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of 50,000 blouses. The goods simply did not meet its quality standards. Cancellation of the order cost Fortune Garments half a million dollars in lost sales,

2. Responding to customer needs

Orders have also been cancelled because Fortune Garments' subsidiaries are not responding quickly to customers' needs. When customers want last-minute changes to clothing, the plants cannot meet customers' tight deadlines. For example, an Australian fashion chain cancelled an order because the US plant was not able to make minor changes to some silk jackets in time for their summer sale. The lost sale cost Fortune Garments over $US 400,000,

3. Design

When the company was smaller, it had the same low-pricing strategy, but the design of its clothing was outstanding. However, nowadays, the company seems to have lost its creative energy. Its latest collections were described by a famous fashion expert as boring, behind the times and with no appeal to a fashion-conscious buyer. Other experts agreed with this opinion. The problem is that ideas are not shared between the company's designers. According to one designer, 'There's not enough contact between designers at the different production centers. The designers never meet or phone each other and they rarely travel abroad'

Consultant’s report

Michael Chau is aware that morale is low among managers and lower-level staff. He has asked a business consultant to investigate the reason for this. Here are the consultant's main findings.

Management

1.Managers of subsidiaries say they are underpaid. They are de-motivated and feel their contribution to the group's profits is undervalued.

2.The majority of managers say they should have a share in the profits of their subsidiary (5%-10% was the figure most commonly mentioned).

3. All managers reported that they did not have enough freedom of action. They want more autonomy and less control from head office over finance, pay, and sources of materials.

4. Managers need more advice on quality control, and would like more contact with staff from other subsidiaries.

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Factory workers and administrative staff

1.Staff turnover is high in most factories. Industrial accidents are common, mainly because health and safety regulations are not being properly observed.

2.Factory workers complain about their wages. They are paid according to local rates, which in some countries are very low. They are often expected to work overtime without extra pay.

3.Administrative staff said their offices are overcrowded and badly ventilated (e.g. too hot in summer, too cold in winter).

4.Supervisors from head office are often of different nationality from their staff. This causes communication problems. Many factory workers said they did not always understand their supervisors' instructions.

Task

1. Form two groups.

Group A: Discuss the problems mentioned in the Discussion document and decide how to deal with them.

Group B: Discuss the problems outlined in the Consultant's report and decide how to deal with them.

2. Meet as one group. Present the results of your discussions to each other. Then produce an action plan to solve Fortune Garments' problems.

IV. THE REGULATION OF INTERNATIONAL TRADE

1. Hurdles of trading in world markets

The expansion of international trade has both advantages and disadvantages. It does give the world’s people access to a wide range of products at attractive prices, and it fosters understanding among people of different cultures. But a country’s own economy may suffer if foreign competition is too strong.

By now, you must be aware that succeeding in any business takes work and effort due to many hurdles you encounter. Unfortunately, the hurdles get higher and more complex in world markets. This is particularly true in dealing with differences in cultural perspectives, societies and economies, laws and regulations, and fluctuations in currencies.

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Religion is an important part of any society’s culture and can have a significant impact on business operations. For example, in Islamic countries dawn-to-dusk fasting during the month of Ramadan causes workers’ output to drop considerably.

Cultural differences can also have an impact on such important business factors as human resource management. In Latin American countries, managers

are looked on by workers as authoritarian figures responsible for their well-being. No doubt, culture presents a significant hurdle for global managers. Learning about important cultural perspectives toward time, change, competition, natural resources, achievement, even work itself can be of great assistance.

Certain social and economic realities can also put some problems for international trade. Such factors as disposable and discretionary income can be critical in evaluating the potential of a market. What might seem like an opportunity of a lifetime may in fact be unreachable due to economic conditions. Technological constraints may also make it difficult or impossible to carry on effective trade. These constraints are further complicated by the tremendous geographic distances that separate some countries.

