1Chapter 4Marketing 4220 International Sourcing, Logisti.docx

1
Chapter 4
Marketing 4220
International Sourcing, Logistics
& Transportation
Methods of Entry Into Foreign Markets
5/21/2015
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Methods of Entry Into
Foreign Markets
Entering A New Market
Indirect Exporting
Active Exporting
Production Abroad
Other Issues
2
Entering a New Market
Determining the appropriate method to enter
a new market depends on several factors:
Size and growth of the market
Potential market share of the exporter
Type of product and marketing strategy of the exporter

Willingness of the exporter to get involved
Characteristics of the importing country
Time horizon considered
The company must decide whether market factors favor
Manufacturing abroad
Manufacturing at home
Active Exporting
Indirect Exporting
Active Exporting
Exporter actively participates in finding potential markets
abroad.
Best option for large firms or firms with international
experience.
Indirect Exporting
Exporter does not seek export sales.
Allows manufacturer to concentrate on domestic market and
leave exporting to the experts.
Indirect Exporting

Export Trading Companies
Export Management Corporations
Piggy Backing
6
6
Export Trading
Company
An Export Trading Company [ETC] is a firm with offices in
multiple countries that purchases goods in one country and
resells them in another.
For the “exporter” selling to the ETC, as well as for the
“importer” buying from the ETC, the transactions are domestic
transactions, even though the goods eventually travel
internationally.
Historically, the first ETCs were created in Britain, France, and
the Netherlands to facilitate trade with India and Indochina.
They were then created in Spain and Portugal for trade in
South America. Following World War II, ETCs became popular
in Japan as the country began to trade with the outside world.
Today, they are almost exclusively Japanese: Mitsui,
Mitsubishi, Marubeni, Itochu, etc.
Export Trading Company

ETC
in Country A
ETC
in Country B
Country A
Country B
Firm 1
Firm 2
ETC
Export Management
Corporation
An Export Management Corporation [EMC] is normally located
in the exporting country.
The EMC acts as a representative for the exporter abroad, but
never takes title to the goods; it acts as a facilitator helping
the exporter find buyers and earns a commission on the sale.
A sale through an EMC requires more exporter
involvement; it has to ship the goods, invoice the importer,
carry the risk of non-payment and has to manage parts of
the transaction.
Export Management Corporation

Exporter
Importer
EMC
Exporting Country
Pays a
commission
Sells
Payment
Importing Country
Goods
Piggy Backing
Piggy-backing refers to the possibility of a small firm piggy-
backing on another firm’s efforts to enter a foreign market.
For example:
A firm’s customer may open a manufacturing facility abroad
and request that the firm continue to sell its products to that
new facility. The firm ends up being an exporter, even though
it never sought to enter that market.
A firm utilizes another company’s distribution channels abroad
to sell its products. It uses another company’s experience to sell
its products abroad.
In either case, the firm “piggy-backed” on the other’s strategy.

Large Company
Piggy Backing
Exporting Country
Main Company
Subsidiary
Suppliers
Importing Country
A large company sets up a subsidiary abroad and informs its
suppliers that they now have to deliver products to the
subsidiary as well.
Active Exporting
Agent
An agent is typically a small firm or individual located
in the importing country. The agent will act as a representative
of the exporter. He or she will not take title of the goods
and will earn a commission form the exporter.
The principal is the party (company) being represented
by the agent.
An agent will represent multiple companies manufacturing
products that complement the exporter’s products.
Active Exporting Agent
Exporter
Importer
Exporting Country
Pays a

commission
Sells
Payment
Importing Country
Goods
AGENT
Active Exporting
Distributor
A distributor is typically located in the importing country. The
distributor will purchase the goods from the exporter and does
take title of them. It will then resell the goods for a profit.
In this relationship, there are two sets of invoices. One set of
international invoices between the exporter and the distributor.
The distributor then becomes the importer. The second set of
invoices is between the distributor and its customer. The
customer views this as a domestic transaction.
A distributor may carry products from competitors in the same
field. Often, it will also service products and carry replacement
parts.
Active Exporting
Distributor
Exporter
Importer
Exporting Country
Payment
Importing Country

Goods
DISTRIBUTOR
/ IMPORTER
Goods
Payment
Active Exporting
Legal Issues
Agents are typically very small, sometimes even one person,
and thereby fall under the protection of labor law in many
countries. This puts certain limits on the way contracts between
agents and exporters can be worded and enforced.
(See Chapter 5).
Distributors are typically much larger than agents and therefore
fall under contract law.
Finally, certain countries have strict laws regarding the use
of agents, sometimes even barring them altogether.
Active Exporting
Marketing Subsidy
A marketing subsidiary is a foreign office of a parent
organization. The subsidiary is a separate entity incorporated in
the foreign country. It is wholly owned by the parent company.
The parent company sells products to the subsidiary in an
international transaction. The subsidiary in turn will sell these
products to customers in the foreign country.

The costs (and risks) associated with creating a marketing
subsidiary are costly, but a subsidiary allows for greater control
by the exporter.
Active Exporting
Marketing Subsidy
Exporter
Importer
Exporting Country
Importing Country
Goods
MARKETING
SUBSIDY
Goods
Payment
Coordinating Direct
Export Strategies
A firm can use two strategies in entering foreign markets
through exports and both are appropriate:
A standardized approach, where it uses a single method of
entry in all markets: agents, distributors or sales subsidiaries.
This uniformity simplifies the management of international
sales.
A tailored approach, whereby an agent is used in some
countries, a distributor in others, and a marketing subsidiary in

the remainder. The decision depends on the characteristics of
the market and resources.
Difficulties arise when a firm decides to change strategies in a
particular market. These long-term relationships are very
important and ending any of them can be difficult and costly
Foreign Sales
Corporations
Foreign Sales Corporations (FSCs) are not actually methods of
entry but a means for U.S. companies to lower their income tax.
The U.S. government allows companies to take a tax deduction
when they create domestic subsidiaries that meet certain
conditions:
The subsidiaries must have at least 95 percent of their assets
and personnel devoted to export sales.
The exported goods must have at least a 50 percent U.S.
content.
The World Trade Organization has ruled against FSCs, but as
soon as a particular version is found illegal, they are resurrected
under a different form.
Manufacturing Abroad
Contract Manufacturing
Licensing

Franchising
Joint Venture
Subsidiary
22
A company enters into an agreement with a foreign company
to manufacture its goods abroad. For example:
An American publisher may hire a British publisher to print
books in Britain, instead of shipping them from the United
States.
A French cement company may contract a Chinese cement
manufacturer to sell cement under the French company’s name
in China.
Contract manufacturing is a way for a firm to get its products
in a foreign country, either when there are barriers to entry
(quotas, for example) or when transportation costs are high.

Chinese Firm
French
Firm
French Customers
Chinese Customers
Agreement
No goods are transferred between companies.
The Chinese firm simply makes the goods for the French firm.
The goods are then distributed through normal distribution
channels, under the French firm’s name.
Licensing
A company (the licensor) allows another firm (the licensee)
to use its intellectual property in exchange for a fee (royalty).
The license can permit the use of a patented technology,
trademark, brand name or trade secret. The licensor retains
ownership of the intellectual property and the licensee must
pay the licensor a fee every time it is used.

All intellectual property is at risk of being copied or “stolen”
in countries where intellectual property is not well protected.
Having a licensing agreement does not increase that risk:
companies intent on violating intellectual property do it
without access to the licensor.
Licensing
Licensing Agreement

Indian
Firm
British
Firm
British Customers
Indian Customers
The British firm allows the Indian firm to use its intellectual
property for the payment of a royalty.
No goods are transferred between companies.
Franchising
Franchising is similar to licensing but involves a “bundle”
of intellectual property items. A firm (franchisor) will allow
an entire business model to be used by another firm (franchisee)
in exchange for royalties.
The intellectual property includes a large number of related
trademarks, copyrights, patents, know-how, training and
methods of operation.
Franchising works best for retail establishments requiring
a uniform appearance for consumers, and is most popular
with fast-food restaurants, such as McDonald’s, KFC or small
business services such as UPS stores.

Franchising
American Franchisor
Chinese Investors
Chinese Franchisee
Chinese Consumers
Chinese investors provide capital and the American firm
provides intellectual property to a franchisee that operates as a
duplicate of the operations of the franchisor.
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Joint Venture
A joint venture (JV) is a firm created and jointly owned
by two or three companies.
It is created when two or three exporters want to share the
costs of investing in a facility abroad. Often the joint owners
are companies manufacturing complementary product lines.
Sometimes, an exporter wants a local partner to provide capital
and knowledge of the market. Some countries require local
partnership for foreign investors.
Joint ventures work well while the relationship is strong.
Unfortunately, the two entities will often grow in different
directions over time and the joint venture will suffer.

Joint Venture
German
Firm
Finnish
Firm
Brazilian
Firm
Joint Venture in China
Chinese Consumers
A Finnish firm, a German firm, and a Brazilian
firm create a joint venture in China.

Joint Venture
An Italian firm creates a joint venture with a
Chinese partner to enter a Chinese market.
Italian
Firm
Chinese Firm
Joint Venture in China
Chinese Consumers
Subsidiary
A subsidiary (or wholly owned foreign enterprise -WOFE)
is an independent company established in a foreign country
but owned entirely by the exporting company.
A subsidiary allows the foreign firm to retain complete
control of its foreign investment.
This strategy is normally followed by a well-established
large company, as the costs associated with the creation
of a subsidiary are very high.

