Vs variable pricing
Company to company pricing

1) Governmental Intervention:

Every country has laws that either directly or indirectly affects prices to the final customer.
Government in most countries today plays an important role in product pricing. Price controls
may set either maximum or minimum prices for designated products.Government price controls
prohibit certain competitive pricing practices. The WTO permits a government to establish
restrictions against any imports that enter the country at a price below the price charged to
customers in the exporting country (dumping).The interventions of government can be direct or
indirect.

2) Greater Market Diversity:

Country to country variation creates natural segments and a company sets different prices for
different countries on the basis of competitive situation and stage of product in the product life
cycle. Country-of-origin stereotypes also limit pricing possibilities. But there is a problem in
lowering the prices that they may affect the product image in future.

3) Price Escalation in Exporting:

To compete in export markets, a firm may have to sell its products to intermediaries at a
reduced price in order to lessen the amount of price escalation. Price escalation in exporting is a
phenomenon that occurs all too often. If the exporting firm does not pay conscious attention to
the conditions that lead to price escalation it may find itself in a situation where it prices itself
out of a foreign market.

4) Currency Value and Price Changes:

In the case of highly volatile currencies pricing can be extremely difficult, especially under
conditions of high inflation. The pricing decision must consider the replacement cost. Pricing
decisions must assure the company of sufficient funds to replenish inventory, which might result
in the need for frequent price adjustments.

5) Fixed versus Variable Pricing:

Fixed price is that which held constant for a specified period of time. It exists in situations where
a branch of government has some degree of control and retailers must conform to a stated price
structure.

Variable price is a pricing strategy wherein a retailer alters its prices to coincide with
fluctuations in costs or consumer demand. This type of pricing is common among street
vendors, antique dealers, and other small independently owned businesses. Variable pricing
risks the loss of customer goodwill when one customer discovers another paid less.

6) Company to Company Pricing:

Dominant retailers with substantial clout may get suppliers to offer them lower prices, which in
turn will enable them to compete as the lowest-cost retailer. However, such clout may not exist
in new foreign markets. In addition, many industrial buyers are claiming large price reductions
through Internet purchases.

PRICING STRATEGIES IN GLOBAL MARKETS

1) Sliding-Down the Demand Curve:

This resembles the above strategy except that in this case the company reduces prices faster and
further than it would be forced to do in view of potential competition. A company pursuing this
strategy has the objective to become established in foreign markets as an efficient producer at
optimum volume before foreign or domestic competitors can get entrenched.

2) Skimming the Market:

A simple, and somewhat unusual, objective might be to make the largest short run profit
possible and retire from the business. This involves the strategy of getting the highest possible
price out of a product’s distinctiveness in the short-run without worrying about the long-run
company position in the foreign market.

3) Penetration Pricing:

This strategy involves establishing a price sufficiently low to rapidly create a mass market.
Emphasis is placed on value rather than cost in setting the price. Penetration pricing involves
the assumption that if the price is set to bring in a mass market, the effect of this volume will be
to lower costs sufficiently to make the price yield a profit.

4) Preemptive Pricing:

Setting prices so low as to discourage competition is the objective of preemptive pricing. The
price will be close to total unit costs for this reason. As lower costs result from increased volume,
still lower prices will be quoted to buyers. If necessary to discourage potential competition prices
may even be set temporarily below total cost. The assumption is that profits will be made in the
long run through market dominance. This approach, too, may utilize experience curves.

5) Extinction Pricing:

The purpose of extinction pricing is to eliminate existing competitors from international

markets. It may be adopted by large, low-cost producers as a conscious means of driving weaker,
marginal producers out of the industry. Since it may prove highly demoralizing, especially for
small firms and those in newly developing countries, it can slow down economic advancement
and thus retard the development of otherwise potentially substantial markets.
6) Probe Pricing Strategy: The exporter may fix a higher price in the export market during
the early stages of product introduction. This is done to find out or probe the reaction of the
buyers towards the price. The prices are then adjusted accordingly.

7) Differential Trade margins pricing strategy

The exporter may adopt differential trade margins pricing strategy. He may allow various types
of discounts or trade margins. The various discounts that can be offered includes, quantity
discounts on bulk orders, seasonal discounts during off season to push up sales, cash discounts
to encourage prompt payments, goodwill discounts, trade discounts etc. the price are
accordingly adjusted depending upon the type of discount offered.

