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CHAPTER 6
INTERNATIONAL STRATEGY IMPLEMENTATION MARKETING STRATEGIES
Selecting a good international strategy for your business is difficult. Several areas need to be considered to adopt the correct option. Understanding the various combinations for marketing strategies, production/procurement and manufacturing/ finance systems integration is the key to success. This chapter explores these areas and provides real world application examples in each area. Strategic management is a powerful planning tool for managers. It allows them to deal with modern business world complexities, and it helps business people succeed. However, many strategic management applications must be global, because world economy and business change so rapidly. In fact, survival depends on using global strategy in most organizations. INTERNATIONAL MARKETING STRATEGIES Many people assume that international strategy is impossibility. After all, markets are local in nature, so marketing strategies must be localized. The best strategy for one market (typically there are many markets in each country) may be disastrous for another, so global marketing is not usually a consideration for top MNCs management. Still, many MNCs have pursued global marketing strategies and demonstrated a clear need for top management to coordinate global marketing with other functional strategies and to integrate it with the company's grand strategic plan. International Marketing is becoming an increasingly popular and important field of study on an international scale! As Australia and the dynamic Asian countries move ever closer as trading partners, it becomes important for each party to understand the cultural, political, economic and legal elements that influence trading activities within the region and outside the region. These influences inherently increase the risks of operating in an international market compared with a domestic market. Therefore, MNCs that want to pursue global market have to demonstrate a clear need for top management to coordinate global marketing with other functional strategies and to integrate it with the company's grand strategic plan. The secret, of course, is to know which marketing decisions to centralize and which to decentralize. In all cases, however, there are significant and often substantial differences among industries and even among product groups within the same industry. Nestle, for example, produces more than 100 blends of Nescafe in order to cater to the preferences of different marketers, but this same strategy would not be appropriate to other product lines. The product life cycle model establishes a general framework for designing marketing strategy. This model is not always helpful in designing specific strategies. Examples are adopting a standardized marketing approach versus tailoring the approach to each market and adopting a strategy of market diversification versus adopting single Market concentration. The decisions in designing these marketing strategies are contingent on the technology composition, product/world-wide market competition level and the firms organizational structure constraints. In addition to problems inherent in satisfying various marketing strategy requirements in individual national markets, the international marketer faces serious problems associated with worldwide trade relations. For example, an acute imbalance of trade between the developing and developed countries has caused less
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developed countries to severely curtail imports. The recent worldwide recession has also encouraged greater protectionism among developed countries, thereby making foreign marketing much more problematic. Today, many governments offer financial and other significant incentives to encourage their own firms to export, which in turn leads to intensified competition in third markets. Successful marketing strategies take worldwide developments and developments in individual national markets into consideration. Several highly effective planning tools used in domestic marketing must be modified when they are applied to international settings. These tools, such as the familiar market share/growth matrix developed by the Boston Consulting Group (i.e., the cash cows vs. dogs vs. question marks vs. stars), tend to focus on products or product groups as the principal units of strategic endeavors. However, that a market approach rather than a product portfolio approach is significantly more appropriate in the international arena. Thus, West Germany China might be a "star," France Asian countries a "question mark," the United Kingdom the United States a "cash cow," and Portugal Iraq a "dog," and the marketing strategies in those countries would be adjusted accordingly. Strategy Implementation Selecting the best strategies is essential to a company's success. However, the best strategy can fail to bring benefits and can even harm a firm if the implementation is faulty. FORMS OF FOREIGN INVESTMENT Strategic planning is beneficial to both small and medium-sized domestically oriented firms, and these same businesses can also begin a program of international investment. Growing companies may find that direct foreign investment is the logical progression in their business strategy, because it complements their domestic business activity. With direct foreign investment, the investor achieves some degree of control over the investment activities. Chapter 4 explained the different types of direct foreign investment. There are various forms of direct foreign investments: fully subsidiaries, industry cooperation agreements, joint ventures, licensing, turnkey projects, franchising, and export/import. Different forms of investments give the investors different level of control. With any type of international investment the investor must clearly recognize foreign laws, restrictions, markets and methods of financing the business. The company may need to change its corporate image to suit the international forum, especially if it is a joint venture. PRODUCTION AND PROCUREMENT Overseas Production Overseas production operations must be coordinated with marketing and financial tactics, if the firm is to succeed in accomplishing its strategy. Production/operation strategies include decisions about plant size, location, and equipment, sourcing of raw materials and components, and scheduling. A firm that decides to begin offshore production is often called a Risk-Share/Learner, because the firm is allowed to discover productive business methods. These following companies are the successful multinational companies: Toyota, Colgate-Palmolive, Gillette, Exxon, and etc. Market Subsidiaries