Subsidiary
Chinese Firm
Algerian
Consumers
The Algerian subsidiary is owned entirely
by the Chinese firm.
Algerian
Subsidiary
Other Issues
Parallel Imports
Counterfeit Goods
Foreign Trade Zones
Maquiladoras
Foreign Corrupt Practices Act
Anti-Bribery Convention (OECD)
34

Parallel Imports
For a variety of reasons firms will sell goods in different
markets at different prices, with different methods of entry,
market characteristics and varying exchange rates.
Entrepreneurs will often buy the goods in the country with
the lowest price, and then sell them in the country with the
highest price. In order to do that, they buy from the normal
distribution channel, but sell through alternative channels
of distribution that are not the usual ones that the exporter
would use.
This phenomenon is called “parallel imports” or gray market.
It is difficult for companies to fight these parallel imports,
as they are due to market characteristics rather than strategic
choices.
Parallel Imports
EXPORTER
Normal Distribution Channels
Alternative Distribution Channels
Parallel Importer
Sells
Buys
Country A
Country B
Consumers
Normal Distribution Channels

Counterfeit Goods
Counterfeit goods are copies of legitimate goods.
The products are being produced to imitate genuine goods
and deceive consumers. These goods are almost always of much
lower quality and priced less than the genuine goods.
Counterfeit goods can be tangible goods like watches,
clothing or car parts, but also intellectual property such
as films and software.
Western countries often accuse developing countries
such as China and India of ignoring blatant counterfeiting,
but counterfeits can be found in every country.
Foreign Trade Zones
Foreign trade zones (or free trade zones [FTZ]) are areas
of a country that have a special Customs status deeming them
“outside” of the country.
This means goods can be shipped to FTZs without paying
duties or being subject to quotas.
It is only when the goods leave the FTZ and enter the country
that they are subject to duty.
FTZs were created to encourage exporting and foreign
investments.

Foreign Trade Zones
EXPORTER
Foreign Trade Zone
Country A
Country B
Duty Free
Duty
Collected
Duty
Collected
Customers
Customers
Maquiladoras
A maquiladora is a company in Mexico with a Customs status
similar to that of an FTZ.
Goods from the USA can be imported duty free into the
maquiladora, transformed and re-exported to the U.S.
Duty is only charged on the value added, not on the goods
themselves.
Maquiladoras are now obsolete because of the North American
Free-Trade Agreement, which eliminated duty between Mexico,
Canada and the United States.

Foreign Corrupt Practices Act &
Anti-Bribery Convention (OECD)
In several countries, the bribing of government officials is
a common and accepted form of conducting business.
The Foreign Corrupt Practices Act (FCPA) of the United States
attempts to eliminate the practice of bribery, by punishing the
companies and the individuals paying the bribes.
The Organization for Economic Co-operation and Development
(OECD) has implemented an Anti-Bribery Convention, which
several countries have adopted and also criminalizes bribery
practices.
Outline Planning Guide
Research: Source where you found this information
Introduction FRANK---Fill in this column below
Need a 3-4 resources to support the claim
Body Part 1 State your claim
Point A Make your first point
Support your first point Counterpoint A Present first
counterpoint
Support first counterpoint Rebuttal A State first rebuttal point
Support rebuttal point

The New York mayor Michael Bloomberg, put a banned on soda
16 ounces or larger to in hopes take control of what New York
consumes, I agree that steps should be taken to promote better
eating choices. This banned encourage healthier eating habits
and lower rates of obesity.
Body Part 2 Point B Make your first point
Support your first point Counterpoint B Present first
counterpoint Support first counter point Rebuttal B State first
rebuttal point
Support rebuttal point
Body Part X*
*Continue pattern until all points and counterpoints have been
addressed.
Conclusion
4-14

Chapter 4: Methods of Entry into Foreign Markets
4-15
Chapter 4: Methods of Entry into Foreign Markets
Chapter 4
Methods of Entry into Foreign MarketslEARNING
oBJECTIVES
At the end of this chapter, YOU SHOULD:
1 Understand the concepts of indirect exporting.
2 Understand the concepts of active exporting.
3 Understand the concepts of production abroad.
4 Be aware of the complications related to parallel imports.
5 Identify other issues in methods of entry into international
trade.
Preview
The chapter looks at what is one of the first issues a company
must examine when considering entering the realm of
international trade: how to enter international markets. The
chapter talks about methods of making that entry, including the
ramifications of indirect exporting, active exporting using
agents and distributors, marketing subsidiaries, and engaging in
production abroad. In the area of production abroad, we
examine issues relating to licensing, franchising, establishing
joint ventures, and subsidiaries. Also looked at are problems
with parallel imports and the unique advantages of foreign trade
zones and maquiladoras.
Chapter Outline
Introduction
I. First international sales tend to be random, haphazard events.
II. Eventually, a firm realizes there is an international market
worth exploring.
III. In going after the international market firms often fail to
plan properly and end up developing problems for themselves.
4-1 Entry Strategy Factors

I. Firms need to develop a proper international strategy early
on.
II. Of the parts of the marketing mix involved in international
sales, distribution is the one with the longest timeline and is the
least likely to be adjusted.
4-2 Indirect Exporting 4-2-1 Export Trading Company (ETC)
I. Export trading company purchases goods from a firm in one
country and resells them in a foreign country
II. For the domestic seller, it is a domestic transaction—a sale
to a company in the home country
III. For the foreign party purchasing from the export trading
company, it is also a domestic transaction—a purchase from a
company in the same country
IV. Old concept which faded late in the nineteenth century
V. Resurrected by Japan to handle its post-World War II
exporting, the sogo shosha
VI. Often very large companies
a. Depth of knowledge of markets, products
b. Provide packages of varied logistical services: shipping,
insuring, financing, and expediting international transactions
VII. Some are smaller export trading companies
a. Specialize in one geographical area or one product line
b. Offer same breadth of services as a sogo shosha
c. Export Trading Companies Act of 1982 has resulted in
creation of a number of smaller-scale export trading companies
in U.S.
VIII. ETCs are good for novice or less-than-serious exporters4-
2-2 Export Management Corporation (EMC)
I. Located in the exporting country and acts as an international
manufacturer’s representative
II. Unlike an export trading company, an export management
corporation is an agent. Agents do not take title of the property
being sold
III. EMCs tend to be small

a. Tend to specialize in selling one product line in one country
b. Usually also represent other exporters abroad by selling
complimentary product lines
c. Tend to keep large list of potential buyers
IV. An exporter tends to be more involved in international
activity when using an EMC than when using an ETC. The
amount of service the EMC provides depends upon its
relationship with the exporter
V. As an exporter’s international business grows, it may absorb
the EMC to capitalize on its skills and contacts4-2-3 Piggy-
Backing
I. Two types of piggybacking:
a. Suppliers piggyback on a firm
i. A customer of a firm sets up a manufacturing facility in a
foreign market
ii. It tells its suppliers they need to provide parts for assembly
and customer service
iii. Thus, suppliers are now selling abroad
iv. Franchisors do this by requiring overseas franchises to be
equipped with same machinery and supplies as elsewhere
b. Successful exporter involves one of its suppliers or a
company that makes a complementary product in international
markets the exporter has developed
II. While piggybacking can be described as passive, it can be
an opportunity for a supplier to eventually launch its own
international marketing strategy
4-3 Active Exporting4-3-1 Agent
I. Usually a small firm or individual located in the importing
country
II. Acts as a manufacturer’s representative for the exporter
III. Does not take title, earns commission on sales
IV. In the relationship, the exporter is called the principal
V. Agent usually has several principals for which it sells
complementary products

VI. Agent handles all sales functions from prospecting to
closing the sale
VII. Principal’s support for agent varies, from a simple
brochure and price list to extensive sales assistance and effort
VIII. Agents like to keep control over their schedule but know
the principal’s support is important to their success
IX. Who should negotiate critical aspects of the sale such as
price, delivery, terms of trade, terms of sale, and collection?
a. Some say it should be the agent
b. Rather, it should be the principal. Direct negotiation on these
items between the agent and the importer (buyer) means many
countries will consider the agent as a binding agent,an agent
that can make decisions and statements that the principal will be
required to follow. With a binding agent, the principal:
i. Is considered to be permanently established in the country
ii. Can have significant tax obligations
X. Criteria in choosing an agent:
a. Ability to accurately represent exporter and product
b. Ability to sell
c. Contacts
d. Knowledge of the targeted industry
e. Compatibility with exporter
XI. Although principals and agents enter into one-year
contracts, their relationships tend to be much longer
XII. Finding agents by:
a. Trade show
b. Trade missions
c. Commercial attachés of the embassies of the exporter’s
country
d. Contacts with other successful exporters
XIII. Factors which may call for use of an agent:
a. Potential sales are small
b. Product is not a stock item, but is designed for a particular
customer
c. Product is very expensive
d. When there is expectation of a short product life cycle

e. When there is little requirement of after-sale service
f. When there is little expectation of the exporter becoming a
dominant force in the market
g. When the company is reasonably well-equipped to handle
export sales
h. When the company does not have a “top-of-the-line” strategy,
and does not seek premium prices
i. When the company wants reasonable amount of control over
prices and delivery policies4-3-2 Distributor
I. Usually a firm in the importing country which buys (takes
title of) goods from the exporter
II. Relationship is characterized by two sets of invoices:
a. One set of international invoices between the exporter and the
distributor (who in this case is actually the importer)
b. Another set of domestic invoices between the distributor and
its customers (who see this as domestic sales of foreign
product)
c. Distributor carries inventory:
i. Of exporters products
ii. Possibly of spare parts (and provides after-sale service)
iii. Of complementary products
iv. Possibly of products that compete directly with exporter
III. Distributor takes more risks than agent (and has higher
costs)
a. Inventory carrying costs
b. Usually expected to participate in costs of promotion
i. Advertising
ii. Trade shows
c. Distributor usually has benefits agent does not have (although
many exporting firms try to limit these)
i. More freedom in setting prices
ii. More freedom in negotiating with customers
iii. Is basically only limited by exporter’s copyrights and
trademarks
IV. Distributor should be considered a long-term partner
a. It makes substantial investment in inventory

b. It trains its employees
c. Important that exporter and distributor are a good match
i. Distributor needs to be able to accurately represent exporter
and product
ii. Distributor needs to be able to invest in exporter’s products
iii. Distributor needs to be able to sell exporter’s products
iv. Distributor needs to be able to provide after-sale service
v. Distributor needs knowledge of the industry
vi. Distributor needs to have objectives compatible with those
of exporter
V. Finding distributors
a. Trade show
b. Trade missions
c. Commercial attachés of the embassies of the exporter’s
country
d. Contacts with other successful exporters
VI. Factors which may call for the use of a distributor:
a. Potential sales are substantial
b. Product is a stock item, not designed for a particular
customer
c. Product is moderately priced
d. When there is expectation of a long product life cycle
e. When the product requires frequent after-sale service and/or
parts
f. When the exporter believes it will not be much more than a
minor player in the market
g. When the exporter prefers to export to only one customer
h. When the company does not have a strategy of premium
prices and service
i. When the exporter is comfortable relinquishing control of
price and delivery terms4-3-3 Additional Issues in the Agent-
Distributorship Decision
I. Some countries do not allow agents
a. If they allow agents, they will not allow them to represent
foreign manufacturers
b. They may require a physical after-sale service presence