8. Market pricing strategy

If identical or homogeneous products are already exiting in the market, the standard approach is
market pricing. This means, based on the competitor’s prices, the final price is determined and
production and marketing functions both are adjusted to the price.

9) Transfer pricing strategy

Transfer pricing refers to the pricing of goods or services among subsidiaries within a
corporation. This strategy s adopted by a MNC (Multinational Corporation). The subsidiaries of
a MNC trade among themselves or with the parent firm. It seems that any price charged by a
subsidiary to another subsidiary or to the parent firm is acceptable as the sales are undertaken
within the corporation.

10) Trial Pricing

In this case, a firm may launch a new product with low pricing, for a limited period of time. The
purpose is to win customer acceptance first and make profits later. Often, trial pricing is seen as
an alternative to giving away samples of a product in order to make people to have a trial of the
product.

11. Flexible-Price Strategy

In this case, a firm offers the same product and quantities to different customers at different
prices. For example, when a new product is introduced, a firm may sell it at a special price to its
loyal customers. A retailer may offer special price to frequent shopper as compared to other
customers, who do not buy frequently from that store. The special price is a reward for
customer’s loyalty.
 BASIC DATA REQUIRED FOR EXPORT PRICING DECISIONS
The calculation of cost depends on the availability of reliable data connected with exportable
products, external markets and other marketing information. The details of information
required for export pricing vary from product to product, market to market and firm to firm. An
export firm needs the following information for pricing and costing.
1) Product cost
a) Material
b) Labour
c) Factor overhead
d) Administrative overhead
2) Cost of Distribution
a) Selling cost
b) Packing cost
c) Transportation cost
d) Insurance cost
3) Cost Relating to Exports
a) Product modification
b) Cost of documents
c) Export packing and marketing
d) Loading at factory
e) Transport to dock or airport
4) Cost Estimates –
a) FOB, C & F or CIF
b) Sea freight or air freight
c) Unloading charges at destination
d) Airport handling charges or fees
5) Regulation in exporting country
a) Floor price
b)Duty drawback scheme
c) Import replenishment
d) Income Tax
 e) Railway freight concession

DISTRIBUTION CHANNEL

A distribution channel is the network of individuals and organizations involved in getting a

product or service from the producer to the customer. Distribution refers to all the activities
undertaken to transfer the product from the manufacturer to the consumer.

A manufacturer may find it difficult rather impractical to sell directly to various foreign parties
for a majority of products.

Types of channel:

(A) Direct Channel or Zero Level Channels:

When the manufacturer instead of selling the goods to the intermediary sells it directly to the
consumer then this is known as Zero Level Channel. Retail outlets, mail order selling, internet
selling and selling

(B) Indirect Channels:

When a manufacturer gets the help of one or more middlemen to move goods from the
production place to the place of consumption, the distribution channel is called indirect channel.
Following are the main types of it:

1. One Level Channel:

In this method an intermediary is used. Here a manufacturer sells the goods directly to
the retailer instead of selling it to agents or wholesalers. This method is used for
expensive watches and other like products.

2. Two Level Channel:

In this method a manufacturer sells the material to a wholesaler, the wholesaler to the
retailer and then the retailer to the consumer. Here, the wholesaler after purchasing the
material in large quantity from the manufacturer sells it in small quantity to the retailer.

3. Three Level Channel:

 Under this one more level is added to Two Level Channel in the form of agent. An agent
facilitates to reduce the distance between the manufacturer and the wholesaler. Some big
companies who cannot directly contact the wholesaler, they take the help of agents.

International distribution channel decisions

1. Channel Length:

Channel length is concerned with the number of times a product changes hands among
intermediaries before it reaches the final consumer. The channel is considered long when a
manufacturer is required to move its product through several middlemen. The channel is short
when the product has to change hands just once or twice.

2) Channel Width:

Channel width is related to the number of middlemen at a particular point or step in the
distribution channel. Channel width is a function of the number of wholesalers and the different
kinds that are used, as well as a function of the number and kind of retailers used. As more
intermediaries or more types are used at a certain point in the channel, the channel becomes
wider and more intensive.

