Creating International Business

Resources For Higherr E

Resource Education
du Business Courses

APEC Workin
Working Group on Trade Promotion
ebrua 2009
February

Prepared by Austrade Education Programs

Australian Trade Commission
GPO Box 2386
Canberra ACT 2601
Australia
Tel: +61 2 6201 7430 Fax: +61 2 6201 7304
Email: [email protected]
Website: www.austrade.gov.au/studentcentre/

Produced for
Asia-Pacific Economic Cooperation Secretariat
35 Heng Mui Keng Terrace Singapore 119616
Tel: +65-6891 9691 Fax +65-68919690
Email: [email protected] Website: www.apec.org

© 2009 APEC Secretariat

APEC #209-SM-03.1
ISBN 978-981-08-2400-06
 Creating
International
Business
Resources for
Higher Education Business Courses

APEC Working Group on Trade Promotion

February 2009
Prepared by Austrade Education Programs
Australian Trade Commission
GPO Box 2386
Canberra ACT 2601
Australia
Tel: +61 2 6201 7430 Fax: +61 2 6201 7304
Email: [email protected]
Website: www.austrade.gov.au/studentcentre/

Book editor: Leigh Derigo

Book writers: Leigh Derigo, Lauren Black, Kelly Wilson

Video producers: Matthew Mulrine and John Hatfield

Video editor: John Hatfield
Animation: Matthew Mulrine
Voice over: Lino Strangis
Video talent: Sophie Babic and Jim Enright
Designer: Bytes ‘n Colours

Produced for
Asia-Pacific Economic Cooperation Secretariat
35 Heng Mui Keng Terrace Singapore 119616
Tel: +65-6891 9691 Fax +65-68919690
Email: [email protected] Website: www.apec.org

© 2009 APEC Secretariat

APEC #209-SM-03.1
ISBN 978-981-08-2400-06
Creating International Business
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 1 – Getting Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.1 Growing a business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.2 International business strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 SWOT analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Assessing international business capability . . . . . . . . . . . . . . . . . . . 6
1.5 Managing risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.6 Trade finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.7 International business sustainability. . . . . . . . . . . . . . . . . . . . . . . . . 11
1.8 Corporate and social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 2 – International Market Research and Selection . . . . . . . . . . . . . . . 13

2.1 Overseas market selection criteria . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2.2 Sources of information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3 Assessment and ranking of potential markets . . . . . . . . . . . . . . . . . 18
2.4 Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Chapter 3 – International Market Entry Strategies . . . . . . . . . . . . . . . . . . . . . . 21

3.1 Visiting the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3.2 Indirect exporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Direct international business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.4 International business with a representative . . . . . . . . . . . . . . . . . . 23
3.5 Investment overseas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.6 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Chapter 4 – International Business Administration . . . . . . . . . . . . . . . . . . . . . 33

4.1 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3 Freight and logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.4 Shipping terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.5 Documentation for export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Chapter 5 – International Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

5.1 The marketing plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

5.2 Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.3 Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.4 Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.5 Packing and labelling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.6 Place (distribution) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.7 E-business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Appendix 1 – Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Appendix 2 – References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
DVD contents
Creating International Business – Overview

An overview of stages commonly followed in international business. (8 minutes)

Creating International Business – Preparation

Processes and issues to consider when preparing to do business overseas

including: analysis of capability and competitiveness; risk management; market
research, selection and identification of market entry strategy; relationship building;
marketing and legal issues (30 minutes).

Creating International Business – Market Entry Strategies

Case study examples of major international business market entry strategies

including: initial market visit; indirect exporting; using an agent or distributor;
manufacturing under licence; joint venture agreements; franchising and services.
(30 minutes)

Businesses featured in case studies

• Aspen Medical - medical services

www.aspenmedical.com.au
• CIC Secure - key security systems
www.cicsecure.com.au
• Futuris Automotive Group - automotive components
www.futuris.com.au
• Gloria Jeans Coffees - coffee franchise
www.gloriajeanscoffees.com.au
• Slim Secrets - healthy snack products
www.slimsecrets.com.au
• Splatter - artwork for children and families
www.splatter.biz
Introduction
This book and accompanying DVD provide students with a practical approach to
international business. They explore the planning processes and steps involved in
expanding a business into overseas markets and common issues that businesses
in the Asia-Pacific region face. Texts currently used in higher education courses
focus mainly on issues relevant to multi national firms rather than small and medium
sized businesses in the Asia-Pacific region.

International business
Local communities benefit when their businesses become involved in overseas
markets. When businesses export goods and services they bring new money into the
community (profits), employ staff and possibly expand over time. Other businesses
import to provide goods and services, which are not available domestically or are
different in some way, so local consumers have greater choice.

EXPORTING is the sale of goods and services that are produced domestically and
consumed by customers from another country. GOODS are physical products,
such as televisions, coal and wheat, while SERVICES are activities done by people
that are not tangible such as entertainment, tourism, banking and education.
INTERNATIONAL BUSINESS includes exporting goods and services and
investment overseas.

Globalisation and the global consumer

There has been enormous growth in the value of world
trade and investment since the 1980s. Improved
technologies and communications have changed
how people do business and the global media has
encouraged similar consumer behaviour.

Improved standards of living in many countries also

allow more people to buy luxuries or niche products
to suit their personal tastes and interests. Over the
past 10 years on-line shopping via the Internet has
become a popular way for people to buy products
from overseas, particularly niche products.

Global opportunities
Nations’ economies and markets have stronger links today and this has created
opportunities for businesses to expand their operations and production to other
countries. In addition to large and multinational organisations, many small and
medium businesses find opportunities to make profits in international business.

Exporting can be very profitable for a business but the journey to international
business is a complex and demanding process, which can expose the business to
risks not found in the domestic market. A well-researched export plan should guide
the first steps into international business and later expansion into new markets.

Creating International Business 1

 Are you ready for international business?

Business is strong and committed to global growth

Have a competitive advantage over competitors
Products are suitable for many markets with little adaptation
Risk is managed - Intellectual property (IP) and brand protected, staff
and finance available
Researched possible markets in detail, including local conditions
and laws
Visited target markets, met partners, assessed competition, understand
local needs
Business relationships are developed
Identified the best market entry strategy for each market
Clarified the legal position – contracts, payment options,
freight, insurance
Completed a marketing plan

Creating International Business 2

Chapter 1 – Getting Started
Some new businesses are BORN GLOBAL, started with
the intention of exporting within a few years, but most
test products/services and business processes in the
domestic market before expanding overseas.

1.1 Growing a business

There are four key business growth strategies, including doing business in overseas
markets and exporting. Some strategies are risky because they need high levels of
commitment and they have different success rates. The strategies are

• MARKET PENETRATION (existing products/services, existing markets)

– enter an existing market that has similar products and take part of that
MARKET SHARE (attracting a competitor’s clients through advertising,
promotions or discounts)
• MARKET DEVELOPMENT (existing products/services, new markets) –
geographical expansion into regional, national or international markets
while attracting other MARKET SEGMENTS (finding different channels of
distribution, advertising in different media or developing new uses for
the product).
• PRODUCT DEVELOPMENT (new products/services, existing markets)
– produce new features, variations or a completely new product/service
(producing mobile phones with new features or in a range of colours)
• DIVERSIFICATION (new products/services, new markets) – create new
products/services to enter new markets. This involves several risks and is
the most difficult to implement. To succeed, this strategy should use existing
skills and strengths.

Existing market New market

Existing products/ Market penetration Market development
services (easiest option)
New products/services Product development Diversification
(hardest option)

Increasing risk

International business and exporting can improve profits and competitiveness for a
business that is adaptable, well-organised and committed to growing internationally.
Successful international growth requires understanding of overseas markets and
ability to adapt to different environments.

Creating International Business 3

 1.2 International business strategy

International business strategy plan

Developing a new market, locally or overseas, needs investment in time and
resources. An international business strategy plan helps to define a business’s
overseas aims and match its resources to those aims. This strategy plan can be
a brief and simple statement of the objectives and competitive advantage that
describes the

• business operations and growth aims

• product or service offerings
• international expertise in the business
• overseas market environment
• SWOT analysis
• needs assessment – financial resources, product modifications
• international business plan – sets the target, potential market entry
methods, financial management, marketing strategies
• implementation and monitoring.

Business profile
A current business profile can help to clarify aims and act as an introduction to
potential partners with business and marketing information such as

• business name • contact person

• street address • postal address
• telephone number • facsimile number
• email address • website/URL address
• business mission statement • business history
• product or service description
• number of employees and their skills
• number and location of production facilities.

Marketing strategy
• current market selection criteria
• current market position and segments
• preferred distribution methods
• availability of samples
• percentage of local content
• quality
• product and service availability
• current logistics.

Creating International Business 4

1.3 SWOT analysis
Before considering new markets a business should understand its success in the
domestic market – its competitive profile. It should know its share of the market and
that of its competitors.

A useful planning tool for business is a Strengths, Weaknesses, Opportunities and

Threats (SWOT) analysis.

Strengths of business How can the strengths

be used?
Weaknesses of How can the weaknesses
business be overcome?
Opportunities open to How can the opportunities
business be seized?
Threats facing How can the threats
business be avoided?

In this SWOT analysis identify the strengths the business can transfer to a new
market and its advantages in comparison to competitors, such as in

technology – has an advanced technology or business system

uniqueness – already has a niche in the domestic (home) market place
production – produces a standardised product at reduced cost and sell in
the volume to suit market needs, tastes and price point
service – value-adds or differentiates products requiring customer contact
adaptability – quickly responds to changes in the market, large orders or
rushed requests.

A business will probably face more competitors in the target export market than in
the domestic market. Any business weaknesses are likely to transfer into the target
market, so the business should regularly compare itself to competitors. Business
weaknesses may include

• limited experience
• limited marketing ability
• slow or inflexible production
• inadequate staff numbers
• need for improved or new technology
• no customer feedback
• limited finance for export
• inability to change product or packaging.

Creating International Business 5

 Exporters of services must look for some different strengths in their SWOT
analysis, including

• unique type of service offering

• long-term commitment (local office, training, promotion)
• relationship and network building skills
• proven service offering in the domestic market
• patience for long-term growth
• entrepreneurial approach
• a strong, professional reputation
• high level of technical skills amongst staff – embedded in
INTELLECTUAL PROPERTY (IP)
• prior international experience
• high level of partner support.

Opportunities and threats for business will vary with each target market so should be
included in initial market research. (See Chapter 2 – International Market Research
and Selection for more detailed information.)

1.4 Assessing international

business capability
A business wanting to go off-shore must first assess its international business
capability. It should assess

• its reasons for doing business overseas

• if the product or service is suitable for an overseas market.