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Market subsidiaries are either wholly owned or joint ventures; both are organized to support direct export by providing timely information about tactical entry and sales effort. Representing the physical presence, the marketing subsidiary has a greater commitment than exporting. Marketing subsidiaries can be a prelude to taking a permanent position in a target country either through a franchise or some other type of business using the name/image of the firm. Production Sharing Projects The decision on whether to produce all or part of a product in another country is an important one for the strategic manager. Production sharing is a viable tactical concept to be considered by any business with high product labor content. The possibility of reduced costs, savings on taxes and tariffs, and increased productivity are the production sharing incentives to consider. Many countries formulate strategies to attract outside production investment, As an example, both Singapore and Mexico have aggressively promoted their countries as sites for production, based on the added value of lessexpensive labor costs. Mexico's plan to export added-value labor as a component of product content is called the Maquiladora Program. Mexico first introduced the maquiladora concept, as we know it today, in 1965 under the Mexico Border Industrialization Program. It was designed to generate employment, foreign investment, and stimulate industry in Mexico. The program was part of a worldwide movement known as global production sharing. Because of its proximity to the U.S. market, this is the fastest group program so far, and it has the largest share of the world's production-sharing industry. As of May 2002, there are over 3600 maquiladora plants employing over 1.1 million people in Mexico. In addition, with the passage of the North American Free Trade Agreement (NAFTA), in 1994, U.S. companies have rushed to Mexican border towns to comply, and avoid high tariffs. India, Singapore, Hong Kong, and some European nations have joined this competition. European Union, the biggest free trade area in the world, people in this union can travel to other countries in the union freely. Also they use the same currency and trade without tax and tariff. EU develops many infrastructures that support the investors such as high technological ports to support the transportation system. Investors can save a lot of time and cost when shipping their products. Even the Soviet Union is moving into the production sharing business. Free economic zones have been authorized for areas ranging from Armenia and Estonia to the Port of Nachodka in the Soviet Far East. The foreign investment incentives for these zones include: duty-free export and import, a reduction in tax and lease payments, labor policies governed by the local zones and application for free market prices. The state and state prices, the remainder at market prices would control Fifty percent of the production and assembly. An international company must consider five major factors when making a production sharing decision: 1. Suitability - What is the suitability of production sharing? Does it make something or process something that has a great deal of labor content? Analyze your business. Is the company operating on the edge of profitability because of high labor costs? Would the product be more competitive when exposed to world markets? For example, maquiladoras in Mexico work best for labor-intensive manufacturers. Such businesses range from electronics manufacturers to pet products, medical equipment, sporting goods, apparel, cable assembly and toy makers. The essence of the maquiladora system is to reduce labor overhead. Thats why in the more than 30 years since maquiladoras were introduced, there are more than 3,500 companies, including Sony, Ford, General Electric, General Motors and Zenith, that have set up maquila operations in Mexico. 2. Location - What are the relative advantages of the various production sharing locations for your product? The most important factor that a company should consider when making decision about the location is where its
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market is. If the market is the United States, the most attractive location is Mexico The distances from Mexico to most marketplaces in the United States is short. While it usually takes from three to four weeks to transport goods from the Far East to the United States, it takes only three or four days from Mexico. It is a way to remain competitive without moving operations to Asia and face complicated, time consuming, expensive transportation and customs. The close proximity of Mexico allows easy, inexpensive transportation back into the U.S. Additionally; the labor force is adult and plentiful. The high cost of Pacific Ocean transportation stands between the labor-intensive offshore production capabilities of Taiwan, China, India, and Malaysia. However, Asian, West African, and Central American locations often provide advantages when the target market is Asia, Europe, or South America. 3. Methods - The methods of production sharing--investment (long term) or shelter (short term)--are other areas to consider. Nations with large, low cost labor pools market their production-sharing programs as investment opportunities. Investment, however, is not the only method. Private companies have ingeniously developed processes which provide risk sheltering for foreign companies. These companies contract through an intermediary to rent space and employees or to subcontract for piece-rate assembly and production. There are two ways a company can organize an operation, which largely depends on a companys offshore production experience, its size and resources. A company can either establish a shelter agreement with a local firm or it can establish a local subsidiary. In most cases, small to mid-sized companies with little or no offshore experience choose a shelter company. Utilizing the shelter concept, the shelter company typically supplies the plant and handles human resources and administrative tasks such as accounting, legal issues, permits, tariffs, transportation and customs issues. The manufacturer provides machinery, raw materials, and manufacturing expertise. 4. Cost - What is the comparative fully burdened costs at each location? The company should consider both direct and indirect cost. The examples of direct cost are labor costs, raw material costs, tax and tariff, sales administrative and marketing costs, and etc. Indirect costs include opportunity cost and other costs that rise form taking risk; government uncertainty, and exchange rate risk. 5. Control - What level of control is required in the production process? Global factories can be characterized as captive or non-captive. A captive facility would be one that is dedicated and controlled for the assembly or production of a single parent company's product. A native of the country where it is located and operated typically owns a non-captive plant, and it serves many international companies on a contractual basis. The production sharing process has become more efficient and time effective over time. Not too many years ago for many years ago, an engine made in Mexico would have been laboriously packed by hand into a slow bulkfreighter for shipment to Western Europe. Now, it can be automatically loaded into a container, which is then easily loaded by cranes at the mechanized port for shipment abroad. At the European port the containers are put on trucks or railway cars for shipment to the assembly plant, thereby providing a savings in labor costs as well as minimizing losses and damage. If the trucks are on the road in a country that has a scarce supply of oil this is not a serious problem. The oil arrives from Africa or the Middle East in huge bulk-carriers, which discharge their cargoes at special ports to be refined. The refined products are shipped inland by rail or truck at low costs. Due to reliable and relatively cheap transportation, virtually all industrialized countries now have consistent supplies of oil. MANUFACTURING LOGISTICS SYSTEMS FOR COMPETITIVE GLOBAL STRATEGY Corporate management in the increasingly competitive manufacturing world has begun to explore concepts of global manufacturing to secure its organization's position in the current market place. The key to successful