3) Number of Distribution Channels:

Another decision that concerns the manufacturer is the number of distribution channels to be
used. In some circumstances, the manufacturer may employ many channels to move its product
to consumers. For example, it may use a long channel and a direct channel simultaneously.The
use of dual distribution is common if the manufacture has different brands intended for
different kinds of consumers.

Factors that Influences Channel of Distribution

Geographic Characteristics
Product Characteristics
Distributor Characteristics
Competitive Characteristics
Company Characteristics.
(1) Geographic Characteristics

As mentioned in the above example, distributors are generally required when the customers are
widely dispersed, there are a large number of them and they buy frequently in small amounts. A
small manufacturer with resources too united to hire a sizeable sales force, and with an equally
limited market acceptance, will have to consider an already existing network to stock their
products or direct mails.

(2) Product Characteristics:

Direct distribution is required when bulky products such as industrial chemicals, are involved.
Bulky products need channel arrangements that minimize the shipping distance and number of
handlings. Where high unit value can cover higher unit selling costs, manufacturers can keep
control over distribution by dealing directly.

(3) Distributor Characteristics:

Distributors are more useful when their skills of low cost contact service and storage are more
important than their lack of commitment to one product or brand. For example, some
manufacturers of hardware find this is true where their brands have little effect on their
customer’s loyalty.

(4) Competitive Characteristics:

The channels chosen may often be influenced by their use.

(5) Company Characteristics:

The size of a company often correlates with its market share. The bigger its market share, the
easier it is to find distributors willing to handle the product. Paradoxically, the more powerful a
manufacturer is, the less he needs to rely on distributors.

Channel Management in Global markets

In global market, marketers need to manage the channel of distribution for success in the
market. After a company has chosen alternative, individual, individual intermediaries must be
selected, trained, motivated and evaluated.

It is the organization of the ways in which companies reach and satisfy their customers.

It involves following steps: foreign country market intermediaries

1. Selecting
2. Training foreign country market intermediaries
3. Motivating foreign country market
intermediaries
4. Evaluating foreign country market
intermediaries
5. Modifying channel arrangements
 intermediaries.
6. Managing channel relationships

1. Selecting foreign country market intermediaries

Channel selection in global marketing is similar to channel selection in domestic market.

Producers vary in their ability to attract qualified intermediaries. Whether producers find it easy
or difficult to recruit intermediaries, they should at least determine what characteristics
distinguish the better intermediaries. They want to evaluate number of years in business, other
lines carried, growth and profit record and reputation.

2. Training foreign country market intermediaries

Companies need to plan and implement careful training programs for their distributors and
dealers because the intermediaries will be viewed as the company by end users.

3. Motivating foreign country market intermediaries

The level of distribution and the importance of the individual middleman to the company
determine the activities undertaken to keep the middleman motivated. Motivational techniques
that can be employed to maintain middleman interest and support for the product may be
grouped:

 Financial rewards
 Psychological rewards
 Communications
 Company support
 Corporate rapport

4. Evaluating foreign country market intermediaries

Evaluation of channel members has an important bearing on distributor retention, training and
motivation decisions. Evaluation provides the information necessary to decide which channel
members to retain and which to drop. Where manufacturer power is high through having strong
brands and many distributors from which to choose evaluation may be frequent and wider in
scope.

5. Modifying channel arrangements

Companies tend to relax once channels members are in place. But this is not sufficient and
channel members have to be constantly evaluated. Further the organization should keep an
open mind on modifying existing channel arrangements periodically. This is necessary because
of constant changes in customer preferences, emerging competition and other environmental
factors influencing market performance.

6. Managing channel relationships

Good channel relationships can be maintained with the help of mutual understanding between
international marketer and intermediaries. The factors influencing a firm’s channel relationship
are;

 Cooperation and coordination

 Conflict
 Power

7. Terminating foreign country market intermediaries.

When middlemen do not perform up to standards or when market situations change, requiring a
company to restructure its distribution, it may be necessary to terminate relationships. Based on
the assumption that an agent or distributor often invests considerable effort and money to
develop the local market for the principal, many countries have enacted agency termination laws
to protect the interests of the agents and distributors.

Expatriate

An expatriate is an employee sent by his or her employer to work in a foreign country. The firm
is normally referred to as the parent company, while the country of employment is known as the
host country. A person who has citizenship in at least one country, but who is living in another
country.