A business must really want to export in order to succeed. International business

can be time consuming and expensive, but the rewards can also be high, in the
long term. Therefore, the motivation for expanding overseas can affect business’s
success. It is also important to research overseas markets because international
business is not likely to be successful if it responds to guesses about overseas
consumer tastes or tries to avoid a domestic market downturn. A business must
also have the capabilities and resources to do business overseas.

Creating International Business 6

Reasons to begin international business
• enhance competitiveness
• increase business knowledge by learning and developing best practice
• access new resources and technologies
• as part of a long-term expansion plan
• improve RETURN on investment and increase profitability
• balance seasonal or cyclical fluctuations
• access a wider sales base for new growth opportunities
• create ECONOMIES OF SCALE and continuing production
• use excess production capacity
• respond to perceived demand in overseas markets, such as niche markets
• reduce risk by selling a product or service in many markets
• find new markets for mature products or those facing MARKET SATURATION
• apply existing domestic market strategies to similar overseas markets.

International
business can be
time consuming
and expensive,
but the rewards
can also be high,
in the long term.

Creating International Business 7

 A business should analyse why it is successful in the domestic market and whether
it can repeat this success in an overseas market. Consider

• which current products/services can be marketed overseas

• if the product/service is selling successfully in different areas of the
domestic market
• the domestic MARKET POSITION of the product/service
• if the product/service is competing successfully without the protection of
import TARIFFS and regulations
• if the product/service would be unique in an overseas market
• the main uses of the product/service
• who buys the product/service now and why they buy it
• in which markets these types of buyers are common
• why overseas customers would buy the product/service instead of a
competitor’s product
• if the product/service is likely to need repackaging for the new market
• if the business should modify or redesign the product/service for export
• if it is cost effective to transport the product/service to an overseas market
• if it is cheaper to manufacture overseas under license or through a
JOINT VENTURE partner
• if different seasons, cycles or TRENDS create new opportunities in
other markets
• if there are warranties, guarantees or service contracts that go with the
product/service
• if production can be increased to sustain a growing export business
• if current production and service delivery processes can be transferred to
an overseas market.

Creating International Business 8

1.5 Managing risk
Risk is anything that threatens reaching a project goal, such as

• political and economic risk – political stability and economic conditions in

the target market can affect the business or personal security
• legal and regulatory risk – seek legal advice on target market requirements
– customs, taxation, quarantine and employment conditions
• financial risk – seek financial and insurance advice to minimise payment
risk, transfer risk and EXCHANGE RATE movement risk
• transportation risk – reduce risk of damage, loss, theft and exposure to the
weather through effective packaging, labelling, storage and insurance.

RISK MANAGEMENT is a process of thinking systematically about all possible

problems before they happen and setting up procedures that will avoid them,
minimise or cope with their impact. Consider export and international business
risk management

• what are the risks

• how likely are the risks
• what could happen with each risk
• how to limit these risks
• how to monitor and review the outcomes
• how to communicate and consult with the people involved?

Create a risk management matrix

Completing a simple matrix of potential risks is a good way of identifying the
probability of risks occurring and the consequences if they did occur.

Likelihood Consequences
Insignificant Minor Moderate Major Catastrophic
Almost certain
Likely
Possible
Unlikely
Rare

The completed matrix will help the manager to prioritise important issues. Focus on
the critical areas and deal with them before they become a crisis, for example, if all
export business is with a single client in country X and that country has a military
coup, then the political risk is high.

A risk management plan states clearly and simply what the business will do if a risk
occurs and lists the contact details for responsible staff. A plan will also help the
business to develop a broader business risk profile for the market.

Creating International Business 9

 1.6 Trade finance
Overseas sales are more expensive than
domestic sales. They involve a longer time
between product/service delivery and
payment, additional shipping costs, overseas
travel and perhaps warehousing in the
overseas market.
Develop a
The business may need additional finance to expand production, employ more
realistic
staff, run marketing campaigns and meet other commitments. The international
cash-flow business strategy plan (see 1.2) should include the extra money needed to
model during become export capable. Businesses should consider getting legal advice before
the early borrowing money.

stages of The most common sources of money to help a business grow are
overseas
• personal funds from family or friends
market
• loans from financial institutions (such as banks)
development...
• loans or grants from government agencies
• EQUITY from other companies or venture capital organisations
• trade credit for short term transactions.

Most lenders will want to see the detailed international business strategy
and marketing plans before entering into an agreement. Always seek legal
advice early.

Use the international business strategy plan to prepare a financial resources

statement that includes realistic costs for the export program. The financial
checklist should include

• cash-flow analysis
• market development costs – travel, communications and sales literature
• costs to change existing products/services for export markets
• costs to increase plant capacity, if necessary
• freight and logistics charges
• pre-shipment and post-shipment costs
• costs of credit insurance, performance bonds and exchange
rate management.

Develop a realistic cash-flow model during the early stages of overseas market
development because international business revenue usually takes some time to
grow. Plan for the best and worst case scenarios to ensure that the business is
financially able to handle the early stages, before receiving many overseas orders
and payment.

Creating International Business 10

 The length of time between providing products/services and final payment
depends on the payment method agreed between the buyer and seller.
Businesses with limited LIQUIDITY may need to ask for shorter terms of
payment (see Chapter 4 – Export Administration).

1.7 Export sustainability

To be export capable a business must be able to keep exporting over time and
meet buyer demand. It should check that

• management is committed to international business

• staff have the relevant skills
• it has a COMPETITIVE ADVANTAGE in areas like cost, technology or service
• it has the manufacturing capacity to meet increased demand
• the product/service has a NICHE in the target market
• competition exists in the target markets.

The team approach

A committed team should lead the international business program. Even small
businesses can bring together a team of highly qualified people to represent
production, management, technology development, administration and marketing.

When putting an international business team together a small business owner

should include all necessary functions, such as

• the accountant
• technical/engineering and production staff
• marketing staff or consultant
• administrators and senior management.

To ensure that everyone is well informed and understands the international business
strategy plan, it is important to involve all team members from an early stage and
meet as a team at regular intervals.

Creating International Business 11

 1.8 Corporate and social
responsibility

Triple bottom line policy

International businesses often have improved performance when they include
their social, ethical and environmental responsibilities in business planning –
TRIPLE BOTTOM LINE policy. According to recent research, businesses that plan
for and implement a triple bottom line policy outperformed other businesses in
the market.

Businesses with very ethical behaviour gain widespread community approval,

but fraudulent or unethical businesses do not live up to community expectations.
Unethical businesses will eventually be publicly criticised and may be penalised by
government regulators in both their domestic and international markets. Businesses
that adopt a triple bottom line exercise the following strategies

• treat environmental and social aspects of business as future

growth opportunities
• respond to sustainability challenges with innovative solutions
• are responsive to changing community expectations
• integrate their environmental and social responsibilities into
day-to-day business decision-making and regularly report on their
sustainability performance.

Environmental responsibility
Global businesses are now expected to take greater responsibility to protect the
environment and many that have ‘green’ practices or produce environmentally
friendly products have increased their sales over time. Businesses need to consider
recycling, waste management and environmental protection as polluters risk
losing customers.

Ethical business behaviour

The global community expects business owners and their staff to carry out their
business honestly and to treat people fairly, in both domestic and overseas markets.
Business practices in some countries include bribery to ‘facilitate’ a deal, but this is
considered unethical in most countries.

Responsibilities to consumers
In many countries customers have certain legal rights, especially protection from
misleading and deceptive business behaviour, such as false advertising. Businesses
must obey these laws. Businesses that respect and satisfy their customers have a
much greater chance of success over time.

Creating International Business 12

Chapter 2 – International Market
Research and Selection

2.1 Overseas market

selection criteria
Many businesses begin international business
with a reactive export, such as making
a sale after being approached by an overseas buyer
who viewed their website.

For on-going overseas sales the business should

take a more proactive approach by selecting the
best market for successful sales growth over time. To
select the ideal target market a business should firstly
develop broad market selection criteria and then fully
research conditions in each potential market.

Market selection research, which can take up to 70 per cent of the export preparation
time, will avoid wasting time and money on inappropriate markets.

Initial entry into one overseas country helps a business to understand all international
business processes and issues in that market before expanding into other markets.
Eventually a business will choose whether to focus on a small number of markets
(MARKET CONCENTRATION) or sell its product/service to as many markets as
possible (MARKET SPREAD).

Market research should include the opportunities and risks in each market.

The easiest (low risk) overseas markets to enter

• are similar to the home market

• have the same language
• have similar culture or business practices
• are geographically close
• have a familiar banking system
• have trade agreements which offer opportunities to businesses
• have similar rules, regulations and laws.

Creating International Business 13

 Overseas market entry difficulties can result from

• large and complex markets

• highly regulated markets
• business practices which are very different to the domestic economy
• complex import requirements
• market distance
• relatively undeveloped market.

New international business people should be wary of entering complex markets too
early. They should consider low risk markets at first or develop strategies to limit their
risk in more complex markets.

Firstly consider broad market selection criteria such as

• population
• income
• demographic information
• the business environment
• competitors in that market
• government and institutional stability.

Secondly consider more specific criteria such as

• potential for sales (size of the target market, MARKET SEGMENT and
PRODUCT DIFFERENTIATION)
• potential GROSS MARGINS
• forecast MARKET DEVELOPMENT expenditure
• business risks and timing of RETURNS
• easy market access
• favourable competition and economic conditions
• signs of growth in the market (current sales significantly beneath
SATURATION or strong recent growth in industry sales).

Short listed markets should match the business strengths,

such as
• unique product performance
• access to protected intellectual property (IP) technology
• low cost position or high quality position
• ability to offer excellent service and support
• access to strong financial resources
• ability to form good relationships with export business partners.

Creating International Business 14

Intellectual property protection
‘Products of the mind’ that have commercial value are called intellectual property
(IP). These include circuit diagrams, software code, music, designs, business
processes and trade secrets. IP can be legally protected by registering PATENTS,
TRADEMARKS and COPYRIGHT but it is expensive and difficult to
enforce these laws around the world. Unethical people can quickly
copy a good idea and take business from the IP owner. Businesses
should therefore ask for legal advice and thoroughly research
IP protection, the legal system and business practices before
expanding into target marketS.

Barriers to trade
Since the 1980s, many countries have begun a program of TRADE LIBERALISATION
to reduce TRADE BARRIERS and lower the cost of goods and services for consumers.
Businesses can have difficulty entering some overseas target markets that still use
trade barriers such as TARIFFS, QUOTAS, regulations and government SUBSIDIES
of local companies. Overseas governments may use trade barriers to protect their
domestic markets, possibly to establish an industry in their country or protect an
industry that is not competitive in the global market.