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implementation of such concepts is an effective integrated information system. A better understanding can be attained when the logistics chain, from purchasing through distribution, is explored. In an increasingly complex and competitive business environment, manufacturing executives find that to maintain the status quo is to lose ground and that traditional management techniques must be supplemented with plans incorporating all the market factors. This need has led to the growth of global manufacturing policies. Both domestic and foreign companies are examining the global manufacturing concepts more closely than ever. Unlike a multinational manufacturing policy, which emphasizes local production for each market, a global manufacturing policy requires a "world-system" perspective. Products or parts can be produced at different locations and shipped wherever a market exists. Product location responsibilities are determined by existing conditions. Most importantly, centralized planning keeps company operations in line with overall goals. The following factors are leading executives to adopt a global manufacturing strategy: National markets are being newly opened or reopened to foreign goods and competition. Import restrictions and local content laws in many countries can be conflicting and costly. Policies in many developing countries make licensing of foreign firms contingent on their ability to develop export markets. Foreign domination of formerly strong domestic markets is causing U.S. business to re-think their strategies. Foreign firms are using multinational sourcing and manufacturing to gain cost and quality advantages. Both U.S. firms and foreign firms are using multinational sourcing and manufacturing to gain cost and quality advantages. For example, Nike Company produces their products in Thailand and Vietnam in order to reduce the production cost. U.S. firms entering foreign markets often compete with strong domestic and multinational firms. For example, Ford face with strong competitor like Volkswagen in China market. An increasingly globalize marketplace supports common products, with slight modifications for local difference and preferences. For instance, Nokia and Motorola, mobile phone companies, adapt only language used in mobile phones when they sell their products in global market. MNCs will gain many benefits from diversifying operations. Diversifying operations means diversifying sales, location of production facilities, and raw material sources. Recognizing a temporary change in worldwide competitive conditions permits management to make changes in operating strategies. Management might make marginal sifts in sourcing raw materials, components, or finished products. If spare capacity exists, production runs can be lengthened in one country and reduced in another the marketing effort can be strengthened in export markets where the firms products have become more price-competitive because of the disequilibrium condition. A purely domestic firm does not have the option to react to an international disequilibrium condition in the same manner as a MNC. Adopting global manufacturing strategy give benefit from diversifying financing to the MNCs. Diversifying financing base means raising funds in more than one capital market and in more than one currency. If a
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firm diversifies its financing sources, it will be propositioned to take advantage of temporary deviations from the international Fisher effect. If interest rate differentials do not equal expected changes in exchange rates, opportunities to lower a firms cost of capital will exist. However, to be able to switch financing sources, a firm must already be will-known in the international investment community, with banking contacts firmly established. This is not an option for a domestic firm that has limited its financing to one capital market. The benefits of adopting a global manufacturing policy include improved efficiency through logical planning of manufacturing facilities and centralization of capacity management, improved communication and resource transfer between the domestic product division and international operations, and the development of a strategy that addresses global competition. Corporate management must proceed carefully when implementing a global manufacturing policy. The cornerstones of a global policy are centralized planning, purchasing, and distribution functions. Such centralization entails the development of a strong logistics network, often a difficult task. Logistics strategies are complex even in purely domestic environments, and problems can increase dramatically when strategies are transferred to international operations. Quality standards must be maintained throughout the logistics network, making effective vendor evaluation and development programs essential for local and international manufacturing operations. A careful assessment of local market requirements and manufacturing capabilities should guide decisions involving the location, configuration, and automation of production facilities. Also, an often overlooked concern in implementing a global policy is a manufacturing information system designed to support a global strategy. THE INTERNATIONAL MARKETING MANAGEMENT FUNCTION Marketing Mix Companies with five or six major product lines may have difficulties in coordinating and controlling their international markets. Top management must carefully research the market as well as the marketing mix before each move. The following information--marketing research, distribution, entry strategy, and sales support--points out the major considerations for marketers who are considering entering a foreign market. Market Research The first step for any MNC, whether global or domestic, is to gain relevant information about the market. The difficulty of this task will depend on the availability of information. MNCs can obtain information from many sources. They can use in-house research and development team or outsourcing the professional to conduct the research for them. Fortunately, nowadays the organizations can take the advantage of the internet. The internet provides many resources that were simply not available to researchers 20 years ago. However In addition, data collection can be costly for many organizations in case that the organizations want very specific and detail information or information that no one has been collected it. Demographic data that are readily available in the domestic market are often unavailable in the foreign market. Moreover, the data may be unreliable, depending on the sources or the motives of the information gatherers. Incomplete information is a problem even in highly developed economies. For example, incomes may be much higher than the tax data indicate in such countries as India, Sweden, and the United States.