Types of staffing policy There are three types of staffing policy:

 The Ethnocentric approach: An ethnocentric staffing policy is one in which all key
management positions are filled by parent- country nationals.
  A polycentric staffing policy: recruits host-country nationals to manage subsidiaries
while parent-country nationals to occupy key positions at corporate headquarters.
 The geocentric approach: seeks the best people for key jobs throughout the organization,
regardless of nationality.

Four dimensions of selection for a foreign posting:

1. Self-orientation: The attributes of this dimension strengthen the expatriate’s self-esteem, self-
confidence, and mental well-being.

2. Others orientation: The attributes of this dimension enhance the expatriate’s ability to
interact effectively with host-country nationals. Two factors seem to be particularly important
here:

• Relationship development: refers to the ability to develop long-lasting friendships with host-
country nationals.

• Willingness to communicate: expatriate’s willingness to use the hostcountry language.

3. Perceptual ability: This is the ability to understand why the people of other countries the way
they do, that is, the ability to empathize.

4. Cultural toughness: This dimension refers to the relationship between the country of
assignment and how well an expatriate adjusts to a particular posting. some countries are much
tougher posting than others because their cultures are more unfamiliar and uncomfortable.

Expatriate training/ Cross Cultural Training (CCT)

CCT/Expatriate training is a process of orientation and skill improvement mainly on HOST

CULTURE and WORK LIFE BEHAVIOR. It helps to ensure the expatriate’s effectiveness and
success abroad

Types of Training for expatriate managers:

 Cultural training
 Language training
 Practical training
Cultural training: cultural training seeks to foster an appreciation for the host country’s
culture. The belief is that understanding a host country’s culture will help the manager
empathize with the culture.

Language training: English is the language of world business; it is quite possible to conduct
business all over the world using only English. Notwithstanding the prevalence of English,
however, an exclusive reliance on English diminishes an expatriate manager’s ability to interact
with host-country nationals.

Practical training: practical training is aimed at helping the expatriate manager and family
ease themselves into day-to-day life in the host country.

Steps in Expatriate Training:

Step 1: Training objectives

A few commonly understood objectives of training in the multinational corporation are:

– Bridging the cultural gaps between the host and the parent organisation

– Recognising that orientation / induction challenges are different for the parent
and the host unit

– Ensuring that organisational success is critical in achievement of the global

objectives.

– Establishing and retaining advantages over international competitors

Step 2: Identify the type of Global assignment

– Chief executive officer - overseas and directs the entire subsidiary operations,
undergo an intensive CCT

– Structure reproducer - shoulders the responsibility of building or reproducing in

a foreign subsidiary, not be exposed to a rigorous CCT

– Trouble shooter - to analyse and solve a specific operational problem, do not need
to undergo a very intense CCT

– Operative - to perform functional tasks in an existing operational structure, do

not need to undergo a very intense CCT

Step 3: Determining Training Needs

Need assessment diagnoses present problems and identities future challenges to be met through
training and development.

• Needs assessment occurs at three levels:

– The individual

– The organisational culture, politics, structure and strategy

 – The assignment

Step 4: Establish goals and measures

• Short-term - what the expatriate should be able lo accomplish on completion of the CCT

• Long-term - reflect the expected outcome of the expatriate assignment

Step 5: Develop and deliver the CCT programme

Involves two activities

– Deciding on the content of training

– Sequencing

• Language Training

• Cultural Training

• Practical Assistance

– This seeks to help the expatriate and his family “feel at home” in the host country

Step 6: Evaluation

Evaluation necessitates an identification of training goals and methods so as to judge whether or

not the goals have been met.

Compensation

The most common approach to expatriate pay is the balance sheet approach. The components of
typical expatriate compensation package are a base salary, a foreign service premium,
allowances of various types, tax differentials, and benefits.

 Base salary:

An expatriate’s base salary is normally in the same range as the base salary for a similar position
in the home country. This will normally paid in either home-country currency or in the local
currency.

 Foreign service premium:

A foreign service premium is extra pay the expatriate receives for working outside his or her
country of origin. It is offered as an inducement to accept foreign postings.