High tariffs or regulations with expensive compliance costs will increase

overall export costs and the price for the end user (consumer). A product or
service may no longer be competitive in some overseas markets with cost-
related barriers.

Non-tariff (invisible) barriers are more difficult to detect. They can range from laws
for standards, local content, ingredients, registration, labelling, testing, customs
clearance, quarantine and other means of preventing or delaying the import
process. These restrictions can increase costs, lengthen delivery times or delay Businesses can
market entry to protect domestic businesses.
have difficulty
Businesses should investigate the laws and regulations for their industry group in entering some
the overseas market. The business may need import licenses and permits or may overseas target
be affected by taxation, employment, health and safety laws in the target market.
markets that
Cultural and business practices are different around the world and can become still use trade
barriers to trade. Because countries have unique languages, religions, social barriers...
structures and lifestyles, consumers can have different attitudes towards products
and services from overseas.

Creating International Business 15

 2.2 Sources of information
Market research should include many different resources. Not all information is
reliable so use well-recognised, authoritative sources, such as: the World Bank, the
United Nations, the World Trade Organization (WTO), the Asia Pacific Economic Co-
operation (APEC), the Organisation for Economic Co-operation and Development
(OECD), the International Monetary Fund (IMF), official government sources,
industry associations, educational institutions and publications that have been
reviewed and edited.

Some useful information sources

Name Information available Website address

Asian Statistical profiles of the www.adb.org/Statistics/ki.asp
Development 44 member countries
Bank (ADB) – Key
Indicators
European Union Reports on trade http://mkaccdb.eu.int/
– Market Access regulations, intellectual mkaccdb2/indexPubli.htm
Sectoral and property laws, tariff and
Trade Barriers non-tariff barriers for
Database over 200 countries
CIA World Over 200 country www.cia.gov/cia/publications/
Factbook profiles – major factbook/index.html
economic, political and
social aspects for each
country
World Bank – A segment of the World www.worldbank.org
Data Query Development Indicators Select Data and Research tab.
(WDI) database,
including time series
indicators
FAOSTAT Statistical databases www.fao.org/waicent/portal/
of the Food statistics_en.asp
and Agriculture
Organization of the
UN – agricultural and
fisheries production
and trade data by
country
UN Comtrade Comprehensive, free comtrade.un.org/
database trade statistics – import
and export data for
over 200 countries

Creating International Business 16

UNCTAD TRAINS On-line tariff and www.unctad.org/trains/index.
database imports database htm
covering almost 140
markets
UNCTAD/WTO Generate trade www.intracen.org/tradstat/
International statistics reports welcome.htm
Trade Centre: quickly and easily for
International Trade a specific country or
Statistics product category
Salary Expert Information on human www.salaryexpert.com
resource costs by
occupation and country
Kompass A worldwide business www.kompass.com
directory – a database
of 2.3 million
companies in 70
countries
Franchising 1. An interactive www.franchising.com
directory of www.franchise.org.au
franchising
opportunities.
2. Franchise Council
of Australia

Creating International Business 17

 2.3 Assessment and ranking of
potential markets
To find the most appropriate overseas market a business should look at specific
trends and activities in each potential market, analyse competitor activity, potential
customer demand and trade barriers (both visible and invisible). The criteria listed
below can be used to help rank and study the target markets.

Market assessment criteria

Rating 0 – 5 (poor to good)

Market characteristics Market 1 Market 2 Market 3
Growth of imports
Seasonal /cyclic nature of imports
Degree of market segmentation
Degree of customer concentration
Sensitivity to quality/performance
Availability of close substitutes
Sensitivity to imports
Competitive conditions
Concentration of domestic industry
Concentration of exporters
Complexity of distribution system
Threat from domestic markets to
foreign entrants
Financial and economic conditions
Industry pricing practices
Industry payment terms
Currency parity
Trade tariffs and charges
Need for concessional financing
Foreign exchange (history of
movements)
Cost of doing business
Barriers to entry not identified
elsewhere
Legal and socio-political conditions
Political stability
Trade laws
Consumer and environmental laws
Registration and licensing laws
Cultural similarities
Foreign investment laws
Labour laws
Intellectual property protection
TOTAL

Creating International Business 18

Market selection also includes identifying the market segment in the short-listed
target markets, such as

• a particular geographic region

• a certain SOCIO-ECONOMIC group
• an age group within the population
• individuals or organisations.

Successful market segmentation focuses on consumers’ real needs and identifying

groups with similar needs.

Export market segmentation

Segmentation Possible market segments – target customer

parameters group(s)
Age Toddler, child, teenager, adult,
under 25, 25-35, 35-65, 65+
Sex Male, female
Occupation Professional, farmer, trades person, student,
receptionist, accountant, artist, home duties,
doctor, manager
Family life cycle Single, married, divorce, elderly, married – children
under six, married – children over six, married –
children left home
Income Low, medium, high, very high
General industry type Small, medium, large business; government,
public and private sectors; industrial, consumer and
service markets
Specific industry Financial, professional services, trades (plumbing,
mechanical, etc), computing, marine, electrical,
engineering, railway, rubber, chemical, food and
agriculture, liquor
Geographic Europe, Asia, Africa, North America, South America,
Australasia, the Pacific, Middle East, regions
Attitude towards life Future concern – environment, politics, conscious
of short term price, looks at long term advantages,
concerned about image or prestige
Lifestyle Health conscious, active, adventurous, cautious
Usage rates High, medium, low; first time, existing users
Benefits desired Technical performance, low price, quality, prestige,
user friendliness, labour saving, durability,
dependability.

Creating International Business 19

 2.4 Competitors
Businesses should assess existing and potential competitors in the target markets,
including the number and quality of competitors in each segment. If a market is
attractive then many other international business people (and domestic businesses)
will also try to enter that market. Singapore, for example, is a very attractive
market to exporters in a range of industries. However, because it is so attractive
it is also very competitive and many international businesses will try to sell their
good and services there.

Conduct a SWOT analysis of key competitors in the market to understand the

competitive environment and to find potential opportunities for the business.

Competitive target market SWOT analysis

If a market is
attractive then Complete this exercise for each market segment.
many other
Our business Competitor 1 Competitor 2 Competitor 3
international
Competitive
business advantage
people (and Strengths
domestic Weaknesses
businesses)
will also try
to enter that
market.

Creating International Business 20

Chapter 3 – Market Entry Strategies

3.1 Visiting the market

After completing market research, the next step is to visit the target market. The visit
is an opportunity to meet potential market entry partners, assess the competition
and get a better understanding of the market. Good business relationships and
first hand, in-depth knowledge of the target market can increase international
business success.

It is very important to understand the BUSINESS ETIQUETTE used in the target

market. This can include using business cards, stages of negotiation, respect for
seniority, punctuality and gift giving.

Cultural influences such religion, tastes and holidays also affect business practices.
Personal presentation, behaviour, promotional materials and packaging should be
adapted for each market to attract customers and not offend. Some markets may
value older, higher ranking business people in negotiations or not have many women
involved in business. A business is likely to lose sales if it is culturally insensitive.

Potential partners may be pleased if the business representative knows a few words
in the local language, but use a translator for formal discussions, if possible. However,
speak to the senior partner at the meeting, not the interpreter.

Research labelling laws in advance and bring a mock-up package for the market visit.
The product name, branding, packaging and brochures may need to be translated.

Check that the product name translates well into the target market language.

For the first meeting with potential partners (customers, distributors, agents) prepare
a short presentation which illustrates how the product/service will improve their
business outcomes. Include in the presentation:

• a short MARKETING summary of the product/service

• how the partners will benefit from the relationship
• earning forecasts and costs to partners in local currency
• examples of research on market segment buying trends.

When visiting the target market

• buy flexible flights to allow for changes and refunds

• stay in first class hotels – partners can link the business with the hotel status
• use concierge services to arrange chauffeurs (necessary in some countries),
car hire, venues for meetings and advice on local issues
• check locations of potenial business partners and meeting venues before
booking accommodation

Creating International Business 21

 • check ground transport and travel time – traffic jams of several hours are
common in some cities
• check health requirements, such as necessary vaccinations
• visas can take time so apply early and have a valid passport, photos, fees,
sponsor letters and detailed itineraries
• check currency rules, buy some local currency before arrival and check
local use of credit cards, travellers cheques or US dollars
• if samples will not fit in checked luggage arrange to ship as cargo on
the flight
• if sending product samples ahead arrange for an agent or freight forwarder
to hold them.

Check if an international drivers licence is required and get car and personal
insurance, if necessary. Check if the country has a rail pass scheme. Rail
passes can save money for intercity travel, particularly in the UK, Europe,
and Japan but can usually only be bought before arrival.

3.2 Indirect exporting DVD

First time international business people may prefer to export indirectly by using a
third party business, such as

• overseas buyers – large retailers or wholesalers search for new products

and services, in industries such as tourism and fashion
• consolidators – trading houses that buy from many suppliers, for example
seafood, vegetables, aquaculture, flowers and fruit
• sub-contractors – provide products/services for an off-shore project
• piggy-back entry – a manufacturer or service provider from the domestic
market distributes another business’s product/service overseas to provide a
wider range to its own products.

Advantages Disadvantages
• Initial investment is small • Little control over product after sale
• Business can concentrate on • ‘Cost-plus’ pricing does not allow
its strengths for higher prices
• Exporting done by experts • Increased distribution costs
• Increased sales • Little control over business
development
• Few exporting risks

Creating International Business 22

3.3 Direct international business DVD

A business can represent itself by selling products or services directly to a customer

overseas, but direct selling may need large orders and efficient supply chains to be
economical. Direct sales can be from business-to-business (B2B), such as selling
car parts to car manufacturers, or business-to-customer (B2C), such as Internet
sales (see Chapter 5.7 E-commerce). With direct sales the exporter can build
personal relationships with customers, important in some markets. They can also
control the process and develop a detailed knowledge of the market. Direct control
can also cost time and money.

Governments or large companies may prefer to buy directly from an overseas

supplier in a B2B relationship. Dealing with governments can be slow and take time
to reach the large potential success.

Trade shows can help businesses meet overseas buyers for direct B2B sales or
partners for representative international business.

3.4 Representative international

business
Most businesses export through partners who represent them overseas. They can
provide market entry, detailed local market understanding or distribution networks.

Agent
An agent is a person or business that legally represents the exporter in the overseas
market. This is an easy, moderate-risk pathway for new exporters. The agent has
direct contact with customers, but the exporter has little control over the agent’s
sales efforts. The legal agreement should clearly state the agent’s and exporter’s
responsibilities, such as who has responsibility for promotion.