In any economy, the conduct and direction of business is firmly tied to the legal and regulatory environment. In the USA business operations are heavily impacted by various federal, state and local laws and regulations. In global markets, no single group of laws and regulations dominates. This makes the task of conducting world business even tougher. What a businessperson finds in global markets is a myriad of laws and regulations that are often inconsistent. Important legal questions related to antitrust, labor relations, patents, copyrights, trade practices, taxes, product liability and other issues are written and interpreted differently country by country. To be a successful trader in foreign countries, one might choose to begin by contacting local businesspeople and gaining their cooperation and sponsorship.

As you know, the global market doesn’t have a universal currency. One thing that makes world trade difficult today is the widely fluctuating values these currencies undergo. Understanding currency flactuations is vital to success in the global market.

Dealing with cultural differences, societal and economic factors, legal and regulatory requirements, and currency shifts are all hurdles to those wishing to trade globally. What is often a much greater barrier to international trade is the overall political atmosphere between nations. Business, economics and politics have always been closely linked. In fact, economics was once referred to as “political economy” indicating close ties between government and economics. For centuries businesspeople have tried to influence economists and government officials. Back in the 16th, 17th and 18th centuries, nations were trading goods with one another. Businesspeople at that

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time advocated an economic principle called mercantilism. Basically, the idea of mercantilism was to sell more goods to other nations than you bought from them, that is to have a favorable balance of trade. This results in a flow of money to the country that sells the most. Governments assisted in this process by charging a tariff on imports, making them more expensive. There are two different kinds of tariffs: revenue and protective. Protective tariffs are designed to raise the retail price of imported products so that domestic products will be more competitive. Revenue tariffs are designed to raise money for the government, they are commonly used by developing countries. The term that describes limiting the number of products in certain categories that can be imported is import quota. The goal here is to preserve jobs. An embargo is a complete ban on the import or export of certain products, usually due to political considerations

Vocabulary and language focus

1. Find the definitions for the terms below:

1)“political economy”

2)mercantilism

3)tariff

4)protective tariffs

5)revenue tariffs

6)import quota

7)embargo

2.Discuss the following questions:

1.What is trade protectionism?

3.How does an embargo differ from a tariff?

4.What is mercantilism?

5.Why is it important to learn cultural differences among nations when you get involved into international business?

6.What are major hurdles to successful international trade?

7.What are the most important problems you can face in the currency area?

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2. Trade Restrictions

Import restrictions are commonly classified as tariff (import duties) and non-tariff barriers.

Tariff barriers. Tariffs, or import duties, are taxes levied on imported goods primarily for the purpose of raising their selling price in the importing nation's market to reduce competition for domestic producers. A few smaller nations also use them to raise revenue on both imports and exports.

Ad valorem, specific, and compound duties. Import duties are either ad valorem, specific, or a combination of the two called compound. An ad valorem duty is stated as a percentage of the invoice value. For example, the U.S. Tariff Schedule states that flavoring extracts and fruit flavors not containing alcohol are subject to a 6 percent ad valorem duty. Therefore, when a shipment of flavoring extract invoiced at $10,000 arrives in the United States, the importer is required to pay $600 to U.S. Customs before taking possession of the goods. A specific duty is a fixed sum of money charged for a physical unit. If you were to import dynamite in cartridges or sticks suitable for blasting, you would have to pay $.37 per pound irrespective of the invoice value. When the flavoring extracts and fruit flavor just mentioned contain over 50 percent alcohol by weight, they are charged $.12 per pound plus 3 percent ad valorem.

On a $10,000 shipment weighing 5,000 pounds» you would have to pay a compound duty of $900 ($.12 x 5,000 pounds + 0.03 х $10,000 = $600 + $300). Note that a specific duty, unless changed frequently in an inflationary period, soon loses its importance, whereas the amount collected from an ad valorem duty increases as the invoice price rises. Sometimes, however, an exporter may charge prices so much lower than domestic prices that the ad valorem duty fails to close the gap. Some governments set official prices to correct this deficiency.

Official prices. These prices are included in the customs tariff of some nations and are the basis for ad valorem duty calculations whenever the actual invoice price is lower. The official price guarantees that a certain minimum import duty will be paid irrespective of the actual invoice price. It thwarts a fairly common arrangement that numerous importers living in high-duty nations have with their foreign suppliers whereby a false low invoice is issued to reduce the amount of duty to be paid. The importer sends the difference between the false invoice price and the true price separately.