(which would require a distributor)
II. Most countries’ judicial systems vary on how they
differentiate between agents and distributors
a. Since most agents are small businesses, many governments
place them under their labor law
i. This may affect termination notices on the part of the exporter
ii. This may affect the agent’s working conditions and issues
such as taxation, certifications, licenses, …etc.
b. Distributors, usually being larger, are covered in most
countries by contract law, which is much less restrictive than
labor law
4-3-4 Marketing Subsidiary
I. An exporter opens its own sales or marketing office in a
foreign country and staffs it with its own employees to sell its
products
II. Since it is incorporated in the importing country it is the
importer of record
III. As far as the foreign government is concerned the “export”
is between two legal companies that are part of the same
company at a transfer price
IV. Sales in the foreign country by the marketing subsidiary are
considered to be domestic sales
V. Costs of marketing subsidiary are higher and are more long-
term
a. Include fixed costs (real estate, inventory, employees)
b. Agents represent variable costs (commissions)
c. Distributors bear all the costs of establishing the business in
a foreign country
VI. Factors which may call for the use of a marketing
subsidiary:
a. When the exporter estimates that the market potential (sales,
growth, or profit) is considerable
b. When the product is technologically driven, with substantial
intellectual property content
c. When the product is rather complicated to sell
d. When the company expects to be in for the long run, with

more products forthcoming
e. When the product requires sophisticated after-sale support
f. When the company expects to become a major player in the
market
g. When the company can command premium prices
h. When the company does not want to relinquish control of its
products and prices4-3-5 Coordinating Direct Export Strategies
I. Two factors in exporter’s entry decision:
a. Market-driven
b. Company- or product-driven
c. Some firms have a specific strategy they follow for exporting
i. Advantages:
1. Simplifies export management
2. Provides united marketing front
3. Can develop similar standard for all of their import entities
a. Agents/sales subsidiaries: can coordinate prices and control
after-sale policies
b. Distributors: can contractually control prices
ii. Disadvantages: one-size-fits-all may result in poor match
with market
1. Potentially good market may be given away to an agent
2. Establishing a sales subsidiary may be wasteful in a small
market
3. Firm may miss market opportunities by waiting for enough
resources to establish a subsidiary
4. Other firms decide their exporting strategy on a country-by-
country basis
d. Some firms have different entry strategies in different
countries
i. Advantage: best strategy is chosen for each country and
profits usually will be higher
ii. Disadvantages:
1. Coordination of prices and after-sale service is more difficult
to achieve
2. There is the possibility of parallel imports
e. Switching from agents or distributors to sales subsidiaries

can cause serious problems
i. Agents/distributors have usually heavily invested to develop
market
ii. Customers have loyalty to agents/distributors
iii. Changing to a subsidiary can cause a drop in sales
iv. Slighted distributor may successfully seek redress in court4-
3-6 Foreign Sales Corporation
I. Method for U.S. companies to reduce income tax on exports
from 45 percent of profit to 30 percent
II. Export products must have at least 50 percent U.S. content
III. Exporter must incorporate subsidiary in pre-approved
foreign location such as Virgin Islands, Barbados or Jamaica
IV. Does not include Export Trading Company, since those are
domestic sales
V. Based on a European Union complaint, the World Trade
Organization has ruled that Foreign Sales Corporations are
prohibited subsidies to exports, but Congress does not want the
tax break to go away
4-4 Production Abroad
I. Effective when manufacturing costs are lower
II. Effective when costs are prohibitive
III. Effective when domestic manufacturing capacity reached
IV. Effective when product has significant intangible content,
such as services4-4-1 Contract Manufacturing/Subcontracting
I. Company contracts with foreign producer to manufacture its
goods
II. Not truly a means of entry, just a way to get the product
manufactured in the foreign country
III. Product still must be marketed and distributed
a. Usually through distributor or marketing subsidiary
b. Sometimes local contractor uses their own marketing
channels
IV. Contract manufacturing may be used to offset significant
barriers to entry (high tariffs, quotas), but countries with such

practices usually do not have manufacturing firms up to world
standards4-4-2 Licensing
I. Granting of rights of intellectual property from one company,
the licensor to another, the licensee
II. Common in manufacturing
III. International licensing
a. Licensor “exports” intellectual property to licensee in a
foreign country
b. Advantages:
i. Good solution to tariffs or other barriers
ii. Licensor does not need to risk a lot of capital
iii. Licensor can generate worldwide income fairly rapidly
c. Disadvantage: piracy4-4-3 Franchising
I. Similar to licensing, except franchisor grants large number of
intellectual property items to franchisee
II. Often used in retailing
a. Consumers like consistency
b. Entrepreneurs like proven business plan
c. Somewhat limited to low-skill service businesses like
retailing
III. Generates substantial amounts of piggy-backing by
franchisor’s equipment suppliers4-4-4 Joint Venture
I. Exporter invests in foreign country with one or more partners
to create a new corporation
II. Politically-connected local partner helps to prevent seizure
of company by local government, as was common in some
countries from the 1950s through the 1970s
III. Local governments not interested in nationalization, but in
local ownership of capital have been advocates of joint ventures
IV. Problem is they are like a marriage where the spouses
continually change: personnel and corporate ownerships do not
remain static
V. Foreign investors find joint ventures less and less
attractive4-4-5 Subsidiary
I. Sometimes called Wholly-Owned Foreign Enterprise or
Wholly Foreign-Owned Enterprise (WFOE, “Woofie”)

II. Advantages:
a. Firm retains control
b. Firm protects trade secrets
c. Firm does not have to share profits
d. Does not rely on any one else for information on customers
e. Can pull out when it wants
f. Creates jobs for host country
g. Favorable duty rates
III. Disadvantages:
a. High costs establishing it
b. High risk exposure
c. Managing in a foreign country with limited understanding of
local customs and culture
4-5 Parallel Imports
I. Parallel imports, or gray market goods, are goods sold outside
regular distribution channels of a company
II. Gray market sometimes develops when there is a price
differential between one country and the next. Someone buys
the goods in the lower-priced country and re-sells them in the
higher-priced country in outlets outside the regular channel and
at prices lower than those of the regular channel
III. Best defense is to avoid price discrepancies from country to
country
IV. No legal recourse—when a company sells a product it can
no longer control it
4-6 Counterfeit
I. Lots of consumer goods, and some industrial goods, can be
counterfeited
II. The largest culprits are countries in which intellectual
property rights are not well protected (China, India, Russia,
...etc.)
III. The goods are made by an unauthorized manufacturer, and

are frequently, but not always, of lower quality
IV. Counterfeit goods can represent problems for the owner of
the brand, as warranty claims (and liability claims) are made
V. Perceptions of lower quality are also attributed to the owner
of the brand and not the counterfeiter
4-7 Other Issues in Methods of Entry4-7-1 Foreign Trade Zones
I. Although a FTZ is in a country, as far as Customs is
concerned, the FTZ is considered to be “outside” the country
II. Goods can be imported duty-free into the FTZ, then
transformed, assembled, repackaged and shipped elsewhere
without ever having been considered to be in the country where
the FTZ is located
III. Products from the FTZ sold to the host country are only
subject to duty when they leave the FTZ
IV. They stimulate foreign investment and create local jobs
V. Attractive to manufacturers subject to tariffs on materials
that are higher than on the finished product
VI. Good place to hold inventory while waiting on import quota
VII. WTO’s progress in securing lower tariffs may reduce future
role of FTZs4-7-2 Maquiladoras
I. Mexican countries with a Customs status similar to being in
an FTZ in both Mexico and the United States
II. Companies can import goods duty-free from the United
States, transform them, then re-export them to the United States
where the duty is only for the value added in Mexico
III. North American Free Trade Agreement (NAFTA) has
reduced attractiveness of the maquiladoras4-7-3 Anti-Bribery
Convention
I. Much international business is driven by bribery and
corruption
II. U.S. Foreign Corrupt Practices Act prohibits Americans from
engaging in bribery
III. The Organisation for Economic Co-operation and
Development (OECD) wants an end to bribery, and as of May

2009, 38 countries have ratified it
Key terms
Anti-Bribery Convention
An OECD convention that requires countries to penalize
companies engaging in bribery.
agent
An individual or firm, located in an importing country, that is
allowed to represent an exporter in sales negotiations. The firm
being represented is called the principal.
binding agent
An agent who can make decisions that are binding on the
principal; the principal must abide by whatever statements the
representative has made.
contract law
A set of laws that govern relationships established by contracts
between two parties.
contract manufacturing
A situation in which an exporter that needs to manufacture a
product abroad finds a corporation in the importing country to
make the product for the exporter.
counterfeit goods
Goods that appear to have been produced by the legitimate
manufacturer but that were actually produced by another
company intent on deceiving customers and imitating the
genuine goods. Counterfeit goods are generally sold for a much
lower price than the authentic goods.
distributor
An individual or a firm, located in an importing country, that
purchases goods from the exporter with the idea of reselling
them for a profit.

duty
The amount of tax paid to Customs authorities in the importing
country on imported goods
export management corporation
A company that puts suppliers in touch with potential buyers,
and earns a commission if a sale is completed.
export trading company
A company that purchases goods in one country for the purpose
of reselling them in another country at a profit.
sogo sosha
The Japanese term for a trading company.
Foreign Corrupt Practices ActA U.S. law that punishes severely
U.S. companies engaging in bribery outside of the borders of
the United States.
foreign sales corporation
A subsidiary, created for tax-reduction purposes only, that
handles an exporter's overseas sales.
foreign trade zone
An area that is physically within the borders of a country, but
that is considered outside of its borders for Customs' purposes.
franchisee
The party granted the right to use an array of intellectual
property items owned by another party in exchange for payment
of royalties.
franchising
A process by which a firm possessing an array of several
intellectual property items (patents, copyrights, trademarks,

trade secrets) grants another company the right to use these
intellectual property items in exchange for royalties. In general,
the firm that is granted the rights to use the items (called the
franchisee) and the firm granting the rights to the use of the
items (called the franchisor) are, in the eyes of their customers,
indistinguishable
franchisor
The owner of an array of several intellectual property items that
grants another firm (the licensee or franchisee)the rights to use
that group of intellectual property items in exchange for the
payment of royalties.
gray market goods
Goods purchased in one country by unauthorized intermediaries
and sold to unauthorized retailers in another country.
intellectual property
A type of intangible good that an individual or a firm can own;
it is either a copyright (the rights to a work of art, a musical
piece, or a written article), a patent (the rights to a process, a
material, or a design), a trademark (the rights to a commercial
name or slogan), or a trade secret (a unique way to manufacture
a particular product). Copyrights, patents, and trademarks are
protected by governments, preventing non-owners from using
intellectual property without authorization. Trade secrets are
protected by being kept secret.
joint venture
An overseas company that is jointly owned by two or more
companies.
labor law
A set of laws that govern relationships between employees and
employers.
licensee