Agents find potential customers and may promote the exporter’s products in their
markets but they do not legally own the goods. Agents may be paid a salary, a
retainer, a commission or a combination of all three.

Advantages Disadvantages
• Easy for new exporters • Small order size
• Direct contact with all customers • Need to control credit
• Control branding, marketing • Needs marketing and
and pricing management support
• Lower costs for exporter with • Can’t control agent’s sales effort
commission payments or mark-ups

Creating International Business 23

 Distributor DVD

DISTRIBUTORS buy and stock products to sell to buyers in the target market.
Distributors know their local market, local issues and business practices. They
usually work hard to sell their stock, look for large orders and can be relatively
cheap and effective.

A clear legal agreement with the distributor should allow the exporter to set
prices and customer service levels. The exporter should also be able to cancel
the agreement if the distributor is unsuitable. It is important to check potential
distributors’ reputations in their market to ensure they meet the exporter’s needs.

Distributors pay the exporter and then legally own the goods. They usually have to
carry stock and provide after sales service, where necessary.

Advantages Disadvantages
• Can be relatively cheap and easy • Difficult to cancel contract
• Know the market • May not know the product well
• Performance in their hands • May not promote products well
• Able to move with market changes • Can have limited growth strategy
• Offer warranty and service • Cultural problems are possible
• Usually seek large orders • Exporter not involved in the market

Creating International Business 24

Checklist for distributor selection

Rate each item from 1 (poor) to 5 (outstanding) to rate and compare distributors.

1. Financially sound Rate

2. Marketing expertise
3. Good international business record
4. Good customer relations and contacts
5. Positive reputation and image
6. Good promotional skills
7. Product compatibility
8. Technical knowledge
9. Staff knowledge
10. Adequate technical and warehousing facilities
11. Adequate service support
12. Proven performance record
13. Long-term outlook in market
14. Understands growth and potential
15. Excellent government relations
16. Conflict with competitor’s products
17. Relevant clients (not just a ‘big’ client base)
Total

Importer
Importers buy goods for resale to other companies in the distribution chain. They
take legal possession of goods.

Fulfilment wholesaler
Fulfilment wholesalers offer the combined services of importer, WHOLESALER
and distributor. Also called smart warehousing, this type of business is common
in the USA.

Franchising DVD

A FRANCHISE is an on-going business relationship in which the owner (franchisor)

gives another business partner (franchisee) the right to distribute a product/service
using the franchisor’s brand and business processes for an initial and annual fee.
Franchising is an effective pathway for a small service firm, such as a business
based on intellectual property, to package its systems and processes. These
packaged systems can be replicated in many locations with franchisees providing
capital and enthusiasm to expand quickly into a market. Franchisees may need
considerable support and training to maintain the business’s reputation.

Creating International Business 25

 A franchisor can enter overseas markets by

• Direct entry – when the franchisor owns and operates all outlets
• Joint venture – when the franchisor and overseas business are partners in
the specific market
• Master franchising – like domestic franchising, when the franchisor gives
the franchisee rights to do business using the franchisor’s brand and
business system for payment. The master franchisee can open other outlets
in the market or appoint other sub-franchisees.

Advantages Disadvantages
• Wide and quick market coverage • Expensive to study laws and
regulations in different countries
• Reasonably profitable
• Cost of frequent trips to
• Protection from copying
support franchisees

Global supply chains DVD

Many industries have globalised their production process by buying parts or

pre-assembled systems from businesses around the world and assembling the
finished product. GLOBAL SUPPLY CHAINS are common in large engineering
and construction projects. An Australian manufacturer, for example, may produce
brakes for a car assembled in China and a business in Singapore may supply
logistics services to the Chinese manufacturer. Suppliers usually need to pre-qualify
for a project by proving they can supply high quality parts. Pre-qualification does
not guarantee sales so the business must develop relationships and promote its
parts for specific projects.

Global supply chains are an efficient and cost effective way for small businesses
to sell single parts or systems to global markets. Many global supply chains use on-
line PROCUREMENT processes so, for this market entry strategy, businesses need
modern information technology equipment and experience in e-business software
and processes.

Creating International Business 26

3.5 Investment overseas

Local office
A local office is a simple form of foreign direct investment. The exporter establishes
a local presence through a representative or branch office, rents office space and
hires staff. (This could be just one person).

Advantages Disadvantages
• More control of marketing • Costs to establish an office are
and distribution higher than using an agent
or distributor
• Direct contact with customers
• No local partner expertise
• Improved credibility in market place
with contacts
• Access to local venture capital

Licensing DVD

A business, which has developed a product/service with a trademark, patent or

copyright can give a foreign business limited rights to produce and sell the product
or deliver the service. This is called MANUFACTURING UNDER LICENCE (MUL). It
can be a cheap way of expanding business revenue in new markets but depends
on good intellectual property (IP) protection in the export market. PIRACY could
reduce earnings and create new competitors.

Advantages Disadvantages
• No investment needed • May create competitors
• No market/political risk • Low return on sales
• Return on research & design (R&D) • High taxes on royalties
• Revenue from new markets • Limits national expansion
• Some patent protection • Product development may not
reach potential
• Benefits for business and partner
• Depends on licensee performance
• Avoids tariffs
• Requires strong IP protection

Creating International Business 27

 Joint venture DVD

A JOINT VENTURE is a legal business partnership with a foreign partner who

shares responsibility, investment, management and profits. It is a pathway into a
market blocked by tariffs or quotas. This is a high-risk market entry strategy and the
business should very carefully choose a partner with similar business objectives.
The business owner loses exclusive control over the business in return for a goal,
such as market access or high volume sales. Joint venture success depends on
partner trust, commitment and strength of the mutual relationship.

Advantages Disadvantages
• Shared risk • Loss of business control
• Reduced political risk • Possible conflicting aims:
• Reduced discrimination ==> length of partnership
• Access to market knowledge ==> profits
• Access to technology products ==> R&D costs
• Access to trademarks • Must protect core business:
• Access to marketing networks ==> IP
• Tax advantages ==> market access
• Access to experienced labour ==> business ethics
• Access to suppliers • Legal protection not guaranteed
• Reduced investment cost

The most important factors to look for when selecting an overseas partner are

• Complementary skills
• Co-operative cultures
• Compatible goals
• Complementary (shared) risks.

Strategic alliances
Licensing, joint ventures (JV) and offshore operations involve strategic alliances.
These market entry strategies have higher levels of partnership and shared
responsibility than traditional exports. Manufacturing products under license or
joint venture partnerships with overseas manufacturing firms are becoming popular
tools to expand business operations. These alliances can help businesses enter
markets that may have barriers, such as high transport costs or benefits, such as
cheaper labour. Bankers, accountants, business consultants, industry associations
and government contacts may identify strategic alliance partners.

Creating International Business 28

Merger or acquisition
A MERGER occurs when an international business combines with a firm in
the overseas market and creates a new business entity. In an acquisition, the
international business takes over a firm in the overseas market. The domestic
firm may still trade under its own name, but the international business owns it and
controls its direction.

Advantages Disadvantages
• Fast entry into target market – • Increased risk – financial, political
existing firm has products and a and market risks
distribution networks
• Possible slow post-merger
• Limits competitors in the market integration
• Reduces entry barriers such as • Target business too large or
skills, technology, materials supply too small
and patents
• Business cultures and practices
may clash

Greenfield site
Greenfield market entry involves establishing a new operation in an overseas
market.

Advantages Disadvantages
• Reduce or eliminate price • Political risks – REPATRIATION
increases from transport costs, OF PROFITS
customs, duties
• Risk increases with size of
• Cut delays in product availability investment
• Ensure more uniform quality • Slower entry mode
• Adapt products for local • Potential COUNTRY OF
requirements ORIGIN issues

Overseas investment still contributes to the export country’s economy with

• increased demand for home-sourced capital equipment and services

• increased sales and profits for shareholders domestically
• increased taxation income for the government in the export country
• improved overseas profile and competitiveness for the export country.

Creating International Business 29

 3.6 Services
Services are activities that people do rather than producing physical products, or
services, such as help desks, may be provided to support products. International
business services earn income from activities such as franchising, licensing,
consultancy and applying knowledge in

• education and training

• legal services
• management consulting
• financial and insurance services
• architecture and design
• technical services
• logistics
• culture and applied art
• tourism
• marketing and advertising services
• human resource management.

International business services rose from 18 per cent to 23 per cent of world
trade over the past 20 years and are expected to increase to more than 50
per cent by 2020.

Services modes of entry DVD

Businesses deliver their services to international consumers using four main ways
(modes). These modes reflect the different locations of the services supplier
(exporter) and the consumer. Business examples of each mode include

Mode 1 service abroad – architectural design or on-line medical

consultation
Mode 2 consumer abroad – tourists or students studying overseas or
patient sent overseas for treatment
Mode 3 invest abroad – hotels or overseas branches of banks or
investment in overseas hospital
Mode 4 service transactions – engineer or doctor sent overseas for a project
Mode 4 employment – software engineer or teacher lives overseas
to work.

Creating International Business 30

 Supply modes of international trade in services
Country A Country B

Mode 1: Service transactions

The service crosses the border

Consumer Service
from A supplier

Mode 2: Service transactions

The consumer goes abroad Service
Consumer Consumer Service
from A from A supply supplier

Mode 3: Service transactions

Direct investment
Service in country A
Consumer Foreign Business
from A supply affiliate

Mode 4: Service transactions

Self-employed person
Service goes to country A
Consumer Person Person
from A supply or employees sent
by firm from B

Mode 4: Employment

Temporary employment
Service Person
supplier

(Source: General Agreement in Services Trade)

Creating International Business 31

 Exporting services – critical success factors
• long term commitment to the market
• relationship and network development
• business concept proven in the domestic market
• patience
• entrepreneurial spirit
• reputation
• high level of technical skills
• unique intellectual property of the business
• uniqueness of service offered
• quality of service and customer support
• ability to adapt service where necessary.

Common mistakes in exporting services

• partner selection
• short term focus
• intellectual property not protected
• local presence
• cultural understanding
• timing and resources needed.

Creating International Business 32

Chapter 4 – International Business
Administration
Accurate and timely administration is important when doing business in overseas
markets. This process protects the rights of the business people involved and the
consumers in both countries.

A clear documentation process can ensure accurate documentation to avoid delays

in customs clearance at the port where goods are unloaded. Detailed documents
are needed for documentary letters of credit, such as precise product descriptions,
packing lists and certificates, including quarantine certificates and certificates of
origin. Electronic documentation is now common and makes this complex process
much easier, but mistakes can be costly.

Laws vary considerably between countries and there is no one commercial

law for overseas business transactions. Businesses should get advice from a
legal professional who is familiar with the business ethics, customs and laws
of the target country.