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Product Long-term planning is necessary in developing a world product mix. When entering foreign markets, the MNC may selectively introduce products that are well established at home, or they may introduce products that are specifically developed for the international market. Moreover, they may introduce products to foreign markets in the same time with the home country, especially high technological products such as computer software and electronics. This is the result of shorten life cycle of products and technology development. A decision usually depends on the foreign environment and the quality of the distributors. A break-even analysis of production helps determine the feasibility of product introduction into a market. Product Strategies Based on Keegan's earlier work, Robock and Simmonds identify five generic marketing strategies based on product features and communication: 1. One Product, One Message-Worldwide. Obviously, great cost savings are associated with this approach, which is especially appropriate in marketing advanced technological goods. The product specifications for most high tech goods are the same worldwide, so there is little need to adapt the product to individual markets. Furthermore, the buyers of high tech goods are generally a homogenous group who responds similarly to identical messages. 2. Product Extension. (Communications adaptation) This strategy is particularly appropriate when the same product or service fills a different need or serves a different function in the foreign market than it does in the home market. For example, bicycles are used mainly for recreation in the United States, but in other countries they serve as basic transportation. Because the product does not have to be adapted to the foreign market, this approach saves the company money. 3. Product Adaptation. (Communications extension) This strategy is highly appropriate for marketing foods, especially since tastes vary from one country to another. It also works for products such as soap, which must be adapted to local water conditions and washing machine types. 4. Dual Adaptation. This strategy, which is suited for many consumer products, can reap savings if the adaptations are not major. 5. Product Invention. This product strategy usually results when the product, and perhaps the message, needs alteration to be successful abroad. The cost of altering the product is a major factor in this strategy, especially if the product or adaptation is an expensive one. These five approaches are tactical in nature. Market diversification implies fast penetration into a large number of markets with a diffusion of efforts, whereas market concentration implies directing marketing efforts at only a few markets and gradually expanding into new ones.
METHODS OF DISTRIBUTION Distribution is an important factor in a product's success, and the choice of marketing channels and distributors in any foreign country is critical. If management does not know the local laws of the host country, distribution can
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be expensive. Bad choices may cause failures without remedies for them. Once a commitment has been made, it is virtually impossible to change distributors in many countries. Often firms must commit themselves before they have the necessary experience. The laws and regulations of the host country should be determinant factors in company decisions. In some countries, such as China, companies may only work through locally owned distributors. China market is more open than the past. Therefore, the foreign companies do not need to distribute their product through local distributors. However, MNCs still have to check the laws and regulations of China thoroughly before investing. A MNC must be adaptive in order to compete globally. Another potential obstacle to success is an underdeveloped infrastructure. The infrastructure of the host country may significantly affect marketing decisions. The lack of well-developed transportation systems adds to the cost of the product, and it can limit the product's market. For example, orchids from Latin America were not shipped to the United States until air carriers could quote good rates and provide reliable services. INTERNATIONAL MARKETING STRATEGY MODELS Alternative strategy models typically generate totally different consequences in terms of sales, market shares, and profits over time. The following are four typical strategies: 1. Concentrate on specific market segments in a few countries. The "dual concentration" model is appropriate for products which appeal to a definitive group of similar customers in different countries, but the costs of penetration into each national market are substantial relative to the firm's resources. 2. Concentrate on a few countries, but use market segment diversification among them. Diversifying among segments within a concentrated group of countries requires a product line that appeals to different segments. It is especially appropriate when there are significant economies of scale in advertising. 3. Market diversification and segment concentration is appropriate for firms with a specialized product line and potential customers in many countries. It is especially effective when the cost of entry into different markets is relatively low to available resources. 4. Dual diversification (of both segments and markets) is appropriate for firms having product lines that appeal to many segments and sufficient resources to accomplish fast entry into many national markets.