The party that is granted the right to use an intellectual property
item owned by another party (the licensor) in exchange for
payment of a royalty.
licensing
A process by which a firm possessing some intellectual property
item (a patent, a copyright, a trademark, a trade secret) grants
another company the right to use the intellectual property item
in exchange for a payment, called a royalty.
licensor
The owner of an intellectual property item that grants another
firm (the licensee)the right to use that intellectual property in
exchange for the payment of a royalty.
maquiladora
A plant located in Mexico that have the same status as a foreign
trade zone located both in the United States and Mexico.
marketing subsidiary
A firm, incorporated in the importing county and owned by the
exporter, whose purpose is to sell the exporter’s products.
parallel imports
Goods purchased in one country by unauthorized intermediaries
and sold to unauthorized retailers in another country.
piggy-backing
When a manufacturer goes overseas and asks its suppliers to
continue doing business abroad with him, the suppliers are said
to be piggy backing on that customer's efforts.
permanent establishment
A fixed place of business abroad that subjects the exporter to
tax liability in the importing country.

principal
The party represented by the agent in an international agency
agreement; the exporter.
royalty
The amount of money paid by a licensee to a licensor for the
right to use the licensor’s intellectual property. Royalty fees are
generally determined in function of the number of times that the
licensee or franchisee used the intellectual property.
subsidiary
A corporation entirely owned by another corporation.
wholly-owned foreign enterprise
Another term for a subsidiary.PowerPoint SLIDES – STUDY
THEM – PRINT THEM OUT !
· Entry Strategy Determinant Factors (4 slides)
· Indirect Exporting (6 slides)
· Active Exporting (10 slides)
· Production Abroad (11 slides)
· Parallel Imports (2 slides)
· Counterfeit Goods (1 slide)
· FTZs and Maquiladoras (3 slides)
· Foreign Corrupt Practices Act (1 slide)
Additional Resources
Bello, Daniel C. and Ritu Lohtia, “Export Channel Design: The
Use of Foreign Distributors and Agents,” Journal of the
Academy of Marketing Science, Spring 1995, pp. 83–93.
Root, Franklin R., Entry Strategies for International Markets,
Revised and Expanded Edition, Lexington Books, 1994.
Rosenbloom, Bert and G. Behrens Ulrich, Marketing Channels:
A Management View, Sixth Edition, The Dryden Press, 1998.
“Country Descriptions of Tax Legislation on the Tax Treatment

of Bribes,” Organisation for Economic Co-operation and
Development, June 2006,
http://www.oecd.org/dataoecd/42/43/37116153.pdf, October 1,
2007.
“Foreign Corrupt Practices Act Antibribery Provisions,” United
States Department of Justice—Fraud Division, and United
States Department of Commerce—Office of the Chief Counsel
for International Commerce,
http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-
guide.pdf, June 4, 2010.
The discussion example and question;
The role of bribery in international business continues and in
some countries is increasing. Do you believe that U.S.
executives are at a disadvantage as a result of our Foreign
Corrupt Practices Act? Discuss how much and why.
1
Chapter 2

Marketing 4220
& Transportation
International Supply Chain Management
5/22/2015
1
International Logistics
Historical Development
Logistics & Supply Chain Management
Elements of International Logistics
Economic Importance of Logistics
International Reverse Logistics
2
Historical Development
3
The early “slow” days
The move toward speed
Customer satisfaction

A strategic advantage
The Early “Slow” Days
The first international logisticians were traders on the Silk
Road, a well-traveled trade route for over 3,000 years. It
stretched from Europe to Asia, passing through the Middle East.
The primary concern of early modern logisticians was to
ensure that goods arrived at their destination in good condition
and at the lowest possible cost.
Following World War II, logistics began to incorporate the
techniques used by the military.
The logistics definition of expanded to include the movement
of goods, procurement of supplies, sales and the management of
supplier and customer relationships.
4
The Move Toward Speed
The introduction of containers (“boxes”) in the late ‘50s, and
their eventual widespread adoption, made shipping much more
efficient, cheaper and faster.
In the ‘70s, new companies, such as FedEx and DHL,
introduced time-defined air shipping services, gaining a large
market share in domestic shipments.
In the ‘80s, international air shipments increased as costs

declined and the number of destinations escalated. Air transport
became cost-competitive with ocean transport for many
products.
5
5
Customer Satisfaction Emphasis
The very high interest rates of the 1980s led companies to
reduce inventory levels.
New inventory management techniques were created to reduce
inventory costs. Those techniques included:
Just-in-time (JIT)
Materials Requirement Planning (MRP)
Manufacturing Resources Planning (MRP II)
Distribution Resources Planning (DRP)
Since these techniques relied on rapid and reliable deliveries,
logistics firms provided reduced shipping times and time-
defined deliveries.
6
6
Just-In-Time Techniques
Just-in-time manufacturing is a process whereby parts are
planned to arrive on the assembly line just before needed. The
goal of this technique is to reduce or eliminate the need for

inventory.
It now includes the delivery of parts to the assembly plant just
before they are needed and the delivery of finished goods just as
the retail store is running out.
JIT has become part of standard operations management
practices in most manufacturing facilities.
JIT involves a risk if the supply chain is disrupted and
production may have to shut down due to lack of materials.
7
Computer-Based Tools
Materials Requirement Planning (MRP) and Manufacturing
Resources Planning (MRP II) are tools manufacturers use to
determine what to produce (or order from suppliers), how much
and when, to facilitate sales forecasts and pending customer
orders.
Distribution Resources Planning (DRP) is a tool retail firms
use to determine what to order from its suppliers, how much and
when, to facilitate sales to retail customers.
These tools are dependent on the reliable and efficient delivery
of relatively small shipments.
8
Transformation into a
Strategic Advantage
International Logistics management has become a
strategic advantage for the firms capable of:
Containing the costs of shipping, in view of increased fuel costs

Providing “visibility” in the supply chain, or the ability to
determine the location of a particular shipment at any time
Maintaining reliable, dependable deliveries
Ensuring the security of the goods while they are in transit
Engaging in sustainable practices
9
Sustainable Practices
Implementation of green practices by region of the world.
Source: IBM
10
Definitions
Logistics
Supply Chain Management
Evolution of Logistics
Relationship between Logistics and SCM
Logistics, International Logistics and SCM
11
Logistics
“Logistics is the part of the supply chain process that plans,
implements and controls the efficient, effective forward and

reverse flow and storage of goods, services, and related
information between the point of origin and the point of
consumption in order to meet customers’ requirements.”
Source: Council of Supply Chain Management Professionals
12
12
“Supply Chain Management encompasses the planning and
management of all activities involved in sourcing and
procurement, conversion, and all Logistics Management
activities. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In
essence, Supply Chain Management integrates supply and
demand management within and across companies.”
Source: Council of Supply Chain Management Professionals
13
Evolution of Logistics
Source: Alfred Battaglia

14
Logistics / SCM Perspectives
Inclusionist Evolutionist Intersectionist
Logistics
SCM
Logistics
SCM
Logistics
SCM
Source: Larson and Halldorsson
Three different perspectives on the relationship between
Logistics and Supply Chain Management. The “inclusionist”
perception prevails today.
15
15
International Logistics,
Logistics and SCM

16
Elements of International
Logistics ( 1of 2)
The environment in which international logisticians operate is
quite different from the domestic environment.
The decisions regarding international transportation are much
more complicated than those regarding domestic transportation.
The number of intermediaries involved in an international
transaction is greater than in a domestic transaction.
The inherent risks and hazards of international transportation
are much greater.
17
Elements of International
Logistics ( 2 of 2 )
International insurance is much more complex
International means of payment remain complicated
Terms of trade can be convoluted
Border crossings involve specific challenges
18
Economic Importance of
Logistics in the U.S.
Source: State of Logistics Annual Reports 2000-2012

19
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971
1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
1983 1984 1985 1986 1987 19 88 1989 1990 1991 1992
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
2004 2005 2006 2007 2008 2009 2010 14.7 14.6 14.9 15.2 15
14.7 14.4 14.7 14.4 14.1 14.7 13.8 13.5 14.3 15.3 13.5
13.4 13.4 14.3 15.3 16.100000000000001 16.2 14.5
13.3 13.4 12.4 11.6 11.4 11.5 11.7 11.4 10.6 10.1 9.9
10.1 10.4 10.3 10.199999999999999 10.1 9.9
10.199999999999999 9.4 8.6 8.5
8.6999999999999993 9.4 9.6999999999999993
9.9 9.4 7.8 8.3000000000000007 8.5
Economic Importance
of World Logistics
Source: Supply Chain Brain
(U.S.$ billions)
20
Europe North America Asia Pacific Central/South America
Other Countries 1445 1688 2248 453 1572
Reverse Logistics

Source: Lora Skarman
21
Reverse Logistics
The German approach: require companies
recycle all packaging and create a post-
consumer recycling program.
The Curitiba approach:
Use recycling as an anti-
Poverty program.
22

Fragmentation 1960 Evolving Integration 1980
Total Integration 1990 2000
Demand Forecasting
Purchasing
Requirements Planning
Physical
Distribution
Materials
Management
Logistics
Supply Chain Mgmt.
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Industrial Packaging
Finished Goods Inventory
Distribution Planning
Strategic Planning
Customer Service
Transportation
Order Processing
Sales
Marketing
Information Technology
(
Fragmentation 1960 Evolving Integration 1980
Total Integration 1990 2000
Demand Forecasting
Purchasing
Requirements Planning
Physical
Distribution

Materials
Management
Logistics
Supply Chain Mgmt.
Production Planning
Manufacturing Inventory
Warehousing
Materials Handling
Industrial Packaging
Finished Goods Inventory
Distribution Planning
Strategic Planning
Customer Service
Transportation
Order Processing
Sales
Marketing
Information Technology
)