4.1 Contracts
A clear
Before entering into a contract documentation
• check the buyer’s commercial and credit standing process can
ensure accurate
• check that the buyer’s business is registered and they have the necessary
export/import licences and exchange approvals documentation
• decide which country’s laws will govern the contract to avoid delays
• get legal help to write a contract.
in customs
clearance at
Insurance will take care of problems, such as
the port where
• accidents goods are
• goods that are damaged, destroyed or stolen unloaded.
• goods that fail to arrive
• goods that arrive intact but are not accepted by the buyer
• goods that are accepted by the buyer but not paid for.

Creating International Business 33

 In an international dispute businesses should firstly try to settle through informal
discussions. This means that future business could continue. If discussions are not
successful they have three possible ways to settle the dispute:

• CONCILIATION – involves a third person who helps each side clarify their
issues, clears up misunderstandings and acts as a ‘go-between’
• ARBITRATION – involves formal dispute settlement by a panel of respected
people, such as the International Chamber of Commerce. Contracts should
contain an arbitration clause, such as
“All disputes arising in connection with the present contract shall be finally
settled under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance
with the said Rules.”
• LITIGATION – involves taking the business to court to recover property or
money, can be very expensive and time consuming. It also means the end
of future business between the businesses.

Contract tips
• avoid words and phrases that are not clear – in a dispute someone else will
have to decide the meaning and intention of the words
• use INCOTERMS 2000 (see 4.4 Shipping terms) to state exactly when
the possession of goods passes from the seller to the buyer and the
responsibilities of all people involved when handling the goods
• be fully insured – use Incoterms 2000 to explain who is responsible for
paying the shipping insurance
• get legal advice from a legal person familiar with the target country
• no contract provides complete security or replaces thorough investigation of
the potential partner beforehand.

Both exporters and importers face risks. The importer risks not receiving
goods they have paid for or the goods being unsuitable for sale. Both
people need to negotiate who will take on each of the risks involved. A good
relationship minimises the risks of trade for both people.

Creating International Business 34

4.2 Payment
There are payment risks in international business. The seller can reduce this risk by
keeping control of the products until payment is finalised. Payment options, listed in
order of risk to the exporter, include

• Pre-payment – direct payment into the seller’s bank account. This is

sometimes used in e-commerce transactions where the seller’s bank will
handle the on-line transaction then transfer the funds in the local currency.
Check if the bank allows for on-line payment in foreign currencies and there
are bank charges. This is not a common payment method for large amounts
of money because the buyer takes all of the risk.
• Letter of credit (L/C) – payment made by the overseas buyer’s bank to the
seller, usually when the buyer receives the goods or services. Prepared by
the buyer’s bank, a L/C is also known as documentary credit and is the most
widely used form of payment. Three kinds of letters of credit are possible
o revocable letters of credit can be changed or cancelled
without the seller’s consent
o irrevocable letters of credit cannot be changed unless the
buyer and seller agree
o a confirmed letter of credit means a third bank will pay if
the buyer’s bank defaults.
• Documentary collections – after producing and sending the goods, the
seller gives its bank the necessary documents and a BILL OF EXCHANGE
for the buyer. This is also called ‘cash against documents’.
• Bills of exchange – the buyer’s bank agrees to make payment to the
seller’s bank when the documents (bill of exchange, bill of loading, invoice,
packing list) are presented. This is flexible and can provide credit for up to
180 days after sighting the documents.
• Open account – the buyer sends payment through a bank when they
receive the goods or at a certain time after. Businesses use this method
once they have a trusting relationship as it favours the buyer.
• Consignment – the seller is not paid until the overseas buyer sells the
goods to their customers. Payment can be very slow.
• Factoring (the sale of a seller’s accounts receivable) and FORFAITING
(the purchase of a seller’s receivables) can be useful to help new
international business people manage cash flow pressures
• Performance bond – an agreement that the business will complete the
required work and comply with the contract. A bank can establish a
performance BOND for 10–15 per cent of the contract value. The US market
is unusual as it often requires suppliers to post bonds for up to 100 per cent
of the contract value for performance obligations.

Creating International Business 35

 Payment risk spectrum

Low Risk High Risk

Prepayment Letter of Credit Term Bills 180 Days

of Exchange

Confirmed Cash against Open

Letter of Credit Documents Account

Currency exchange movement

A business can manage its risk against EXCHANGE RATE movements with a range
of solutions that minimise costs and maximise returns. Banks may offer a number of
solutions, such as a FORWARD EXCHANGE CONTRACT. This is an agreement with the
bank to receive a foreign currency at a ‘set’ rate for a future date. FLEXIBLE FORWARDS
protect businesses against exchange rate falls, but they benefit when rates are good.

4.3 Freight and logistics

Shipping and service delivery

Some products may be suited only for ocean shipping (such as large quantities of
heavy items) or for air freight (perishable food). It is important to understand the basic
principles of both sea and air cargo. Rates can vary and shipping firms can offer new
services on trade routes or service new markets. The most efficient way to ship goods is
through a good customs broker and freight forwarder. These companies have expertise
in documentation, freight rate negotiations and finding the most economical way to
transport products to buyers.

Freight forwarders can provide a range of options to find the most cost-efficient
freight rate, but exporters should be familiar with freight markets to find the most
competitive rate.

Overseas buyers often specify their preferred freight option and this could depend
on ease of customs clearance at the port of discharge or the departure frequency
and reliability.

‘Hub’ ports such as Singapore, Dubai and Hong Kong, China distribute containerised
cargo to other ports by ‘feeder’ vessels. Exporters should check that the trans-shipment
hub is efficient so their cargo is not delayed.

Most freight forwarders have space and freight rate deals negotiated with sea and
air carriers. It is important is to locate a forwarder who caters for the exporter’s
business profile, such as a small business doing international business in a number
of countries.

Creating International Business 36

4.4 Shipping terms
Exporters should understand sea and air freight conventions. A set of international
business terms (Incoterms 2000) are widely used throughout the world that state
buyer’s and seller’s costs and responsibilities.

Based on the United Nations Convention on Contracts for the International Sale of
Goods, the International Chamber of Commerce (ICC) established Incoterms in 1953
and updated them in 2000 to clarify who is responsible for what in international trade.

Exporters who use freight forwarding companies do not need to understand all the
Incoterms, but must know and understand those relevant to their business. The ICC
publishes Incoterms and exporters can buy them from their national committee.

The Incoterms are in four groups to show the seller’s different levels of responsibility.
The terms starting with

• E – the buyer takes responsibility at the seller’s business premises

• F – the buyer takes responsibility at the carrier
• C – the seller takes responsibility for carriage
• D – the seller takes all shipping responsibility to the buyer’s country.

Some Incoterms are for use with sea freight only, for example FAS, FOB, CFR and CIF.
For air freight exporters use the terms FCA, CPT and CIP.

Common shipping and Incoterms

CFR Cost and freight. The seller pays for freight to the port of destination.
CFR price = FOB + freight costs
CIF Cost, insurance and freight.
CIF price = cost of freight + marine insurance
CIP Carriage and insurance paid to destination
CPT Carriage paid to destination
DDP Delivered duty paid. The seller takes all the risk and cost involved
in delivering the goods to the buyer’s premises including customs
clearance, duties and taxes
EXW Ex works – the price of goods at their point of origin. The buyer pays
to bring goods from the seller’s factory to their overseas destination
FAS Free alongside ship. The seller pays to deliver the goods alongside
the ship at the export port. The buyer pays for export clearance,
loading and shipping
FCA Free carrier
FCL Full container load
FIS Free in store. The buyer pays for all costs to their store
FOB Free on board. The buyer takes ownership when the product is
loaded on the ship (actually when the product ‘crosses the ship’s
rail’). FOB price = FAS + outward wharfage and loading costs
LCL Less than a container load

Creating International Business 37

 4.5 Documentation for exporting
Exporters and their freight forwarders need to
complete documentation accurately to meet the
standards and laws of both the exporting and
importing countries. The most common forms of
exporting documentation are

• COMMERCIAL INVOICE – describes the

goods. Customs officials and insurers usually
need this to check that the correct goods
have been shipped.
• PACKING LIST/WEIGHT LIST – lists the precise contents for shipment,
which helps customs officials to check authenticity and helps the shipping
business to load the goods most effectively.
• BILL OF LADING – shipping companies issue these as evidence of a
freight contract. It sets out the conditions of carriage and acts both as a
receipt for goods and a document of title. This is the exporter’s receipt of
goods on board the ship.
• AIR WAYBILL – similar to a bill of lading the airline business issues this as a
receipt of goods for despatch by air.
• CERTIFICATE OF ORIGIN AND VALUE – import controllers need to
know the origin of goods and the ‘value’ of goods. This allows customs to
calculate duty in the importing country.

Export documentation flows

Creating International Business 38

Chapter 5 – Marketing
Marketing is the total process in which a business plans, positions, produces,
prices, promotes and distributes a product or service for consumers in a particular
country. The key elements of marketing are

• deep understanding of each separate market (buyers, competitors,

regulations, culture, regional differences, etc)
• creative SEGMENTATION and selection based on similar customers
• powerful product DIFFERENTIATION, POSITIONING and BRANDING.

Standard marketing theory is based on large or multinational companies but small

and medium sized businesses (SMEs) often take a more flexible approach to
marketing. SMEs use personal networks, building relationships and knowledge to
overcome their small size in international markets.

International business has changed – national borders have been replaced by

ethnic boundaries within or across countries. China and the USA, for example, have
ten regional markets each. Businesses need to adapt quickly and analyse their
competitive advantage in each overseas market.

An international business is likely to need a different marketing strategy for

each overseas market.

5.1 The marketing plan

A marketing plan explains the business marketing strategy and should be adapted
to each market. The four traditional elements – the four ‘Ps’ or ‘marketing mix’ – are

• product
• pricing
• promotion
• place (distribution).

5.2 Product
Product refers to all product features –positioning, quality, brand, reputation,
features, size, packaging, labelling.

Product positioning is an important first step when entering a new market. The
business decides which group of consumers it will target, from the mass market
through to an exclusive group. This position may depend on features such as
quality, price or brand appeal. Note that price is not always the main reason why
customers choose a particular product or service.

Creating International Business 39

 Product contents may need to be adapted for each market, for example to suit the
food and drug laws or cultural tastes.

Packaging should reinforce positioning, but it is more than an attractive container.

It must follow regulations – particularly labelling regulations – that are different in
each market.

Businesses may differentiate existing products or services to create a

NICHE. Product differentiation focuses on things the business can do uniquely or
noticeably better than competitors in specific markets, such as service delivery or
product features.