INTERNATIONAL ENTRY STRATEGIES MNCs may have to be creative in their approach, because many foreign countries will not allow large corporations to penetrate their markets. MNC's must tender business offers to attract the host country's attention. Such popular offerings include: franchising, licensing agreements, joint ventures, trademarks, and sales promotion and service. Franchises Selling a franchise may be an acceptable way to enter a country; however, there are many potential problems. The problems in selecting franchises are similar in many ways to those connected with distributorships. For
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example, laws in some countries may prohibit the company from dropping a poorly performing franchise, regardless of contract specifications. Huge markets can be lost through poor selection of the first few franchisees, making it vitally important to know the franchisee's capabilities in advance. Naturally most franchises will eventually be looking to do in their home market that is, set up a network of sub-franchisees, which will often be recruited and managed by the master franchisee. Of course, there are other structures available. For example, the franchisor can set up owned subsidiary to also become the franchisor with the new country/market. Alternatively, the franchisor can appoint an area developer who only opens and operates units. But master franchising is the most preferred option for most businesses that franchise in their own country. (Duckett, 2004) Licensing Agreements Licensing agreements can cause problems similar to franchises or distributorships. Moreover, most licensing agreements contain restrictive marketing clauses prohibiting the licensee from selling the product in selected countries. The reason for this restrictive clause might be that the MNCs has already given exclusive marketing rights in that territory to another licensee. This, of course, raises the question of enforcement, an extremely complex issue because the different laws and cultures. Legislation may be complex, expensive, or ineffective, so an MNCs must rely on trust and respect as its enforcement tools. In contrast, local firms can fully rely on legal recourse should disagreements arise. Much more than in a purely domestic context, relations with foreign affiliates must be based on a cooperative spirit. Licensing is a contractual arrangement in which the licensor's patents, trademarks, service marks, copyrights, trade secrets, or other intellectual property may be sold or made available to a licensee for compensation that is negotiated in advance between the parties. This compensation, or royalties, may be a lump sum royalty, a running royalty (royalty that is based on volume of production), or a combination of both. U.S. companies frequently license their technology to foreign companies that then use it to manufacture and sell products in a country or group of countries defined in the licensing agreement. (Unzco, 2004) A licensing agreement usually enables a firm to enter a foreign market quickly, and poses fewer financial and legal risks than owning and operating a foreign manufacturing facility or participating in an overseas joint venture. Licensing also permits U.S. firms to overcome many of the tariff and no tariff barriers that frequently hamper the export of U.S. manufactured products. For these reasons, licensing can be a particularly attractive method of "exporting" for small companies or companies with little international trade experience, even though licensing is profitably employed by small and large firms alike. Technology licensing can also be used to acquire foreign technology such as, cross-licensing agreements or grant back clauses awarding rights to improved technology developed by a licensee. (Unzco, 2004) In considering the licensing of technology, it is important to remember that foreign licensees may attempt to use the licensed technology to manufacture products in direct competition with the licensor or its other licensees. In many instances, U.S. licensors may wish to impose territorial restrictions on their foreign licensees, depending on U.S. and foreign antitrust laws as well as the licensing laws of the host country. Also, U.S. and foreign patent, trademark, and copyright laws can often be used to bar unauthorized sales by foreign licensees, provided that the U.S. licensor has valid patent, trademark, or copyright protection in the United States or the other pertinent countries. In addition, unauthorized exports to the United States by foreign licensees can often be prevented by filing unfair import practices complaints under section 337 of the Tariff Act of 1930 with the U.S. International Trade Commission, and by recording U.S. trademarks and copyrights with the U.S. Customs Service. (Unzco, 2004)
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As in all overseas transactions, it is important to investigate not only the prospective licensee but the licensee's country as well. The government of the host country often must approve the licensing agreement before it goes into effect. Some governments prohibit royalty payments that exceed a certain rate or contractual provisions barring the licensee from exporting products manufactured using the licensed technology to third countries. (Unzco, 2004) The prospective licensor must always take into account the host country's: ( Unzco, 2004) Foreign patent, trademark, and copyright laws; Exchange controls; Product liability laws; Possible counter trading or barter requirements; Antitrust and tax laws; and Government attitudes toward repatriation of royalties and dividends. The existence of a tax treaty or bilateral investment treaty between the United States and the prospective host country is an important indicator of the overall commercial relationship. Prospective U.S. licensors, especially of advanced technology, also should determine whether they need to obtain an export license from the U.S. Department of Commerce or other regulating agencies. (Unzco, 2004) Joint Ventures Within the past decade joint ventures have become popular methods of conducting international business. A company may decide to share management with one or more collaborating foreign firms. Advantages to joint ventures include access to a partner's distribution system, access to an otherwise closed market, and most importantly, access to capital or personnel resources. For instance, Hercules Inc., a company which operates in specialty chemicals, aerospace, and the engineered polymers industry, has been involved in joint ventures with companies in Japan, Australia, and Italy. Legal and cultural complications abound in the joint venture arena because each country's laws are different. Some products are banned or discouraged; many prices are fixed or heavily regulated; intricate contractual relationships between buyers and sellers vary; and consumers sometimes have too much power, and at other times or places virtually none. Customs and tradition also play a role. The local marketer is typically able to navigate local mine fields better than foreigners, which is why so many successful distributors are locally owned. There are some possible disadvantages to international joint ventures. A major potential drawback of joint ventures, especially in countries that limit foreign companies to minority participation, is the loss of effective managerial control. This can result in reduced profits, increased operating costs, inferior product quality, exposure to product liability, and environmental litigation and fines. U.S. firms that wish to retain effective managerial control will find this issue an important topic in negotiations with the prospective joint venture partner and the host government. (Unzco, 2004) U.S. firms contemplating international joint ventures should consider retaining experienced counsel in the host country. U.S. firms can find it very disadvantageous to rely upon their potential joint venture partners to negotiate