Domestic
Suppliers
Domestic
Customers
Foreign
Customers
Foreign
Suppliers
Company
Logistics
(
Domestic
Supplier
s
Domestic
Customer
s
Foreign
Customer
s
Foreign
Supplier
s
Company

Logistics
)
1
Chapter 3
Marketing 4220
& Transportation
International Logistics Infrastructure
5/22/2015
1
International Infrastructure
Infrastructure is a collective term that refers to all of the
elements in place (publicly or privately owned goods) to
facilitate transportation, communication and business
exchanges.
2

Types
Transportation Infrastructure
Communication Infrastructure
Utilities Infrastructure
Services Infrastructure
Legal and Regulatory Infrastructure
3
The Transportation Infrastructure enhances the movement of
goods efficiently within a country and between countries. This
requires well-maintained seaports, airports, railways, and roads.
The Communication Infrastructure allows businesses to
communicate clearly and quickly. This requires reliable phone
lines, cell phone networks, internet service and mail delivery.
The Utilities Infrastructure facilitates businesses to sustain their
daily operations. This requires allows reliable energy (natural
gas), electricity, water and sewer services.
4

The Banking Infrastructure helps businesses move funds and
documents quickly and reliably, both within a country and
between countries. A network of bank branches and well-trained
bank employees is required.
The Business Services Infrastructure offers businesses to
find additional competent logistics help quickly. This includes
freight forwarders, couriers, carriers, delivery services, packing
services and related entities.
The Distribution Infrastructure serves businesses to find agents
and distributors, to develop wholesale and retail channels and
promote their products.
5
The Court Infrastructure helps businesses to settle disputes
quickly and fairly. This includes not only an efficient court
system, but also a network of mediators and arbitrators and the
existence of clear jurisprudence.
The Intellectual Property Infrastructure facilitates businesses to
protect their intellectual property (copyrights, patents, and
trademarks) with law enforcement services intent on enforcing
intellectual property laws.
The Standard Infrastructure allows businesses to determine the
requirements their products and operations must meet. This
includes safety, design and performance standards.
6

Transportation Infrastructure
Ocean and Water Transportation
Air Transportation
Railroad Transportation
Road Transportation
Other Means of Transportation
7
Port Infrastructure
(1of 2)
Water Draft – Water depth determines the size
of the ships that can call.
Air Draft - Bridge clearances also determine which ships can
call.
Cranes - Post-Panamax ships need wider/taller cranes than
Panamax ships.
Port Operations - Many ports have strong unions which limit
operations.
8
Port Infrastructure
(2 of 2)
Space Limitations - The location of most ports limit their
ability for expansion.
Warehouse Space – The availability of reliable storage space for
goods in transit is limited
Connection to land-based Transportation - Ports need to have

reliable access to roads and/or rail lines to facilitate cargo
movement
9
The port of Yangshan, China
(near Shanhai)
10
11
A Panamax Ship
A Post-Panamax Ship
12
The Alameda Corridor
between the Port of Los Angeles
and the U.S.
13
Canals and Waterways
Maritime transportation is dependent on the existence of
reliable canals.
The Suez Canal in North Africa and the Panama Canal in

Central America are particularly important. The current trend of
building ships too large to fit through these canals is creating
new challenges for the industry.
Other key waterways include the Bosporus Strait in Turkey
connecting the Mediterranean with the Black Sea and the Saint
Lawrence Seaway in North America connecting the Great Lakes
with the Atlantic Ocean.
Some canals are less frequently used, such as the Corinth Canal
in Greece.
14
The Gatun Locks on the Panama Canal
15
The Suez Canal
16
. . .where is the water?
The Corinth
Canal
17
Airport Infrastructure
Runways – their length determines whether an airport
can handle large cargo planes; the number of runways determine

its capacity.
Space - most airports are landlocked and cannot expand.
Hours of operation - airports need to be located away from of
major cities if they are going to operate at night. Many airports
do not meet this requirement.
Warehouse storage facilities – are critical to protect cargo
from the elements.
18
Kai Tak Airport
Hong Kong
( closed )
19
Chek Lap Kok Airport
Hong Kong
20
Railroad Infrastructure
Gauge – when railroads were first built, countries installed
unique railroad track gauges to prevent rival armies from using
them. Today, these gauge differences prevent trains from
traveling quickly between multiple countries.
Multi-modal - cargo rail transport has shifted from traditional
railcars to multi-modal cars, carrying either containers or truck
trailers.
Land bridge – is the term used when containers are shipped
from Asia to Europe through the U.S. railroad network; they
arrive in a port on the west coast and are transported by rail to

an east-coast port.
21
A dual-gauge track in Thailand.
22
A double-stack container
configuration on a U.S. train
23
Road Infrastructure
Quality – the existence of high quality roadways is
important to the continuous flow of goods.
Congestion - in many countries traffic congestion is stifling
and prevents goods from moving quickly.
Civil engineering structures - such as bridges and tunnels need
to be built in many places in order to conveniently navigate
the landscape.
24
25
Russia’s Lena “Highway”

26
New Delhi, India
Traffic Congestion
27
The Oresund Link –
bridge and tunnel between
Denmark & Sweden
- Mail / Postal Service -
Speed – mail delivery efficiencies globally range from quick to
very slow,
Reliability - not all mail is delivered is some countries; it can
be lost, abandoned or pilfered.
Delays - postal unions have a great influence and strikes can
delay the delivery of important documents.
Competition - firms such as FedEx, UPS and DHL are very
reliable, but are generally much more expensive than public
postal services.
28
29
Hi-speed postal train
in France

- Telecommunications -
Land lines - some countries have reliable, inexpensive phone
lines; others have bad landline telecommunication networks.
Cellular phones - some countries built cellular phone networks
quickly, often because they did not have a good landline
network; they leapfrogged the landline technology, often
offering better cellular access than developed countries having
reliable landline networks.
Internet - access to the internet is still limited or cost
prohibitive in many areas; a contrast with fast and inexpensive
access in others.
30
Landline PenetrationCountryLandlines/person1
Taiwan 72.6%2 Germany 63.8%3 France
60.5%4 Hong Kong 60.5%5 South Korea 60.2%6
Switzerland 57.7%7 Greece 53.3%8 Canada
52.7%9 United Kingdom52.4%10 Japan 50.8%13
United States46.1%33 United Arab Emirates33.3%36
Russia31.0%55 China21.1%73 Panama15.7%
31
Cellphone Penetration
32
CountryCell phones /person1 United Arab Emirates214.2%2
Hong Kong 212.9%3 Panama 189.2%4 Kuwait

183.1%5 Finland 169.8%6 Libya 166.6%7
Russia 166.1%8 Oman 164.9%9 Austria
158.4%10 Italy156.2%23 Germany134.0%33
Taiwan123.9%84 United States91.7%86 France90.7%111
China73.1%
33
Tangled Wires
New Delhi, India
Utilities Infrastructure
Electricity
Unreliable electricity grids and insufficient production capacity
can cause blackouts or brownouts, limiting productivity.
Water and sewer
Access to clean water (and sewers) is fundamentally important
for many manufacturing processes.
Energy
Reliable pipelines need to be available to deliver natural gas
or oil products to the locations where they can be used.
Theft
In some areas, theft of utilities is common, making it difficult
for utility companies to earn a profit and invest in new
infrastructure.
34
The Alaskan Pipeline

United States
Banking Infrastructure
Foreign currency payments
The ability to quickly purchase and sell foreign currencies,
either through wire transfers or currency purchases is of
primary importance to firms engaged in international trade.
Methods of payment
The ability of the banking partners to support alternative means
of payment and provide assistance to firms engaged in
international trade is very important.
Document exchanges
Banks play a fundamental role in the exchange of trade
documents between an exporter and an importer.
36
Banking Services
Infrastructure (1 of 2)
Freight Forwarders
Freight forwarders help determine the best shipping
alternatives to firms engaged in international trade
Customs Brokers
Brokers provide assistance to importers when clearing
Customs.
Couriers
Couriers allow firms to ship documents and small parts using
the “next available flight.”
37

Banking Services
Infrastructure (2 of 2)
Packing services
Packing services allow exporters to rely on professionals to
pack goods destined for export.
Multiple other services
Carriers, delivery services, etc. are fundamental to implement
good international trade practices and must exist for
exporters to be successful.
38
Distribution Channel
Infrastructure
Agents and distributors
A strong network of agents and distributors allows an exporter
to enter new markets and expand abroad.
Retail distribution
Efficient access to consumers is important to a manufacturer of
consumer goods and is not available in all countries.
Advertising and promotion
Advertising agencies and media offer promotional activities
critical to the success of many products and services.
Trade shows
For most industries, trade shows present an unequaled
opportunity to reach potential customers and trade partners.
39

Court Infrastructure
Speed
Speedy resolutions of lawsuits allow businesses to “move on.”
Some countries have slow and cumbersome court processes.
Arbitration
Disputes can be resolved faster via arbitration. The existence of
experienced arbitrators is important to the conduct of business.
Mediation
Disputes can also be resolved through mediation; therefore a
group of mediators is often useful to resolve disputes.
Fairness
In some countries, the court system is perceived as corrupt or
unfair and hinders good business relationships.
40
Intellectual Property
Infrastructure
Protection
Businesses with intellectual property (patents, copyrights, trade
secrets) want to make sure that the countries in which they
operate will protect intellectual property.
In some countries, competitors, police and courts do not respect
nor protect intellectual property, often considering intellectual
property laws favor big foreign corporations over the local
entrepreneur trying to earn a living.
International Agreements
Many countries have not ratified international agreements on
intellectual property and therefore do not recognize some
aspects of foreign patents and copyrights
41

Standards
Infrastructure
Countries have different standards for products and
services offered for sale; these standards are specific
and must be followed.
Safety
Safety requirements often differ from country to country. Such
is the case for vehicles, appliances, and hotels, for example.
Design
Product designs are often dictated by local conventions
(electrical supply and plugs, plumbing sizes and pressures, and
telecommunication standards, for example).
Performance
Several countries have performance standards for products,
dictating what can be called “natural,” “organic,” “premium,”
and so forth.
42
3-12Chapter 3 International Logistics Infrastructure
Chapter 3 International Logistics Infrastructure 3-11
Chapter 3
International Logistics InfrastructurelEARNING oBJECTIVES
Understand the importance of the infrastructure of a country to
an international logistician
Identify characteristics of international transportation
infrastructure.
Identify characteristics of international communication
infrastructure.