5.3 Pricing for overseas markets

Pricing is the retail cost of a Costs
product or service in the market.
International business pricing is Demand
different from domestic pricing Incoterms
because the costs, demand and
competition vary from market to Export Pricing
market. It will also depend on the
reason to export – to generate
cash flow, achieve economies of Competition Foreign
currency
scale or increase sales volume.

It is important to calculate the total cost of international business and allow a MARGIN
for unexpected expenses. The COST PLUS method is the traditional approach to
pricing in any market. Cost plus pricing takes all the costs of getting the product/
service to the customer and then adds a profit margin.

Cost plus pricing method

Cost items ($)

+ Raw materials
+ Manufacturing costs
+ Export packaging
+ Overheads
+ Variable costs
– Duty drawback on imported components
+ Finance costs
+ Sales and marketing costs
= Ex-works (EXW) price (place name)
+ EXW price
+ Transport to carrier
+ Customs clearance (ECN)
+ Additional packing and labour for transport
+ Agent’s commission (such as 10%)

Creating International Business 40

 = Free on board (FOB) price (place name)
+ FOB price
+ Sea or air freight to wharf or airport
+ Sea/air freight document fees (airway bill)
+ BAF (Bunker adjustment factor – fuel surcharge)
+ Transport contingency (suggest 5% transport costs)
= Cost and freight (CFR) price, or
= Carriage paid to (CPT) price
+ CFR or CPT
+ Marine insurance
= Cost, insurance & freight (CIF) price (place name)
+ CIF
+ Import duty/tax (calculated as % of CIF price)
+ Customs clearance fees
+ Delivery charge from airport to customer
= Delivery duty paid (DDP) price (customer place
name)
+ Profit margin
= Cost price

The pricing plan should show the optimum price for each market and the pricing
calculation. For many products, such as wine, it is important to
match the market price to gain a share of the market. A pricing
plan should include

• how the selling price is quoted (FOB, CIF)

• production costs
• international business costs – market research,
marketing materials, packing, transport,
documentation, administration, insurance, freight,
financing, customs duties and distribution
• competitors’ prices for equivalent products and services
• the value of the product/service to the customers
• assumptions made for cost build-up, such as changes in overheads
• gross and net margins planned and the sales volume needed to
break-even.

The optimum product price lies between the price floor (the cost of production
and international business) and the price ceiling (the maximum price consumers
in the market will pay). If the customers in the market will not pay the price floor, no
level of promotion will attract sales and cover the costs, so the product will fail in
the market.

Creating International Business 41

 Pricing strategy considerations:

• ensure the pricing strategy is right before approaching contacts in the

target market
• determine cash flow needs
• include the extra costs involved in international business such as changes
to packaging and labelling, handling, breakage, service and travel costs
• negotiate with distributors and customers about credit terms and prices
• use Incoterms to reduce the chance of miscommunication
• minimise foreign exchange rate movement risk by
o adding a ‘buffer’ to cover any changes
o hedging (get advice from a bank)
o quoting in local currency.

5.4 Promotion
Promotion can include traditional
advertising, international trade fairs, show
room displays, overseas buyer visits,
personal selling, direct marketing, sales
promotions, branding, public relations
and guerrilla marketing.

The promotional mix varies from market

to market as it depends on finance,
personnel and technology available as
well as media access and cultural norms
in the target market. Note that

• radio may be more effective than Internet-based promotions

• local newspapers may reach many customers quickly
• customers may respond to emails rather than direct mail letters
• government and industry sponsored trade fairs, shows or missions
introduce many potential customers and help a business compare its
product/service quality, pricing and business practice to the competition.

Businesses with small promotional budgets commonly use GUERRILLA MARKETING

(entrepreneurial marketing) as a strategy to market their product/service with
minimal costs.

Creating International Business 42

Promotional action plan
A promotional action plan includes activities for the target market, their cost, budget
available and proposed evaluation.

Promotional activities could include

Trade fairs, shows or missions Direct mail or email

Personal selling Public relations, media publicity
Give-aways, samples or discounting In-store promotions or demonstrations
Celebrity endorsement Stories and photographs in the media
Reference selling – mention Membership of relevant associations
influential users
Advertising: newspapers, TV, radio, Internet strategies: quality web site,
trade press, Internet viral campaign

Promotional cost estimates include the

• promotional budget recommended to achieve the target sales

• estimated cost and benefit of each promotional method
• source of promotional funding
• local agent/representative contribution.

Promotional evaluation includes

• measurable objectives of the promotional program

• who will assess the promotional program effectiveness and when.

(See 5.7 E-business for information about the role of web sites for information, brand awareness,
e-business and as a reference point.)

Creating International Business 43

 5.5 Packaging and labelling
Packaging provides an attractive look, but it must also follow packaging and labelling
laws, which can differ between countries and even between states or regions of
countries. Laws often specify the language, warnings, contents list and place of
origin, for example, the Food and Drug Administration (FDA) controls packaging
and labelling laws in the USA. Consumer tastes also vary between countries and
regions, so overseas markets may prefer different colours, designs, images or
portion sizes than the domestic market.

Consider the following packaging and labelling issues

• languages legally required on packaging or service brochures

• information to be included – ingredients, specific safety and disposal
instructions, ‘use by’ date
• business contact details
• appropriate colours for the target market – consumers may prefer some
colours and reserve others for traditional uses
• portion sizes commonly used in the target market
• weights and measures – imperial or metric systems.

The same issues apply when producing promotional brochures, instruction manuals
and websites for services.

5.6 Place (distribution)

Distribution involves the total supply chain.

Export costs can be affected by the

• type of transport – sea or air – can directly

affect the condition of the product when it
reaches the consumer
• on-time delivery – Imagination
Entertainment was fined US$350,00
by Wal-Mart for a delivery that was
19 days late
• stock levels required – very large orders tie up stock for some time before
payment and some retailers ask for small orders of niche products air
mailed at short notice, for example fashion items
• type of warehousing and agents used in distribution channels
• quarantine inspection laws of the export and import countries
• warranty and returns policy

Each market is quite different because of historical circumstances, the level of

infrastructure and development in the market.

Creating International Business 44

5.7 E-business
An on-line presence can reach a global market
place to raise brand and product awareness, give
details about the products/services and provide
extra relevant information about the business. This
presence could be a website, email address or
E-MARKET membership, such as eBay. E-markets
act as virtual B2B trading platforms to bring buyers
and sellers together.

A business website is the best way to create an on-

line presence. The business will need to register a
domain name – the website address. Domain names
usually end with the letters showing the country of
residence, such as .sg for Singapore and .vn in
Viet Nam. Potential importers or direct customers can access information on-line
and even buy the product/service directly. E-business is most effective when it
extends a business reach, not replace it. Different language versions of the site can
be effective if customers have access to the Internet and are Internet savvy.

The website is often the first contact with potential customers so it needs a business-
like image of capability and reliability. It should provide clear information about
the business’s purpose, its products or services and main contacts. Clear privacy
and security statements can make people feel comfortable enough to contact the
business by email or complete an on-line transaction.

Well-designed sites provide product or service information, allow visitors to place

an order or purchase a product. Businesses can encourage visitors to revisit the
site by offering free information, updating information often and giving special offers
for fixed periods.

To promote the business website use on-line marketing techniques, such as The website
search engines, email messages and links to other websites. Links from important is often the
related sites to the business’s website can improve search engine ranking and first contact
help the business to become a reference site. A popular free-inclusion directory
for search engines is www.dmoz.org, which is used by major search engines. Visit
with potential
www.searchenginewatch.com for useful information about search engines. customers
so it needs
The business can direct Internet users to the website with ‘pay-per-click’ on-line
advertising offered by major search engines. The provider only charges the business
a business-
when a user clicks on the advertisement. like image of
capability and
Email marketing campaigns can also be an effective and cheap way to raise
awareness and reach targeted customers. Links to the business’s website can reliability.
direct potential customers to a particular page.

Creating International Business 45

 The business must have secure payment methods for on-line orders and payment.
It should also deliver the goods or services promptly. The business can accept
payment through a merchant account from a bank. It will need shopping cart software,
a site host and a secure payment gateway. A cheaper payment method is to use a
third-party on-line payment processor. Both payment methods have risks, including
fraud. Some buyers prefer off-line payment systems such as telegraphic transfer,
money order or cheque.

Goods or services can be delivered on-line if they are digital, for example, software,
or they can be assisted with on-line dispatch and order tracking systems.

A business should decide if the

• site will show only information or will have an e-commerce facility

• business can reply quickly to on-line enquiries
• business can handle different currencies, time zones and systems of
weights and measures
• product/service prices include shipping, insurance and taxes – important to
build trust and confidence of on-line customers
• business will have shipping, returns and customer service policies for
overseas customers.

The Internet offers a great pathway for international business people to expand
quickly but it also needs careful research and sometimes an open mind about the
business’s future.

E-commerce refers to online transactions – buying and selling of goods and/

or services over the Internet.

E-business refers to online transactions as well as all Internet based

interactions with business partners, suppliers and customers such as,
selling direct to consumers, manufacturers and suppliers; monitoring and
exchanging information; auctioning surplus inventory; and collaborative
product design. The aim of these online interactions is to improve or transform
business processes and efficiency.

Creating International Business 46

Appendix 1 – Glossary
These terms may be useful to teachers and students unfamiliar with
some economic terms. For a broader web-based glossary see www.econterms.com
or www.amosweb.com.

24/7 Always open 24 hours a day, 7 days a week.

Accidental Businesses that export because of an order or opportunity,
exporters but did not plan to become an exporter.
Agent An agent finds customers on behalf of the exporter. They
usually receive a commission (a fixed percentage of sales
they make) or a regular retainer (payment).
Air waybill Issued by the airline company acknowledging receipt of
gods for dispatch by air in the same way as a bill of lading.
Annual report Contains information about what the company has
been doing in the past year and what it expects to do in
the future.
APEC Asia-Pacific Economic Co-operation. Established in 1989
in order to promote open trade and economic cooperation
among Asia-Pacific economies.
Appreciation An upward movement of the Australian dollar (or any other
currency) against another currency.
Arbitration A process in which a disagreement between two or
more parties is resolved by impartial individuals, called
arbitrators, in order to avoid costly and lengthy
legal action.
Assets Items of value owned by a business.
B2B trade Transactions between two businesses.
B2C trade Transactions between a business and a customer, often
over the Internet.
Balance of trade The difference between the money received by a country
when exporting goods/services and the money paid to
other countries when importing goods/services. If more is
imported than exported, there is a deficit balance of trade.
Barter The exchange of one good for another.
Bilateral Trade agreements between two countries.
agreements
Bills of exchange The buyer’s bank agrees to make payment to the
exporter’s bank when the documents (bill of exchange, bill
of lading or air waybill, invoice, packing list) are presented.
This is flexible and can provide credit for up to 180 days
after sighting the documents.
Bill of lading Issued by shipping companies, this acts as evidence of a
freight contract and is the firm’s receipt of goods on board
the ship.
Bond A written agreement to pay a specified amount if a
contract condition is not completed.