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host government approvals and advise them on legal issues, since their prospective partners' interests may not always coincide with their own. Qualified foreign counsel can be very helpful in obtaining government approvals and providing ongoing advice regarding the host country's intellectual property, tax, labor, corporate, commercial, antitrust, and exchange control laws. (Unzco, 2004) Trademarks Trademarks are important and valuable to most MNCs, especially the big names such as 3M, Xerox, or GM. protecting these trade names is a difficult, worldwide problem. Most countries are members of an international copyright convention, and most agree to support trade names and other copyrights. However, a leader in the apparel industry was recently noted in an issue of Fortune 500 as having serious problems in policing their markets. The enforcement of copyright and trademark laws varies widely among countries. In addition, counterfeit products often raise quality image problems, particularly when customers complain about inferior products, which they mistakenly believe were produced by the MNC. Protecting a reputation for quality is an important strategic consideration. The Trademark Checklist has been compiled by the International Trademark Association (INTA) to assist authors, writers, journalists, editors, proofreaders, copywriters and fact checkers with proper trademark usage. It includes listings for nearly 3,000 U.S. registered trademarks and service marks with their generic terms as well as proper capitalization and punctuation. (INTA, 2004) Sales, Promotion and Service Because of cultural and legal differences, sales promotion strategies also vary in different countries. For example, radio and television are limited in some countries, while magazines and newspapers are read by only a small proportion of the population in less developed countries. In the case of newspapers and periodicals, a local distributor can be an invaluable part of international sales strategy. As with any product, the support component must be competitive with other firms' warranties, technical support, and customer service programs. Unfortunately, in the international arena warranties can be a problem, particularly if the firm merely translates its warranties, transfers, and guarantees without researching how they should be handled in the other country. Providing excellent post-purchase service can have many advantages. Some multinationals have been successful because of their after-sale services. For example, Caterpillar Tractors guarantee to have product parts available anywhere in the world within 24 hours. The Internet and global shipping companies such as Federal Express has made it possible for multinational companies to make their products available to consumers. Marketing in Eastern Europe The task of marketing Western products in the former eastern bloc would appear, at first sight, to be easy. Consumers starved of the Western luxuries they have seen on television for years, rush to buy these products as soon as they are available. In practice, however, Western companies have found that the regions emerging markets provide problems and surprises unseen in Western Europe.
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The uncontrolled, indiscriminate, and mostly illegal, dumping of foreign products has tarnished the image of many western brands by middlemen who have no interest in building a long-term business. The main priority for most western companies is building brand loyalty. Airtime is cheap, and more than 90% of homes in Hungary and Poland have television sets, so reaching the market is not difficult. The problem lies mainly in choosing the message. Many companies simply re-use commercials initially made for the western market, while other ass local scenes to their commercials. Such advertising has been regarded as condescending, and in many cases the local population has been annoyed by what they see as second-hand advertising. The Budapest office of Ogilvy and Mather believes that there is a developing trend in favor of local products, and is accordingly concentrating on locally made campaigns. In spite of this swing towards all things local, sales of some previously imported western products fell after they were repackaged with instructions in the local language. Consumers apparently believed that they were no longer genuine goods. It seems that western companies and advertisers cannot win. Many western companies believe that the power of advertising will remain limited until retail distribution improves. In both Poland and Hungary, wholesale and retail deliveries are hopelessly erratic. Wholesaling has been thrown open to private competitors - many of whom own nothing but one truck and who cannot guarantee deliveries. Such haphazard deliveries mean that many products come and go from shop shelves without warning. Some western companies have begun building relationships directly with retail outlets. Such relationships are seen as a worthwhile investment, but even the most optimistic companies agree that it could be some time before such investments began to really pay off. MANUFACTURING/FINANCE SYSTEMS INTEGRATION A manufacturing information system to support the centralized planning for global policies is vital. Most packaged systems are designed for a single plant, and their bills of material (BOMs) typically list only component and leadtime requirements. Such BOMs do not provide comprehensive details about the manufacturing supplies, facilities, and materials that global manufacturing requires. Most manufacturing resource planning (MRP) systems focus on plant functions, such as obtaining materials on time, manufacturing on time, and maintaining certain levels of raw material, component, work-in-process (WIP), and finished-goods-inventories. Global manufacturing requires that such functions be made applicable to multiple suppliers and customers. Traditional systems support data entry to a single host computer through terminals located within the facility; however, global manufacturing requires rapid data transfer between hosts at separate facilities. Centralized planning demands the accurate and up-to-date inventories are available for all locations to facilitate purchasing and distribution. An integrated manufacturing information system does requires some standardization across the logistics chain, such as standard part numbers for unique item identification, common documentation, and a common understanding of capacity and resource use parameters. Standardization in such areas is vital if planning for the logistics chain is to centralize. To properly support a global manufacturing policy, the integrated system must address the needs dictated by