 Allowances:

Four types of allowances are often included in the expatriate’s compensation package:

1. Hardship allowance 2. Housing allowance 3. Cost of living allowance 4. Education allowance

o Hardship allowance :Parent-country nationals often receive a salary premium

as an inducement to accept a foreign assignment or as compensation for any
hardship caused by the transfer.
o Housing allowance: Implies that employees should be entitled to maintain
their home-country living standards (or, in some cases, receive accommodations)
o The cost-of-living allowance (COLA): It involves a payment to compensate
the differences in expenditures between the home country and the foreign
country.
o Education Allowances for Children Education allowances are given towards
fees for the education of expatriates’ children. Education allowances include
items such as tuition, language class tuition, books, transportation and uniforms.
 Spouse Assistance:

To help guard against or offset income lost by an expatriate’s spouse as a result of relocating
abroad.

 Taxation:

Under this plan, the company adjusts an employee’s base income so that the expatriates will
not pay any more or less tax than if they had stayed in the home country.

What is the 'Foreign Exchange?'

Foreign exchange is the exchange of one currency for another or the conversion of one currency
into another currency. The term foreign exchange is usually abbreviated as "FOREX" and
occasionally as "FX."

Foreign exchange also refers to the global market where currencies are traded virtually around
the clock. The largest trading centers are London, New York, Singapore and Tokyo.
Foreign Exchange Market

The foreign exchange market is the market in which participants are able to buy, sell, exchange
and speculate on currencies. The foreign exchange market (FOREX, FX, or currency market) is
a global decentralized market for the trading of currencies. This includes all aspects of buying,
selling and exchanging currencies at current or determined prices.

Basic Concepts of Foreign Exchange

1. Exchange rate:

An exchange rate is the value of one currency expressed in terms of another.

2. Cross rate:

The currency exchange rate between two currencies, both of which are not the official currencies
of the country in which the exchange rate quote is given in.

3. Pip:

A pip is the smallest increment of price movement that any currency can make. A pip can also be
referred to as a point or points.

4. Leverage:

Leverage is the ability to gear your account into a position greater than your total account
margin.

5. Margin:

In its simplest form, margin is the deposit required to open or maintain a position.

Margin can be either “free” or “used”. Used margin is the amount which is being used to
maintain an open position, whereas free margin is the amount available to open new positions.

6. Spread:

The difference between the sell quote and the buy quote or the bid and offer price. (Spread =
Ask-Bid). Base Currency and Quote Currency

7. Bid Price and Ask Price

The currency pairs are usually traded and quoted with a "bid" and "ask" price.
The “bid” is the price at which you can sell base currency / buy quote currency. The “ask” is the
price at which you can buy the base currency / sell quote currency. You will see that the ask price
is always higher than the bid price.

8. Base Currency and quote Currency

The first currency of a currency pair is referred to as the “base currency”, while the second one is
called the “quote currency”, and they are often separated by a forward slash (“/”).

9. Spot Rate

Most of the forex transactions are not necessarily settled on the same day. They may be settled
in future also. So, depending on the settlement time, the exchange also varies.

Foreign Exchange Instruments

1. Exchange-traded Fund
2.Forward
3.Future
4.Option
5.Spot
6.Swap
1. Exchange-traded Fund

Exchange-traded Fund - referred to as ETF's. These are open-ended investment companies that
have the characteristic of being traded at any time throughout the day.

2. Forward Market:

The agreement established between two parties wherein they purchase, sell, or trade an asset at
a pre-agreed upon price is called a forward or a forward contract. Normally, there is no exchange
of money until a pre-established future date has been arrived at.

3. Future Market

A forward transaction that contains standard contract sizes and maturity dates are considered
futures. Futures are traded on exchanges that have been created for that purpose exclusively.
Just like with commodity markets, a future in the forex market normally designates a contract
length of 3 months in duration.

4. Option Market

Specifically, options are contracts that grant the right, but not the obligation to buy or sell an
underlying asset at a set price on or before a certain date. The right to buy is called a call option
and the right to sell is a put option.

5. Spot Market

Where futures contracts normally employ a 3-month timeframe, spot transactions encompass a
48-hour delivery transaction period.

6. Swap

Currency swaps are the most common type of forward transactions. A swap is a trade between
two parties wherein they exchange currencies for a pre-determined length of time. The
transaction then is reversed at a pre-agreed upon future date.