Creating International Business 47

 Born global Business designs its product or service from the outset
with the intention of international business within a
few years.
Branding The process of raising awareness of a brand, its features
and position in a market.
Break-even analysis An analysis of costs and pricing to achieve
no financial loss.
Business etiquette The social rules observed in each country when
doing business.
Business plan A written statement of the business’s goals and objectives,
and the steps taken to achieve them.
Capital Money required to begin and operate a business.
Capital goods Plant and machinery (ETMs) used to help producers make
other goods and services.
Cash flow Payment received by a business for a sale of
goods and services.
Cash payment Payment received as an order is placed with a business.
Code of conduct A statement of the principles used by a business in its
operations. It generally refers to practices that are seen as
ethical or socially responsible.
Commodity Items traded – usually raw materials, such as coal.
Company See corporation. Companies can be either private
(proprietary) or public.
Competitive When a business can produce a good or service more
advantage efficiently, using fewer resources than other businesses.
Composition of The ‘type’ of goods and services exported and imported.
trade
Conciliation Resolving a dispute between two parties with a third party
helping to clear up misunderstandings.
Consumer Someone who purchases goods and services.
Consumer goods Goods intended for general consumption, such as
food and clothing.
Consumption The use of consumer goods and services in order to
satisfy our needs and wants.
Convertible Notes A loan made to a company at a fixed rate of interest
with the right to be either redeemed (repaid by the
company) for cash or converted into ordinary shares at a
predetermined date or within a certain period.
Copyright This legally protects artistic and literary works, paintings,
drawing, music, and computer programs from
plagiarism (copying).
Corporate culture The way management and employees act within the
business, in their community and in their environment.
Corporation A corporation is a business type that operates
independently of its owners or shareholders and can be
sued in its own right. The owners have limited liability.

Creating International Business 48

Cost benefit An analysis of the benefits to a business of buying
analysis particular equipment or services.
Cost plus pricing A method of calculating the export price of an export
method product or service, taking the total cost and adding a
margin in the agreement with the distributor to include all
transport, insurance and finance costs.
Country of origin The country where goods were manufactured. Many
trade agreements require the percentage of components
sourced from other countries.
Credit terms Time the buyer is give between the time the seller
dispatches the goods to the time they receive payment.
See also terms of payment.
Debentures Companies raise funds through loans made to them by
members of the public for a fixed term at a fixed interest
rate. These must be issued through an offer made
in a prospectus.
Debt finance See external finance.
Demand The quantity of a product consumers are
prepared to purchase.
Depreciation A downward movement of the Australian dollar (or any
other currency) against another currency.
Desk research Analysis of information published by official bodies and
trade associations, to find out about the best
market for a product.
Differentiation See product differentiation.
Distributor A foreign individual or company that buys products
from a domestic business in order to resell them to their
customers in the foreign market. They also provide
warranty and after sales service.
Diversification Create new products/services to enter new markets.
This involves several risks and is the most difficult to
implement. To succeed, this strategy should use existing
competences and strengths.
Dividend Money paid to shareholders of a company out of earnings.
E-business Refers to online transactions as well as all Internet
based interactions with business partners,
suppliers and customers.
E-commerce The buying and selling of goods and services
via the Internet.
Economic growth An increase in the quantity of goods and services within an
economy as measured by Gross Domestic Product (GDP).
Economic Inputs used in production, including natural resources,
resources labour, capital and enterprise.
Economies of scale The reduction in costs of production caused by increasing
the size or scale of the production facility and spreading
overhead (fixed) costs over a larger output.

Creating International Business 49

 Efficient Being able to produce the most goods and services with
the least amount of resources.
Elaborately Goods that involve high levels of processing. Much value
transformed has been added to them.
manufactures
(ETMs)
E-marketplace An electronic exchange where businesses register as
sellers or buyers to conduct business over the Internet.
Embargo Preventing certain items entering a country.
Entrepreneur Someone who starts, operates and takes on the risk of a
business venture in the hope of making a profit.
Entrepreneurial See guerrilla marketing.
marketing
Equities (shares) Ownership entitlements in a company.
Equity finance See internal finance.
Exchange rate The price at which a currency can be traded with
other currencies.
Expenses The costs incurred in running a business.
Export agent A foreign individual or company legally authorised to act
for the Australian business but does not purchase its
goods outright.
Exporting When a business manufactures its products in its home
country and then sells them in foreign markets.
Export capability Business has the production, competitive and financial
capability as well as staffing and export skills to begin
international business.
Export clearance A number issued by Customs to identify an export
number (ECN) entry for each individual consignment of goods
intended for export.
Exports Goods and services sold to foreign consumers, regardless
of where the transaction takes place. These sales earn
foreign exchange.
External finance Finance provided by bodies external to the business,
such as banks.
Extranet An organisation’s computer network to allow
employees remote (off-site) access to company
programs and information.
Feasibility analysis Analysis of whether a business idea could be successful.
Financial reporting Three financial reports companies must produce in
some countries are statements of financial performance,
financial position and cash flows.
Flexible Forwards Foreign exchange solution protects business against
foreign exchange movements that hurt but benefit when
rates are good.
Foreign debt The amount of money a country has borrowed from
overseas banks, etc.

Creating International Business 50

Foreign direct This occurs when a business from one country owns
investment (FDI) property, assets or business interests in another country.
Foreign exchange Funds from other countries that come into Australia
earnings as a result of selling Australian goods and services to
overseas countries.
Foreign exchange This market determines the price of one currency relative
(forex or fx) market to another.
Foreign exchange The ratio of one currency to another.
rate
Forfaiting The purchase of an exporter’s receivables.
Forward exchange A bank sets the exchange rate for the customer to buy or
contract sell a stated amount in a foreign currency at a future date.
Franchise The rights from a franchisor (owner) to operate under its
name and business model.
Franchisee An individual or organisation that buys a grant to operate a
franchise in a defined area under the franchise name and
business model.
Franchisor An individual or organisation that grants a franchise.
Free trade The unrestricted movement of exports and imports.
Free trade An agreement between two or more countries that sees
agreement reductions in barriers to trade such as tariffs, import
quotas and government restrictions on foreign ownership.
Freight forwarder A person who manages the logistics of trade between
buyer and seller, including export documentation
and transport.
Fulfilment Offers combined services of importer, wholesaler
wholesaler and distributor.
Futures contract A legally binding agreement to buy or sell a security,
commodity or financial instrument at a fixed price on a
specified date in the future.
Global economy The world economy and refers to the economic activity
going on in the world.
Global supply Networks of retailers, distributors, transporters, storage
chains facilities and suppliers that participate in the sale, delivery
and production of a particular product.
Global trade The buying and selling (exchange) of goods and services
across national boundaries, generally using some form of
acceptable international currency as payment.
Globalisation A trend that sees people, goods, money and ideas moving
around the world faster and more cheaply than before.
Global outsourcing Businesses manufacture many of their products overseas.
Goodwill A business asset that includes the residual value of the
asset’s market value and the asset’s original cost.
Goods Products for sale.
Gross Domestic The total monetary value of all goods and services
Product (GDP) produced in the economy in any given year.
Gross margins See margin.

Creating International Business 51

 Gross profit/loss A business’s profit/loss that represents the value of sales
less the cost of goods sold.
Guerrilla marketing Marketing a product or service without payment,
using editorial comment, networks, membership of
organisations, etc.
Hedge funds Hedge funds (also known as Absolute Return Funds)
aim to deliver returns in both rising and falling markets.
The investment techniques adopted may be different
to methods employed by traditional fund managers as
the funds have greater scope to use derivatives, short
positions, and exotic securities.
Hedge market A hedge market enables companies that are exposed
to the risk of future price movements of a particular
commodity to reduce that risk to zero.
Hedging Investing in hedge funds.
Imports Goods or services bought from another country.
Incorporation When a company has become a separate legal entity from
its owners (shareholders).
Incoterms International business terms that state who is responsible
for what in international trade, including the buyer’s and
seller’s responsibilities.
Intellectual property Property that is created by an individual’s intellect.
Interdependence The reliance on others to produce the goods and services.
Internet A loose global network of computers linked electronically.
Intermediate goods Raw materials (primary products and STMs) used to help
producers make other goods and services.
Internal finance Finance earned by the business or provided by
business partners.
International A generic term which includes export of physical goods,
business the provision of global services and overseas investments.
Intranet A computer network within an organisation that allows
multiple users to access the same programs
and information.
Knowledge Economy based on businesses applying innovation
economy and know-how.
Joint venture Two or more people or businesses agreeing to work
together for mutual profit and form a jointly owned
separate business.
Lead users Clusters of influential customers who can help to identify
opportunities and evaluate emerging trends. They reflect
the needs of the market, but often much earlier than most
in the marketplace. They are positioned to benefit from
taking up the product or service early in the life cycle.
Leases ‘Hires’ for a set period and price where ownership
transfers to the lessee on completion of repayments over
the term of the lease. Often used for larger capital items.

Creating International Business 52

Letters of credit Payment made by the overseas buyer’s bank to the seller,
usually on receipt of the goods or services.
Liabilities The debts owed by a business to others.
Licensing Licensing gives permission for a business overseas to
make and sell the product or deliver the service.
Liquidity A business has cash or assets that can be quickly
converted into cash.
Litigation Dispute a legal point in a court of law.
Manufacturing See licensing.
under license (MUL)
Margin The difference between the cost to produce a product or
service and its selling price.
Market A place where buyers and sellers exchange
goods and services.
Market analysis An analysis of a particular economy (or segment).
Market Business focus on a small number of markets.
concentration
Market The amount that a company is worth: the total number of
capitalisation shares on issue multiplied by their market price. This can
be applied to work out the market value of one company
or of the value of all companies listed on the exchange.
Market development Geographical expansion into regional, national or
international markets while attracting other market
segments (finding different channels of distribution,
advertising in different media or developing new uses
for the product)
Market entry The method a business uses to manage their products
strategy or services in each overseas country, eg, distributor, joint
venture, manufacture under licence or direct sales
via the Internet.
Marketing Any activity designed to plan, price, promote and
distribute (place) goods and services to the marketplace.
Marketing mix The combination of the four elements of marketing, the four
P’s – product, price, promotion and place – that make up
the marketing strategy.
Market penetration Enter an existing market that has similar products and take
part of that market share (attracting a competitor’s clients
through advertising, promotions or discounts)
Market position Position in the market for price or quality – ranging from
mass to exclusive position.
Market research Involves collecting and analysing information about
customers, their buying trends and business
opportunities available.
Market saturation A product or service well distributed in the existing market.
Market segment The total market subdivided into groups of people who
share one or more common characteristics.