Identify characteristics of international utilities
infrastructure.Preview
Infrastructure varies throughout the world. Some countries have
major infrastructural deficiencies, but other developed portions
of the world enjoy state-of-the-art capabilities of conducting
international trade. Even in the world’s technological leader,
the United States, there are infrastructure bottlenecks because
of increased transportation demand. Railroads in recent decades
have had to increase clearances of bridges and tunnels in order
to accommodate double-stack container trains. Ports have had
to enlarge facilities for increased container traffic and huge
increases in ships’ sizes. Highways are strained handling truck
traffic. All in all, without adequate infrastructure, international
commerce is hindered.Chapter Outline
3-1 Definitions
I. Infrastructure
a. The basic facilities, services, and installations needed for the
functioning of a community or society, such as transportation
and communication.
b. A collective term for the subordinate parts of an undertaking;
substructure, foundation.
c. The permanent installations forming a basis for military
operations, as airfields, naval bases, training establishments, . .
. etc.
II. In the field of logistics, the definition can be very broad:
a. Infrastructure is a collective term that refers to all of the
elements in place (publicly or privately owned goods) to
facilitate transportation, communication, and business
exchanges.
b. It would therefore include not only transportation and
communication elements, but also the existence and quality of
public utilities, banking services and retail distribution
channels.
c. To this list, it makes sense to add
i. The existence and quality of the Court system.

ii. The defense of intellectual property rights.
iii. The existence of standards.
3-2 Transportation Infrastructure3-2-1 Port Infrastructure
I. Depth of water
a. Few ports have natural depth of 40 feet required for biggest
ships.
b. As a result they must dredge that depth.
II. Cranes
a. Large ships prevent cranes from having adequate reach.
b. Crane modifications can be very expensive.
c. An alternative is to allow ships to be loaded from both sides.
III. Bridge clearance
IV. Port operations
a. Work rules can hamper operations.
b. Long Beach only operates eight hours per day.
c. Strikes, work stoppages can be a problem.
V. Warehousing space
a. If not available, probability of cargo exposed to elements is
high.
b. Need for refrigerated storage areas.
VI. Connections with land-based transportation services
a. Adequate rail connections
b. Roads that are not clogged as they access ports3-2-2 canals
and waterways infrastructure
I. Canals and locks must be large enough.
II. Largest ships that can get through Suez Canal are called
Suez-Max ships.
III. Largest ships that can get through Panama Canal are called
Panamax ships.
IV. Ships too large for Panama Canal are called post-Panamax
ships.
V. Logistically strategic waterways:
a. Bosporus Strait in Turkey
i. Only link between Black Sea and the oceans.
ii. Primary trade route for Russia and the world.

iii. Becoming congested and raising safety concerns for nearby
Istanbul.
b. Suez Canal
i. Prevents requirement of sailing all the way around Africa
ii. Too shallow
iii. Costly tolls
c. Panama Canal
i. Prevents requirements of sailing all the way around South
America.
ii. Slow—only one direction of operation at a time.
iii. Running at capacity with waits of 22 hours.
iv. Still important despite rail land bridges.
d. Saint Lawrence Seaway
i. Links Great Lakes to Atlantic Ocean.
ii. Narrow and few ships can pass through its locks.
iii. Ice closes it January to March.
iv. Shippers are forced to find alternatives and its business is
down 45% from 20 years ago.
e. Other possibilities
i. A canal through Nicaragua, parallel to Panama Canal would
be free of locks.
ii. Canal through the Malay Peninsula would bypass the Strait
of Malacca and the Port of Singapore.
iii. War in the Balkans destroyed bridges on Danube River,
blocking fresh water transit between Black Sea and Northern
Europe.
iv. Fresh water transit between Mediterranean Sea and Northern
Europe.
v. Canal between Rhone River and Rhine River.3-2-3 Airport
Infrastructure
I. Runways
a. Runway size determines types of aircraft an airport can serve.
i. Long enough runways mean that an aircraft can handle jumbo
jets for long distance international operations.
ii. Many older major airports became landlocked by
development and could not be expanded to handle bigger jets.

b. Number of runways determines airport capacities.
II. Hours of Operation
a. Airports close to city must limit operations due to noise
constraints.
b. Cargo tends to fly mainly at night.
III. Warehouse Space3-2-4 rail infrastructure
I. Eighteenth century development of railroads often followed
military strategies.
a. Lines built for moving troops.
b. Varied gauges in Spain and Russia to slow down invaders.
II. China’s rail infrastructure has been unable to keep up with
economic growth.
III. Europe and Japan’s railroads have focused more on high-
speed passenger service than on freight.
IV. Multi-modal emphasis.
a. Factors contributing to renewal of merchandise traffic on
railroads:
i. Increased road congestion.
ii. Concerns about pollution and noise.
iii. Development of multi-modal containers.
b. Modernization of rail infrastructure:
i. Shift from boxcars to piggyback cars carrying truck trailers
and to container cars.
ii. Increasing of height clearances for tunnels and other
obstructions to allow doublestacking of containers.
iii. U.S. de-emphasis on passenger trains has allowed
development of freight railroading, including fast freight trains.
iv. In Europe, freight trains have lower priority than passenger
trains and use aging equipment.
v. There are plans to modernize the trans-Siberian railroad for
freight shipments from Asia (Vladivostok) to Europe by rail.
vi. There are plans for a trans-Asian railroad connecting
Singapore and Seoul to Europe via Turkey.
vii. Increased U.S. rail modernization has resulted in Land
Bridges, which allow Asia-Europe traffic to leave ships, be
transported across North America and be reloaded onto ships at

ocean on other side of continent.
1. Journey is faster and cheaper than by ocean.
2. Allows economies of scale by the use of post-Panamax ships
on Atlantic and Pacific routes.3-2-5 Road infrastructure
I. Paved roads do not always mean good roads.
II. Some paved roads are in bad shape.
III. Some cities have extensive road congestion.
IV. Cities in many countries do not have an easily determined
street numbering or naming system.
V. High-speed limit access highways sometimes limit truck
sizes and speeds and/or charge tolls.
VI. Civil Engineering Structures (Ouvrages d’Art)
a. Bridges, tunnels to overcome constraints of landscape.
b. Landscape constraints can have a major impact on
international trade.
c. A critical ouvrages d’art that is out of service can seriously
disrupt commercial operations.3-2-6 Warehousing infrastructure
I. Since cargo must often wait instead of being moved it is
important to have good warehousing infrastructure.
II. Warehousing must protect goods
a. From rain.
b. From sun.
c. From possible floods.
d. From unusual cold.
III. It is difficult to assess individual country’s public
warehouses as there is no directory of conditions.
3-3 Communication Infrastructure3-3-1 Mail services
I. Reliability of mail service differs among countries.
II. Safety of mail differs among countries.
III. Some companies are using arbitrage by shipping mail in
bulk to country with lowest postal rates and then doing bulk
mailings from that country.3-3-2 telecommunications services
I. Demand for voice and data telecommunications service has
been increasing.
II. In some countries the economy has grown but the

communication infrastructure has not.
a. In those countries Leap Frogging has taken place in that
people have bought cell phones to replace slow, outmoded
traditional telephone service.
b. This is occurring in Czech Republic and China.
III. Transoceanic cables are vulnerable to being snagged by
fishing nets and boat anchors.
IV. Satellite communications are vulnerable.
a. Capacity is eaten up by television broadcasting.
b. Single satellite failure can severely disrupt communications.
V. Internet is dependent upon operability of root servers.3-3-3
Internet services
I. Despite commerce relying on fast internet access, only 8.6
percent of the world has a high-speed connection to the internet
(Table 3-7).
3-4 Utilities Infrastructure3-4-1 electricity
I. Some developing countries have economic growth that
outpaces availability and reliability of electric power.
II. In sub-Sahara Africa there are scheduled power blackouts.
III. Utilities are frequently victims of theft as people bypass
meters or, as in the case of Russia, steal electrical wires for
scrap.3-4-2 water and sewer
I. Cities sometimes lose water through leaky pipes and illegal
siphoning.
II. Some cities have impure water which needs to be boiled
before use.
III. Some cities have inadequate sewage systems.
IV. Striking sanitation workers can cause problems.3-4-3 energy
pipelines
I. Easily accessible oil and gas fields are near the end of their
life expectancies.
II. Energy resources are increasingly being piped from further
away.
a. Distance makes for difficult operation.

b. There can be many obstacles
i. Weather
ii. Natural barriers
iii. Political issues
iv. Environmental challenges
v. Bickering between oil companies and governments in
countries where the pipelines are being built.
III. Infrastructure of world’s pipelines is growing.
3-5 Services Infrastructure3-5-1 banking
I. International trade can only take place if there is access to
competent international banks to process foreign-currency
transactions and letters of credit.
II. International banks have created networks of branches to
assist their customers.3-5-2 Logistics support
I. International logisticians need freight forwarders, packing
services, Customs brokers, etc.
3-6 Legal and Regulatory Infrastructure3-6-1 Courts
I. An efficient court system allows for disputes to be resolved
quickly and fairly.
II. The average duration for the resolution of a contract dispute
is 510 days in an OECD country.
III. Inefficient court systems lead companies to use mediators
and arbitrators.3-6-2 Intellectual Property
I. Intellectual property is not always protected in developing
countries:
a. There are more urgent problems
b. A large foreign company is not going to be favored over a
small local business.
II. Intellectual property defense has come to the forefront of
countries’ international agreements. 3-6-3 Standards
I. Unified standards of performance, design, and safety are
useful to businesses.
II. The United States tends to be different from the rest of the

world, with non-metric standards and standards that can vary
from state to state.
Suggested Homework
1. Assign students to do a report on the infrastructure
problems and opportunities in developing nations like China and
India and in former Soviet satellites in Eastern Europe.
2. Assign students to do a report on the future of airport
development. With terrorist-driven declines in air traffic will
there be a need for new airports? Are existing airports adequate
for current passenger and freight needs?
3. Assign students to do an evaluation of the infrastructure of
a country of their choice, using the CIA’s website as well as
others, in order to determine the state of the infrastructure of
that country.
4. Assign students to list the difficulties that an international
logistician would experience in mving goods from a country
with a developed infrastructure (transportation, communication
and utilities) to a country with a deficient infrastructure.
5. Assign students to do a report on the state of the
infrastucture in the United States and the expected growth in
commerce, both national and international, and the ability of the
infrastructure to accommodate such growth.Key terms
Infrastructure
A collective term that refers to all of the elements in place
(publicly or privately owned goods) that facilitate
transportation, communication, and business exchanges.
Panamax ship
A ship of the maximum size that can enter the locks of the
Panama Canal.
post-Panamax ship