Foreign Exchange Risk

Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is a
financial risk that exists when a financial transaction is denominated in a currency other than
that of the base currency of the company.
Types of Risk in Foreign Exchange

 Transaction risk

 Economic risk

 Translation risk

1. Transaction risk

When a firm or individual has a receivable or a payable in a foreign currency the foreign
exchange rate may change, causing an increase in the liability of the home country’s currency or
a decrease in receipts in the home country’s currency.

2. Economic risk

Transaction exposure focuses on relatively short-term cash flows effects; economic exposure
encompasses these plus the longer-term effects of changes in exchange rates on the market
value of a company. Basically this means a change in the present value of the future after tax
cash flows due to changes in exchange rates.

3. Translation risk

The financial statements of overseas subsidiaries are usually translated into the home currency
in order that they can be consolidated into the group's financial statements. Note that this is
purely a paper-based exercise - it is the translation not the conversion of real money from one
currency to another.

Internal Techniques to Manage Risk

1. Invoice in home currency

One easy way is to insist that all foreign customers pay in your home currency and that your
company pays for all imports in your home currency. However the exchange-rate risk has not
gone away, it has just been passed onto the customer. Your customer may not be too happy with
your strategy and simply look for an alternative supplier.
 2. Leading and lagging

If an importer (payment) expects that the currency it is due to pay will depreciate, it may
attempt to delay payment. This may be achieved by agreement or by exceeding credit terms.

If an exporter (receipt) expects that the currency it is due to receive will depreciate over the next
three months it may try to obtain payment immediately. This may be achieved by offering a
discount for immediate payment.

3. Matching

When a company has receipts and payments in the same foreign currency due at the same time,
it can simply match them against each other. It is then only necessary to deal on the forex
markets for the unmatched portion of the total transactions.

An extension of the matching idea is setting up a foreign currency bank account.

4. Decide to do nothing?

The company would "win some, lose some". Theory suggests that, in the long run, gains and
losses net off to leave a similar result to that if hedged. In the short run, however, losses may be
significant. One additional advantage of this policy is the savings in transaction costs.

2 MARKS

UNIT- 4

1. Write the five key areas of Production Management.

a) Process
b) Capacity
c) Inventory
d) Human resources
 e) Quality

2. Define standardized product design.

It produces and sell the same product through the market in the world . Toyota selected
standardization strategy in car manufacturing and produce the same car in different countries of
the world.

3. Define make or buy option.

Under this option the international firm makes the inputs until the optimum stage where it can
produce at the lowest cost compared to that of the suppliers. The company buys from outside
sources where price is less than that of its marginal cost of production.

4. What is customized product design?

It enables the company to design the product based on the taste and preference of the country. It
helps the global company to compete with the local company.

For Ex. Nestle design its products based on the customization strategy.

5. How location is important in international business?

The executive of the international business have to decide the country location of the plant, sales
offices, administrative offices, warehouses etc. and also designing them for efficient business.
But the improvement of technology such as e-mail, e-commerce, e-marketing the e- business
has grown much faster it reduce the importance of the above mentioned things.

6. What is logistics management?

The mechanism of getting inputs from their sources to the manufacturing centre and taking the
finished goods to the customers called logistics management.

7. Define procuring?

It is set of process and steps as a firm uses to acquire various resources it needs to create it’s or
own products.

8. Write short notes on vertical integration.

Adding new products or services which are complementary to the existing line of products. For
ex. An iron and steel company instead of procuring iron ore from outside may develop an iron
ore company. It extends a firm which can provide its own resources.
9. What is mean by concentrated location?

The firm locates its manufacturing facilities in few places and distributing the products to its
warehouse or market intermediaries located in various paces of the world.

10. Explain briefly the advantages and disadvantages of concentrated location.

Advantages

I. Efficiency and productivity can be maximized

II. Products can be standardized
III. The company can enjoy large scale economies
IV. The cost of production per unit can be minimized
V. The administrative system can be simplified and uniform process

Disadvantages

I. The price of product would be high due to transportation cost

II. Huge time to make the product available for sale
III. Add complexity to the business process
IV. Leads to inefficiency and complexity due to large size
V. Suffer from political uncertainties

11. Define dispersed location.

The global company produces the products based on the customer preferences and also in the
location close to the customer.