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centralized planning. The following information explores the minimum requirements for global manufacturing integrated information systems: Enterprise Resource Planning Software ERP software provides the manufacturer the power to streamline and automate processes that are within and reach beyond the four walls of manufacturing using a workflow or business process automation engine. The power of a workflow engine lies in the ability to process the mundane while managing the critical aspects of any business process. The value to the manufacturer lies in the release of valuable human resources and intellectual capital tied up in handling paperwork instead of value-add activities and exceptions. (MAPICS, 2004) ERP software will assist in performing such task as processing orders and many others like it automatically, concurrent to other activities in the process and across the enterprise. It will filter out only the orders that require further human input to determine acceptability. Using application software to perform these repetitive tasks frees human resources to do what they do best. (MAPICS, 2004) Multiplant Product Structure A manufacturing system must support multiple sources, plants, and planning parameters (e.g. lead times, yields, and rejection rates) for the same item produced at various locations. The structure should allocate production responsibilities based on such factors as fixed percentages, capacity limitations, and mandatory practices (e.g. sourcing from a plant in India may require that a certain amount of Indian material be used to conform to local laws). Production can be allocated to several plants if multivalent manufacturing is necessary for a certain component, assembly, or product. Multitiered Planning Production planning and master scheduling should be multitiered to accommodate multiple plants rather than basing them on the traditional product master schedule on a single plant's capacity. The system should be able to plan and assess multiple scenarios for products that can be sourced from more than one plant. Such "what-if" analyses can help the company quickly reevaluate manufacturing plans if labor costs, material availability, local content laws, political conditions, or other factors change at a particular plant. ABC (Activity Base Costing) is an approach to help management improve the planning process as well as allocating funding and resources. Tracking The manufacturing system must maintain up-to-date status from multiple sources to provide a complete picture of manufacturing operations. This includes tracking products and components from raw material through the finished-goods stage. For example, if components from Mexico are needed to build sub-assemblies in the U.S., which are then assembled into the finished product in China, each component and sub-assembly must be separately tracked. Vendor Evaluation Vendor evaluation must be part of the global purchasing system. Traditional evaluation criteria, such as delivery performance, price, and reliability, must be augmented by qualitative measures that can be converted to qualified ratings for evaluation purposes. Such measures include stability, technology, capacity, and ability to handle higher technologies and more complex designs. Lists of current and potential vendors should be maintained and updated within the system.
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OTHER ISSUES IN GLOBAL SYSTEM IMPLEMENTATION Corporate management must carefully assess the ramifications of each factor on the company's proposed information system. Technology Policies and Strategies An effective global manufacturing system requires a rational plan for establishing appropriate levels of technology at different production facilities. It may be necessary to perform final assembly in a certain country with subassemblies manufactured in another. In some countries, laws require a certain percentage of local labor and material content, which may justify a lower level of technology. However, a country's potential market growth could outweigh this factor, because local production may minimize transportation costs and increase response time to market demands. Centralized Management Corporate planning managers are often unaccustomed to planning a widespread logistics chain and assuming the responsibilities that a global system entails. Local managers in established plants, on the other hand, are accustomed to a higher degree of autonomy in planning, scheduling, and executing than a global system allows. Managers at all levels must be educated on quality awareness, planning and scheduling responsibilities, and job coordination and cooperation. Since performance measurement techniques must be changed to accommodate each new situation, traditional cost-based measures, such as variance and contribution, are obsolete and may be dangerous. Performance measurements must assess the following factors, which constitute a rationale for adopting a global manufacturing policy: DELIVERY PERFORMANCE - The speed and accuracy of delivery to geographically dispersed plants and customers must be carefully measured. QUALITY ASSURANCE - The cycle of inspection, rejection, return, and replacement is costly and time consuming, and shortages of components attributable to faulty manufacturing can result in stoppages of subsequent processes if safety stock is not maintained. With the increased emphasis on foreign production, quality is a vital concern. COST - A major incentive for manufacturing abroad is lower production cost. Therefore, value-added tracking (comparing actual cost roll-ups with standards) should be an integral part of the assessment. Determining and maintaining standards are vital steps in centralized planning. Valid standards are essential for controlling non-manufacturing activities (e.g. corporate software development) and production activities. Their development should be based on reasonable assumptions and measurements or on well-reasoned hypotheses, if data are unavailable. Standards should be maintained by comparing actual performance with previous standards, and the standards should be updated as new technologies are introduced and efficiency improves. A few fundamentals to ensure the proper bases are being covered are as follows: (ELITE, 2004)
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Understand the firms short- and long-term global business plans. Ensure a technical/information systems plan that supports the firms global business plans. Provide ample planning time to define the needs globally and locally before systems integration is initiated. Be clear on approach - is the firm defining a central approach and rolling it out? Or is the firm determining the approach based on the local affiliates input? These are two very different approaches that require various levels of involvement, whether centralized or from an accumulation of local representatives. Define the advisor team based on the approach identified above. Visit critical sites or all sites if possible, to define local requirements that may affect a global installation. COMMITMENT, EDUCATION, AND COMMUNICATIONS