A ship whose size is too large to enter the locks of the Panama
Canal.
air draft
The minimum amount of space between the water and the lowest
part of bridges that a ship nees in order to enter a port.
berth
The location, in a port, where a ship is loaded and unloaded.
dredging
The removal of sediments or soil from the bottom of a water
channel to increase its depth.
draft
The minimum depth of water that a ship needs in order to float.
list
A ship that leans to one side is said to list.
canal
A man-made waterway connecting two natural bodies of water.
runway
The strip of concrete in an airport from which airplanes take off
and land.
land bridge
A term coined to describe the practice of shipping goods from
Asia to Europe through the United States. By taking the
containerized goods to a West Coast port, loading them onto
trains, transporting them across the United States and loading
them again on a ship from an East Coast port, shippers avoid the
costs and delays of crossing the Panama Canal.
leap frogging

The idea that some countries will “skip” a particular technology
to adopt the most recent one available. For example, several
developing countries never had a reliable telephone
infrastructure; however, rather than spend funds on creating an
infrastructure based on land lines, they will build a cellular-
based phone system, thereby “leap frogging” the older
technology.
Possible Quiz Questions
1. Of the following, the best definition of logistics
infrastructure would be that it consists of ___.
a. all of the elements in place to facilitate transportation,
communication, and business exchanges
b. a country’s electrical supply and road network
c. the amount of computerization a country has
d. a developed banking system
ANS: A
Rationale: A country’s electrical supply and road network, the
amount of computerization a country has, and a developed
banking system are incomplete answers. Option “all of the
elements in place to facilitate transportation, communication,
and business exchanges” incorporates all aspects of logistics
infrastructure.
REF:3-1
2. Because some ports are becoming increasingly limited in
their ability to handle ever-larger ships it is possible that ___.
a. ship sizes will become smaller
b. massive government programs will do what is necessary to
upgrade the smaller ports
c. large ships will go to “hub” ports where “feeder” ships
will traverse to and from the smaller ports
d. ocean shipping costs will rapidly decline
ANS: C
Rationale: Given the cost advantages of economies of scale,

ship sizes will probably not become smaller; while ocean
shipping costs may or may not decline, it will not be directly
due to the obsolescence of some ports, and economically some
ports cannot be successfully upgraded to handle the big ships. It
is likely there will be a need to create large port hubs for large
ships, while smaller ports would service “feeder” ships.
REF:3-2-1
3. The busiest cargo airport in the world is ___.
a. London Heathrow
b. Denver International
c. Dallas-Fort Worth International
d. Hong Kong Chek Lap Kok
ANS: D
Rationale: The busiest passenger airport in the world is
Atlanta, and the busiest cargo airport in the world is Hong Kong
(vignette).
REF:3-2-3
4. Factors contributing to the rise of U.S. freight railroads since
about 1980 are ___.
a. road congestion, concerns about pollution and noise, and
development of the multi-modal container
b. higher train speeds, development of more custom service
by railroads, and concerns about terrorism
c. increased shipments of high-value goods like computers,
unreliability of air freight, and the building of new railroads
d. All of the above
ANS: A
Rationale: Freight train speeds have not increased noticeably;
most major railroads are not good at custom service, especially
for small shippers; terrorism has not caused a shift of freight to
rail; trains do not do well with high-value goods like computers;
air freight is reliable, and there has been little new railroad

construction. Railroad freight has grown due to road congestion,
concerns about pollution and noise, and development of the
multi-modal container.
REF:3-2-4
5. In the European Union, the goal for mail delivery sent to a
national address is ___.
a. two days
b. three days
c. D + 1
d. D + 2
ANS: C
Rationale: The goal is D + 1, or delivery on the day after the
letter is mailed.
REF:3-3-1
6. There are sometimes problems with electrical supply in ___.
a. Sub-Sahara Africa
b. Saudi Arabia
c. some parts of a developed country like the United States
d. All of the above
ANS: D
Rationale: All of these areas have had electrical supply
problems, including California.
REF:3-4-1
7. Regarding water availability in the infrastructure ___.
a. more than 95 percent of the world’s population has running
water
b. many cities have old leaky pipes
c. it is not important to economic development
d. All of the above
ANS: B

Rationale: Water is critical to economic development, indeed,
to supporting life. Less than 80 percent of the world population
even lives within one kilometer of clean water. However, many
cities do have old leaky pipes.
REF:3-4-2
8. As ships move through the Panama Canal, the locks they
traverse use an inordinate amount of fresh water, including
water from the reserve at ___.
a. Lake Panama
b. Guillard Lake
c. The Panama River
d. Gatun Lake
ANS:D
Rationale: The answer is Gatun Lake.
REF:3-2-2: The Panama Canal
9. As a defense measure to keep invading military troops from
using their railroads, Spain and Russia ___.
a. built explosives into bridges and tunnels
b. made drive controls in locomotives opposite to what they
were in the rest of Europe
c. developed widths between the rails (gauges) different from
those of the rest of Europe
d. All of the above
ANS: C
Rationale: To prevent possible invaders from using their
railroads, Spain and Russia developed railroad gauges that were
incompatible with those in standard use in Europe.
REF:3-2-4
10. Although there is no equivalent term in English, the French
term ouvrages d’art has to do with ___.
a. civil engineering structures

b. art museums
c. art galleries
d. telecommunications
ANS: A
Rationale: Ouvrages d’art—or art structures—is a term used for
civil engineering structures built and designed to eliminate the
constraints of the landscape.
REF:3-2-5PowerPoint SLide list
· Definitions (4 slides)
· Transportation Infrastructure ( 20 slides, 14 photographs)
· Communication Infrastructure ( 7 slides, 2 photographs)
· Utilities Infrastructure ( 2 slides, 1 photograph)
· Service Infrastructure (4 slides)
· Legal Infrastructure (3 slides)Additional REsources
Airwise: The Airport and Air Travel Guide,
http:www.airwise.com/airports/index.html
World Factbook, Central Intelligence Agency,
http://www.cia.gov/cia/publications/ factbook/index.html
What is your position on the realities, as well as the pros and
cons of bio-fuel replacements for oil? Is the corn ethanol push
really a scam? Why or why not? What about biodiesel? Hint:
They are not the same.

2-6
Chapter 2 International Supply Chain Management
2-7
Chapter 2 International Supply Chain Management
Chapter 2
International Supply Chain ManagementlEARNING
oBJECTIVES
Have a basic idea of the recent historical developments in the
practice of logistics.
Know the basic definitions of logistics and international
logistics.
Know the basic components of international logistics.
Recognize the economic impact of international logistics
activities.
Understand the processes of reverse logistics.Preview
This chapter lays the foundation of the importance of
international logistics in the context of supply chain
management. It demonstrates its history, basic definitions and
components, and its economic impact. The chapter lists later
chapters of the text where expansions on these various topics
occur. Also important to understand is the wide scope of
logistics functions, since many of them will be addressed
throughout the course.chapter outline
2-1 Historical Development of International Logistics
I. The term “logistics” is based on the physical movement of
goods
II. The modern interpretation of the term “logistics” has its
origins in the military
III. Business logistics include all the activities related to the
physical movement of goods (upstream and downstream) and

related paperwork
2-1-1 The Early, “slow” days
I. Very early international logisticians were traders who bought
and sold goods internationally (Silk Road, for example)
II. As trade expanded, international logistics grew
III. In the early days, international logisticians were concerned
about making sure that the goods arrived in good condition and
at the lowest possible cost2-1-2 The Move toward speed
I. The advent of containers in ocean trades (mostly 1960s and
1970s) lowered transit times substantially
II. International air shipments became an increasing percentage
of all shipments in the 1980s:
a. the number of destinations served by airlines grew
b. air shipments became increasingly cost competitive with
surface alternatives 2-1-3 The Emphasis on Customer
Satisfaction
I. In the 1980s, with very high interest rates, companies shifted
their emphasis to inventory reductions
II. International logisticians became ever more focused on
transit times in order to minimize inventory costs, raising the
expectations of customers
III. Fast delivery times facilitated the adoption of different
inventory management techniques: Just-In-Time, MRP and MRP
II2-1-4 The transformation into a strategic Advantage
I. In the 1990s, integration of logistics into supply chain
management
II. A differential advantage is sought by providing better
service, better delivery terms, providing greater flexibility
III. Sustainability efforts become more common, especially in
Western Europe and Asia, later in North America
2-2 Logistics and Supply Chain Management2-2-1 LOGISTICS
Logistics is the same as the (previous) CLM definition:
“Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and

consumption in order to meet customers' requirements.”2-2-2
Supply chain management
Supply Chain Management is defined in the same way as the
CSCMP definition:
“Supply Chain Management encompasses the planning and
demand management within and across companies.”
Comparison of the “Inclusionist,” “Evolutionist,” and
“Intersectionist” viewpoints yields a preference for
“inclusionist” (see Figure 2-5)
Battaglia’s Evolution of Logistics and SCM over time (see
Figure 2-4)2-2-3 International logistics
“The process of planning, implementing and controlling the
flow and storage of goods, services and related information
from a point of origin to a point of consumption located in a
different country.”2-2-4 international Supply chain management
Supply Chain Management is inherently global, with firms
buying from foreign suppliers or selling to foreign customers,
but domestic logistics activities and international logistics
activities are distinct and managed differently.
2-3 Elements of International Logistics
I. The environment in which international logisticians operate is
quite different from the domestic environment
II. The decisions regarding international transportation are
eminently more complicated:
a. International insurance is much more complex
b. International means of payment are more involved
c. Terms of trade are much more complicated

d. The crossing of borders represents specific challenges
e. Inventory is managed differently
III. The number of intermediaries involved is greater
IV. The inherent risks and hazards of international
transportation are much more significant.
2-4 The Economic Importance of Logistics2-4-1 lOGISTICS IN
THE United StATES
I. Logistics consumes a substantial portion of the United States
Gross Domestic Product.
II. American businesses have spent about US$ 1.4 trillion on
domestic logistical activities.
III. The percentage of the U. S. GDP has been decreasing.
a. 16.2% in 1982.
b. 8.5% in 2004.
c. 10.1% in 2007, due to rising energy costs.
d. but 8.5% again in 2011.
IV. There has been a development of increasing logistics
efficiencies.
a. Just-in-Time inventory management
b. Manufacturing Resources Planning and other methods have
reduced inventories.
V. More efficient transportation.
a. Containerization
b. Deregulation of U.S. transportation industry2-4-2 lOGISTICS
IN THE WORLD
I. Costs of logistics activities vary by region.
II. Logistics costs amounted to 20 percent of the Chinese GDP
in 2000, and they had only decreased to 18.3 percent in 2006.
III. Overall, logistics costs are approximately 10.4 percent of
worldwide GDP.2-4-3 INTERNATIONAL lOGISTICS
I. Difficult to estimate total value of international logistics.
II. Probably 15% of total international trade volume or about
US$ 2.7 trillion.
III. Value of monies collected through tariffs probably results in
US$ 1 trillion in revenues to the world’s governments.