Creating International Business 53

 Market share A firm’s share of the total revenue they and their
competitors have generated in the market, such as the
dog food market in Australia.
Market spread Business sells product/service in as many markets
as possible.
Mass production The manufacture of goods in very large quantities usually
with the assistance of machinery.
Mass market Appealing to a wide range of people, often price
conscious.
Master franchisee The main franchisee in a country or region who than
recruits other franchisees.
Merchandise Physical goods such as raw materials, semi-manufactures
and finished manufactures.
Merchandise trade The buying and selling of items that can be
seen and touched.
Merger An exporter combines with a domestic company in the
target market and creates a new business entity.
Micro business A business which employs fewer than five people
(including the owner).
Micro market A small section of a particular market, such as
pampered pets.
Minimum labour Legislated minimum employment conditions intended to
standards protect workers from exploitation.
Mission statement States what the company does and how it works, providing
direction for owners and managers in their decision
making process.
Multilateral Trade agreements that are signed by many nations.
agreements
Net profit/loss The difference between the gross profit and expenses.
Niche A specialised or unique segment in the total market.
Niche product A product that appeals to a specialised market, eg.
Long Tall Clothing is designed for women over 6 feet tall
(183cm).
Non-profit The primary motive for these is to provide a focus and
organisations services for people with a common interest.
Open account The buyer sends payment through a bank when they
receive the goods or at a certain time after. This is used
once a trusting relationship is established as it favours
the buyer.
Operational An expansion of the strategic marketing plan. Identifies
marketing plan selected markets, the market analysis, the marketing mix,
financial issues and implementation strategy.
Organisational Objectives give a clear indication of where the
objectives business is going.
Owner’s equity Represents the value of the business to the owner(s).
Partnership A business owned and operated by between two
and 20 people.

Creating International Business 54

Perpetual The business will continue to exist when the
succession owners change.
Patents This protects inventions (new or improved product
or process) by creating a certificate of registration,
which prevents other companies copying the idea. The
company pays for this registration and protection, which is
enforceable by law.
PEST analysis The political, economic, social, technological and legal
environment analysis of a market.
Phishing A type of identity theft sent by spam email. Phishing scams
try to trick users into disclosing valuable personal data
like credit card numbers, passwords and account data by
mimicking genuine financial institutions through the use of
logos and phoney websites.
Piracy Unauthorized use or reproduction of copyrighted or
patented material.
Positioning The development of a product image in buyers’ minds
relative to the images they have of competing products,
such as exclusive. Also called product positioning.
Price ceiling A maximum price in a given market.
Price floor A minimum price in a given market.
Price points The top price (ceiling) consumers will pay and the lowest
price (floor) a firm can profitably sell a product or service.
Pricing method Method used to calculate wholesale and retail prices.
Procurement Business and government purchasing processes.
Product Produce new features, variations or a completely new
development product/service (producing mobile phones with new
features or in a range of colours)
Product The process of developing and promoting differences
differentiation between the business’s products and those of
its competitors.
Productivity Income generated by measurable input, such as work
hours and equipment.
Product life cycle The progress of a product through its life from conception,
growth, maturity, decline and end.
Productivity The amount of goods and services produced and the
amount of economic resources used in their production.
Proprietary or A business owned by fewer than 50 private owners
private company called shareholders.
Protection Any government action which protects local
producers from the competition of overseas producers,
such as tariffs.
Public company A business owned and operated by an unlimited number
of people called shareholders. It has limited liability,
and the shares may be bought and sold on the stock
exchange.

Creating International Business 55

 Qualitative People’s attitudes and responses such as in market
information research, customer and sales staff feedback.
Quantitative Research collecting numerical responses, such as
research financial statements and market share analysis.
Quotas Limits on the quantity of imports.
Recession A downturn in a country’s level of economic activity.
Repatriation of Return of profits to the country of origin.
profits
Retailer A person or business that sells products directly
to the consumer.
Returns Financial gains from doing business – profit.
Revenue The income earned by a business.
Risk management The process of identifying the risks to which a business
is likely to be exposed and deciding the best way to deal
with them.
Saturation Reached almost full market share. The product has been
distributed through the market so that further sales will
come from replacement purchases or changes such as in
consumer buying power, technologies and competition.
Secure Socket A standard for e-commerce security – a security protocol
Layer (SSL) in which personal information such as the name or credit-
card number is encrypted (coded or scrambled) so that
other people cannot read it and potentially misuse the
information.
Segmentation The process of finding the best market segment for a
product or service.
Services Activities done by people rather than production of
physical goods. They are generally any activities except
agriculture, mining and manufacturing.
Shares Equal, fractional parts into which capital stock of a limited
company is divided.
Simply transformed Goods that involve low levels of processing. Little value
manufactures has been added to them.
(STMs)
Situational analysis An analysis of the situation in a market – political,
competition, market size, buyer trends, etc.
SMEs Small to medium-sized enterprises. Their classification
is based on turnover, number of employees (under 5
for micro, 5–19 for small and 20–200 for medium sized
businesses) and asset value.
Socio-economic A group of people with the same social or
group economic status.
Sole proprietor A business owned and operated by one person.
(trader)
Specialisation When people perform one specific job.
Spreadsheet Program that allows large amounts of numerical data to be
organised into tables for rapid calculations with changing
variables, for such things as accounts
and stock records.

Creating International Business 56

Staff turnover Employees leaving the business and having to be
replaced.
Standard of living The general level of material well-being of a
nation’s people.
Start-ups New businesses.
Statement A summary of a business’s revenues and expenses
of financial incurred during a set period of time (previously called a
performance revenue statement).
Statement of A statement showing the assets, liabilities and owner’s
financial position equity of a business at a particular time (previously called
a balance sheet).
Strategic marketing A statement summarising the potential market for the
plan proposed product or service including the target customer
demographic, buying trends, survey results, competitors,
competitive advantage, information gaps, risks.
Subsidies Payments made (usually by a government from tax
revenue) to help the producer keep prices low or
stay in business.
Subsistence/ When people provide for their own needs.
self-sufficient
Sustainable Development that meets the needs of the present
development population without endangering the ability of future
(sustainability) generations to meet their own needs.
SWOT analysis An analysis of the strengths, weaknesses, opportunities
and threats in relation to a business.
Target market The market where a business would like to sell its
products or services.
Tariff A tax levied on imports, raising the price of the
imported item.
Terms of payment The time between dispatching goods to a buyer and
receiving payment as stated in the contract. Letters of
credit are the most widely used form of payment.
Trade Buying and selling (or bartering) goods and services and
making investments in foreign countries.
Trade barriers Refers to tariffs, subsidies, quotas – and less visible ways,
such as quarantine restrictions – that create barriers to
trade between nations.
Trade liberalisation Reduction in controls over trade that are
occurring worldwide.
Trademarks Marks (name, symbol, style, etc) registered to differentiate
a business from others.
Transnational A large business organisation that has a home base in one
corporation (TNC) country, and operates partially owned or wholly owned
businesses in other countries.
Trends The general direction of movement in prices or
buying patterns.
Triple bottom line The economic, environmental and social performance
of a business.

Creating International Business 57

Underwriting Agreeing, for a fee, to take up a certain number of shares
if they are not applied for by the public as a subscription
in a new company or new issue – usually undertaken by a
financial institution.
Unlimited liability An obligation by a business owner to be personally
responsible for all the debts of the business if it fails.
Video conferencing Communication between locations transmitting
voice and picture.
Viral Internet A marketing offer sent to potential buyers by email, often
campaigns offering a product or service at a reduced rate for a
short period of time. The offer or conditions encourage
recipients to forward the email to others.
Vision statement A statement outlining the broad direction for a
business’s future.
Wholesaler A person who buys goods in large quantities from
the producer.
Winding up The process of closing down a business entity.
Work hours The number of hours the average person works in a week.
Working conditions This is usually a separate agreement to the contract of
employment and covers employment conditions like sick
leave and holidays.
World Trade International body dealing with the rules of trade between
Organization (WTO) nations. Began in 1995 replacing the General Agreement
on Tariffs and Trade (GATT).
Appendix 2 – References
Asian Development Bank
www.adb.org
Use search facility to go to ‘Business Opportunities’

Australian Trade Commission (Austrade)

www.austrade.gov.au

Corporate Information
www.corporateinformation.com/
This web site provides a good starting point for researching markets, industries
and companies worldwide.

Food and Agricultural Organisation of the United Nations (FAOSTAT)

www.fao.org/waicent/portal/statistics_en.asp

International Chamber of Commerce (ICC)

www.iccwbo.org
For INCO terms, use the search facility.

International maps – by nation

www.mapquest.com
maps.google.com.au

International Trade Centre – Aggregated Trade Statistics

www.intracen.org/tradstat/
Database provides UN import and export data by country and commodity group.

Japan External Trade Organisation

www.jetro.go.jp

TRADENZ (New Zealand)

www.tradenz.govt.nz

TradePort
www.tradeport.org/countries/index.html
Detailed research reports on a number of different products, services and
industries in countries around the world. For market research reports on countries,
follow market research link and then country library

US Commercial Service - Country Commercial Guides

www.usatradeonline.gov
Written from a USA perspective, these country guides contain useful information
on economic conditions, trade REGULATIONS, sales and DISTRIBUTION
CHANNELS and business travel.

Creating International Business 59

 World Bank Projects
www.worldbank.org/
Follow the links to ‘Projects’

World Trade Organization – International Trade Statistics

www.wto.org/english/res_e/statis_e/statis_e.htm
Overview of world trade, including statistics by sector and region.

SEARCH ENGINES
www.google.com
www.altavista.com
Search key words include export, TRADE, a particular country or a
product/service.

Creating International Business 60

 Creating International Business
Resources For Higherr E
Resource Education
du Business Courses

APEC Workin
Working Group on Trade Promotion
ebrua 2009
February

Prepared by Austrade Education Programs

Australian Trade Commission
GPO Box 2386
Canberra ACT 2601
Australia
Tel: +61 2 6201 7430 Fax: +61 2 6201 7304
Email: [email protected]
Website: www.austrade.gov.au/studentcentre/

Produced for
Asia-Pacific Economic Cooperation Secretariat
35 Heng Mui Keng Terrace Singapore 119616
Tel: +65-6891 9691 Fax +65-68919690
Email: [email protected] Website: www.apec.org

© 2009 APEC Secretariat

APEC #209-SM-03.1
ISBN 978-981-08-2400-06