12. What are the approaches in location decision?

I. Country related issues

II. Product related issues
III. Government policies
IV. Organizational issues

13. Write the sources of global recruitment.

a. Parent country nationals

b. Host country nationals
c. Third country nationals

14. What is cross cultural training?

It enables the expatriates to learn the cultural norms, values, aptitudes, attitudes, beliefs,
behaviors, practices of the country.

15. What is experimental training?

The training is exposed to real life situations through field visits, visit to the host country,
complex role plays and cross cultural situations.

16. What are quality circles?

A small group of employees in the same work area who voluntarily meet regularly for about an
hour every week to identify, analyze and resolve work related problems not only to improve the
quality, productivity, and improve the total performance of the organisation.

17. Define standard pricing policy

The international company sells the product at the same price for the customers of any country
or nationality.

18. Write short notes on Two-Tiered pricing policy.

The international company sells its products at two prices, one for domestic sales and another
price for the foreign sales.

19. Explain the factor affecting the international pricing.

 Cost
 Competition
 Product differentiation
 Exchange rate
 Economic conditions of host country
 Government factors

20. What is Free on Board (FOB)?

The seller quotes the point where the price is applicable. There are number points like named
inland carrier at a particular inland point of departure, the moved inland carrier at the named
point of exportation, the named port of shipment, the named inland point in the importing
country.

21. Define C&F.

The point of delivery is normally the port of importing country. The price therefore includes the
cost of transportation to the named point of debarkation. The buyer pays the insurance charges.
The buyer bears the risk and cost when the goods pass the ship.

22. Explain the term CIF.

The point used for quotation in any location. The international chamber of commerce
recommends that the point should be the destination. Thus the price includes cost of products,
insurance, and transportation cost up to the point of destination.

23. What is the meaning of counter trade? Also list out the types.

Counter trade is arrangement to pay import of goods and services with something other than
cash. It is goods- for- goods deal.

I. Barter counter trade

II. Counter purchase
III. Compensation trade
IV. Switch trading
V. Offset
VI. Clearing arrangement

24. What is foreign Exchange?

Foreign exchange is bought and sold in foreign exchange market. The component of foreign
exchange market includes the buyers, the sellers, and intermediaries’.

25. What is fixed exchange rate?

IMF member governments used to fix to determine exchange rates by pegging operations or
resorting to exchange control. The central bank of the country purchases the foreign currency
when the exchange rate falls and sells the foreign exchange when the exchange rate increases.

26. Explain the term flexible exchange rate.

Flexible exchange rate is determined by market forces like demand and supply of foreign
exchange. It also called floating or fluctuating exchange rate.

27. List out and explain the most commonly used training methods.

I. Lectures
II. Area briefing
 III. Reading material
IV. Video films
V. Classroom language training
VI. Case studies
VII. Sensitive training
VIII. Role plays
IX. Field trips
X. Simulations
XI. Interactive language training
XII. Cultural Assimilators

28. Define compensation.

Compensation is the amount of remuneration paid by the employer to the employees in return
to their services and contributions to the company. Compensation includes the amount of
salary, the different kind of fringe benefits and employee welfare benefits, bonus, profit sharing,
stock options and the like.

29. What are the variables to be used to measure the candidate?

a. Individual dimension
 Candidates self efficiency
 Relational skills of the candidate
 Perceptional skills of the candidate
 Job skills
 Stress reduction skills
b. The non – work dimension
 Cultural novelty
 Host country religion, social, cultural, sociological, historical system
adjustment of the candidate
c. The job dimension
 Job duties, responsibilities, tasks
 Technical competency
 Human relation skills
d. Organizational culture dimensions
 Culture of candidate in previous organization
 Working background in different organizations
  Ability to adapt in new organization

30. Explain the methods of performance appraisal.

A. Traditional Methods
i. Graphical Rating Scales
ii. Ranking Method
iii. Paired Comparison Method
iv. Forced Distribution Method
v. Check list Method
vi. Essay of free From Appraisal
vii. Group Appraisal
viii. Confidential Reports
B. Modern Methods
i. Behavior Anchored Rating Scales
ii. Assessment Centers
iii. Human Resource Accounting
iv. Management by Objectives
v. Psychological appraisal