2-5 International Reverse Logistics
I. Goods returned to the manufacturer for warranty work,
because they are “used up,” because they are defective, ...etc.
II. Some companies see reverse logistics as a cost saver, and/or
a strategic advantage.
III. Several countries mandate reverse logistics activities.Key
terms
Container
A large metallic box used in international trade that can be
loaded directly onto a truck, a railroad car or an ocean-going
vessel. The most common dimensions of a container are
8x8.5x20 feet and 8x8x40 feet, with some 45-footers, some
high-cube (9.5 feet high) and some 10-footers (shorts).
longshoreman
A person who performs manual labor in a port.
stevedore
A person who loads and unloads goods from a vessel in a port.
Distribution Resources Planning (DRP)
A computer-based management tool that allows a retail firm to
determine what to order from its suppliers in function of what it
sells to retail customers. Such information is shared with the
suppliers, so that they know, in turn, what to manufacture, and
in which quantity.
Just-In-Time
A management philosophy that consists of planning the
manufacturing of goods in such a way that they are produced
just before they are needed in the next step of the assembly
process, in order to minimize the amount of inventory that a
firm carries. The philosophy extends to supply parts, that need
to be delivered just before they are used in the assembly process

as well.
International logistics is the process of planning, implementing,
and controlling the flow and storage of goods, services, and
related information from a point of origin to a point of
consumption located in a different country.
International Supply Chain Management
Supply Chain Management encompasses the planning and
intermediaries, third-party service providers, and customers,
whether they are located in the United States or abroad. In
demand management within and across companies.
Logistics
Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and
consumption in order to meet customers' requirements
Manufacturing Resource Planning (MRP II)
A computer-based management tool that uses MRP at its core,
and that allows a manufacturing firm to determine what to
manufacture, and in which quantity, in function of what it sells
to its customers. MRP II also includes financial and cost
information and includes other functions in the firm, such as
procurement and purchasing.
Materials Requirement Planning
A computer-based management tool that allows a manufacturing

firm to determine what to produce, and in which quantity, in
function of what it sells to its customers. Such information is
shared with the suppliers, so that they know, in turn, what to
manufacture, and in which quantity.
Reverse Logistics
The management of the logistical activities involved in the
return of a product (or parts of it, including the packaging) to a
manufacturer.
Supply Chain Management encompasses the planning and
demand management within and across companies.PowerPoint
SLIDES – STUDY THEM – PRINT THEM OUT !
· Historical Development of International Logistics (8 slides)
· Logistics, Supply Chain Management, International Logistics,
and International Supply Chain Management (5 slides)
· Elements of International Logistics (2 slides)
· The Economic Importance of Logistics (2 slides)
· Reverse Logistics (2 slides)Additional Resources
Three remarkable sources on the evolution of the container were
published on the occasion of its fiftieth anniversary:
Levinson, Marc, The box; how the shipping container made the
world smaller and the world economy bigger, Princeton
University Press, Princeton, New Jersey, 2006
Cudahy, Brian J., Box boats: how containerships changed the
world, Fordham University Press, New York, New York, 2006

Donovan, Arthur, and Joseph Bonney, “The box that changed
the world,” The Journal of Commerce - Commonwealth
Business Media, New York, New York, 2006
Rosalyn Wilson’s report on the state of the industry:
Wilson, Rosalyn, 24thAnnual State of Logistics Report: Is This
The New Normal, Council of Supply Chain Management
Professionals, June 19, 2013, http://cscmp.org/member-
benefits/state-of-logistics.
and the website of the Council of Supply Chain Management
Professionals:
http://www.cscmp.org
How large an impact has international trade had on your own
life, with the products that you own or have purchased in the
recent past. Is your quality of life better or worse? Why?

1
Chapter 1
Marketing 4220
& Transportation
International Trade
5/21/2015
1
International Trade
International Trade Growth
International Trade Milestones
Largest Exporting and Importing Countries
International Trade Drivers
International Trade Theories
International Business Environment
2
International Trade Growth
1953 - 2013
3

International Trade Milestones
Bretton-Woods Conference (1944)
Creation of the International Monetary Fund (1945)
First General Agreement on Tariffs and Trade (Geneva, 1948)
Multiple reductions on tariffs: GATT’s Kennedy Round (1964-
67), Tokyo Round (1973-79) and Uruguay Round (1986-94)
Treaty of Rome (1957)
World Trade Organization (1995)
Creation of the Euro (1999); placed in circulation (2002))
4
Major Exporting Countries
CountryExports (US$ billions) Percentage
China2,048,81411.2%United
States1,547,2838.4%Germany1,407,0987.7%Japan798,5674.4%
Netherlands655,8413.6%France569,0653.1%Korea
(ROK)547,8703.0%Russian
Federation529,2552.9%Italy500,2392.7%Hong Kong,
China493,3662.7%United
Kingdom468,3702.6%Canada454,8402.5%Belgium446,3022.4%
Singapore408,3932.2%Mexico370,9152.0%India293,2141.6%Re
st of the World6,783,56837.0%World18,323,000100.0%
5
Major Importing Countries
CountryImports (in US$ billions)PercentageUnited
States2,335,37512.6%China1,818,0699.8%Germany1,167,4236.
3%Japan885,8454.8%United
Kingdom680,4093.7%France673,7093.6%Netherlands590,6893.

2%Hong Kong, China554,2223.0%Korea, Republic
of519,5842.8%India489,3642.6%Italy485,8902.6%Canada474,9
002.6%Belgium434,8472.3%Mexico380,4772.0%Singapore379,
7232.0%Russian
Federation335,4461.8%ROW6,361,02834.3%World18,567,0001
00.0%
6
International Trade Drivers
Cost Drivers
Companies increase their sales worldwide to recover their high
investment costs.
Competition Drivers
Companies enter foreign markets to keep up with their
competitors, retaliate against them or enter a market first.
Market Drivers
Companies enter foreign markets because their customers
expect them to be present in those countries.
Technology Drivers
Companies enter foreign markets because their customers use
technology to make purchases from these markets
7
Cost Drivers
Automobile production is dominated by 18 companies - (85
percent of all automobiles worldwide)
Automobile production is concentrated in 15 countries - (87
percent of production in the world . . .and yet -
Automobiles are sold in 143 countries.

8
Competition DriversThe way Carrefour and Wal-Mart split the
world
Countries in which both
are presentArgentina, Brazil, China, India, Japan.Countries in
which only Carrefour is presentAlbania, Bahrain, Belgium,
Bulgaria, Cyprus, Egypt, France, Georgia, Greece, Indonesia,
Iran, Iraq, Italy, Jordan, Kuwait, Lebanon, Macedonia, Monaco,
Malaysia, Morocco, Oman, Pakistan, Poland, Portugal ,Qatar,
Romania, Saudi Arabia, Spain, Slovakia, Slovenia, Syria,
Taiwan, Tunisia, Turkey, United Arab Emirates. Countries in
which only
Wal-Mart is presentBotswana, Canada, Chile, Costa Rica,
Ghana, Guatemala, Honduras, Lesotho, Malawi, Mexico,
Mozambique, Namibia, Nicaragua, Nigeria, South Africa,
Tanzania, Uganda, United Kingdom, United States, Zambia.
9
Market DriversNumber of countries in which selected
companies are presentMcDonald’s Restaurants118Hilton
Hotels91Benetton Stores120Cartier Jewelry Stores125Accor
Hotels92Exxon-Mobil Gas Stations100+
10
International Trade Theories

Adam Smith’s Theory of Absolute Advantage
David Ricardo’s Theory of Comparative Advantage
Eli Hecksher and Bertil Ohlin’s Factor Endowment Theory
Raymond Vernon’s International Product Life Cycle Theory
Michael Porter’s Cluster Theory
Yossi Sheffi’s Logistics Cluster Theory
11
Theory of Absolute Advantage
If a country can produce a certain good more efficiently than
other countries, it will trade with countries that produce other
goods more efficiently.
In this case, both countries are using the same amount of labor
to produce these alternatives. France will specialize in making
wine, and Germany will specialize in making
machinery.WineMachineryFrance20,0002Germany15,0003
12
Comparative Advantage Theory
Nations will trade with one another as long as they can produce
certain goods relatively more efficiently than one another.

The UK has an absolute advantage in both machinery and wheat.
However, in the UK, the relative price of 1 unit of machinery is
5 tons of wheat, and in Brazil, it is 7 tons of wheat.
The nations will trade: If the UK sells 1 unit of machinery to
Brazil for 6 units of wheat, both the UK and Brazil are better
off. The UK has a comparative advantage in producing
machinery, Brazil in growing wheat.CountryTons of
WheatUnits of MachineryUK255Brazil213
13
Factor Endowment Theory
A country will enjoy a comparative advantage over other
countries if it is naturally endowed with a greater abundance of
one of the factors of economic production.
CountryAbundanceAdvantageArgentinaGrazing
LandBeefIndiaEducated LaborCall centersUSAEconomic system
where entrepreneurship is rewardedInnovation & development
of intellectual propertyFactors of Economic Production1.
Land2. Labor3. Capital4. Entrepreneurship
14
International Product
Life Cycle Theory
Over its product life, a product will be manufactured in
different countries, in stages, generating trade among these
countries.
Stage 1
Product is created in a developed country, using new technology
and serving a market need.
Stage 2

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