The most important non-information system factors affecting the implementation of a global manufacturing policy are human resources. The ultimate test of the ability of a company's employees to oversee the foreign project may be whether the executives can obtain commitments to change, educate employees in the new system, and communicate and synchronize organizational directions. Certifications are one method to demonstrate commitment and education. For supply management, there are three recognized certifications. They are CPIM, CPM, and CIRM. CPIM - The Certification in Production and Inventory Management (CPIM) is recognized worldwide as the measurement criterion for professional competence in manufacturing and distribution planning and control. CPIM also teaches employees critical skills in design, operations, and control systems. These learned skills include: Accurate forecasting for streamlined operations Enhanced supply chain management Just-In-Time delivery of products and services Getting maximum performance from systems and technologies CPM The Certified Purchasing Manager (CPM) focuses on managerial and leadership skills, plus a variety of specialized functions (sourcing analysis, supply and inventory management, forecasting) designed to enhance the value of procurement and supply management within an organization. It also covers the operational aspects of the purchasing and the supply function, such as identifying requirements, preparing solicitations and agreements, negotiations, technology, quality, and maintaining relationships. CIRM - The Certification in Integrated Resource Management (CIRM) program builds the management team that will transform the organization into a value-driven enterprise. The employees will acquire management skills necessary in a global marketplace. They will analyze the process in converting a market concept from innovation into implementation and customer acceptance. CIRM candidates can lead their organizations to greater operational efficiency, rapid adaptation to changing marketing conditions, and enhanced customer satisfaction. This will lead to Deeper understanding of integrated business functions Strengthened decision-making abilities and visionary knowledge Effective management in a team-based, cross-functional enterprise THE LOGISTICS CHAIN The requirements for a global manufacturing system will be determined by the configuration of the logistics
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network. Each logistics function should be analyzed in two ways: (1) as it is currently performed and (2) as it must be adapted to fit the overall plan and direction. A system perspective, or top-down analysis, should be used to avoid the islands-of-information syndrome and to deter the tendency of directly transferring a local system to an international environment. Based on the overall strategic plan and the direction of an organization, a detailed analysis of all aspects of the logistics chain should be made. In this way, long-term and short-term objectives can be translated into policies and procedures for effectively operating the system. The following aspects of the logistics chain should be addressed by an integrated information system for global manufacturing Mission Statement Long-Term Strategic Planning Multiple vendors for similar parts Warehouse planning Accurate lead-time analysis and determination of multiple sources Transportation and lead times Scheduling Delivery performance Variable quality standards (TQM) Safety stock requirements Total throughput time (from design through distribution) Varying cost structures Capacity Equipment Downtime Scraps and Rejects By Products and Wastes ISO 9000, ISO 9001 Compliance where applicable 360 Feedback System Routine Audits
SUMMARY Designing, obtaining, and implementing a manufacturing system to effectively support a global manufacturing policy is a major effort but one that can be eminently worthwhile. A global policy may not be necessary when a company uses foreign manufacturing facilities solely to reduce labor and material costs for domestic competition. However, when worldwide market conditions dictate a global manufacturing policy rather than a multinational policy, implementing a global manufacturing system is essential to survival. Increasing worldwide competition, market regulation, and market sophistication are spurring the adoption of global manufacturing strategies by large, multinational manufacturing corporations. Before a global policy is implemented, a fresh perspective on the capabilities of manufacturing systems and a re-examination of company policy are needed. Such issues as centralization and decentralization, local autonomy, managerial development, and education and training must be made. Routine audits should be performed periodically as well as a 360 Feedback system to validate
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management objectives. Benefits of a global integrated system include better coordination of customer service in multiple markets, fast and accurate information transfer, less difficulty in complying with local laws and regulations, and conformance of both centralized and local planning to overall objectives. The ultimate pay-off is the ability to compete effectively in world markets.
REFERENCES 1. Day, George, and Liam Fahay, "Value Market Strategies," Journal of Marketing, July 1988, pp. 45-57. 2. Lei, David, "Strategies for Global Competition," Long-Range Planning 22, no.1 (1990). 3. Root, Franklin R., Entry Strategies for International Markets, Lexington, MA: Lexington Books, 1987. 4. Rosenbloom, Bert, Marketing Channels: A Managerial View, 3rd ed. Chicago: Dryden Press, 1987. 5. Zeithaml, Valerie A., A. Parasuraman, and Leonard L. Berry, Delivering Quality Service: Evaluating Customer Perceptions and Expectations, New York NY: Free Press, 1990. 6. Duckett, Brian, Taking Your Franchise to the UK & chat.com/resources/taking_on_the_uk.htm , (retrieved on 10 July, 2004) Europe, http://www.franchise-
7. ELITE, Global Integration and Systems Implementation in the 21st Century, Inc. Tech 2001, No.2 http://www.elite.com/newsevents/articles/pdf/global-integration.pdf, (retrieved on 10 July 2004) 8. INTA, International Trademark Association Trademark Checklist, http://www.%20inta.org/tmcklst1.htm, (retrieved on 10 July, 2004) 9. MAPICS, MAPICS Business Process Management, http://www.%20mapics.com%20/software/BPR (retrieved on 10 July, 2004) 10. Unzco, Basic Guide to Exporting Technology Licensing / Joint Venture, http:// www.unzco.com/basicguide/c6.html, (retrieved on 10 July, 2004) 11. http://www.napsmexico.com/what.shtml, (retrieved on 10 July, 2004) 12. Multinational Business Finance, 10th edition, David K Eiteman, Arthur I. Stonehill, and Michael H. Moffett. Page 252-253.
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