Lower duty for more local input. Import duties are set by many nations in such a way as to encourage local input. For example, the finished product ready for sale to the

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consumer may have a 70 percent ad valorem duty. However, if the product is imported in bulk so that it must be packaged -in the importing nation, the duty level may be at 30 percent. To encourage some local production, the government may charge only 10 percent duty on the semifinished inputs. These situations can provide opportunities for foreign manufacturers of low-technology products, such as paint and toilet articles, to get behind a high tariff wall with very modest investments.

Nontariff barriers. Nontariff barriers (NTBs) are the names given to all forms of discrimination against imports other than the import duties. As nations have reduced duties, the nontariff barriers, which are either quantitative or nonquantitative, have.assumed greater importance.

Quantitative. Quotas, a quantitative barrier, are numerical limits for a specific kind of good that a country will permit to be imported without restriction during a specified period. If the quota is absolute, once the specified amount has been imported, further importation for the rest of the period (usually a year) is prohibited.

Some goods are subject to tariff quotas, which permit a stipulated amount to enter the country duty free or at a low rate, but when that quantity is reached, a much higher duty is charged for subsequent importations. This process is repeated annually.

Quotas are generally global; that is, a total amount is fixed without regard to source. They may also be allocated, in which case the government of the importing nation assigns quantities to specific countries. For example, the United States allocates quotas for specific tonnages of sugar to 25 nations. Because of their nature, allocated quotas are sometimes called discriminatory quotas.

More recently, because of the general agreement among nations against imposing quotas unilaterally, governments have negotiated voluntary export restraints (VERs) with other countries. Although a VER is a generic term for all bilaterally agreed measures to restrict exports, it has a stricter legal definition in the United States—"an action unilaterally taken to restrict the volume or number of items to be exported during a given period and administered by the exporting country. It is 'voluntary' in the sense that the country has a formal right to eliminate or modify it. It is also voluntary in that the exporting nation may prefer its consequences to any trade barriers the importing nation might impose.

To avoid formal restrictions on automobile imports by the United States, the Japanese government limits its exports to 1.65 million units. Interestingly, although fewer Japanese cars were imported into this country after the quotas were imposed, sales revenues went up because the Japanese automakers began to export more expensive models.

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Orderly marketing arrangements. Orderly marketing arrangements are VERs consisting of formal agreements between governments to restrict international competition and preserve some of the national market for local producers. They differ from unilaterally imposed quotas and other trade barriers in that they result from negotiations between exporting and importing countries. Usually, they stipulate the size of import or export quotas that each nation will have for a particular good. Agreements that involve industry participation are often called voluntary restraint arrangements.

Nonquantitative nontariff barriers. Many international trade specialists claim that the nonquantitative nontariff barriers are the most significant non-tariff barriers. Governments have tended to establish nontariff barriers to obtain the protection formerly afforded by import duties. Nonquantitative nontariff barriers may be classified under three major headings: (1) direct government participation in trade, (2) customs and other administrative procedures, and (3) standards.

Direct government participation in trade. The most common direct government participation is the export subsidy, a direct (or indirect) payment from a country's government to one or more of its export industries. This payment is usually related to the level of exports, and thereby enables exporters to charge a price that is lower than would otherwise be charged. With lower prices, exporters are then able to gain a larger share of the world market.

The economic effects of export subsidies are symmetrical with those of import tariffs. Just as tariffs cause production to expand in the import-competing sector, export subsidies lead to a greater level of output of exportables than would otherwise occur. Resources are drawn from import-competing sectors. Economic waste is created because the cost of increasing output to expand export sales exceeds the revenue earned from these sales in the international market. Furthermore, because export subsidies encourage the diversion of sales away from a country's internal market to the world market, internal prices of exportables rise. Consumers lose in another way as well. Specifically, they become liable for the additional taxes that. are required to finance the export subsidy.

Export subsidies take on many forms in the real world. These include tax rebates, subsidized loans to foreign purchasers, insurance guarantees, government funding for research and development, guarantees against losses, and direct grants or subsidized loans. As just noted, both international law and the laws of countries such as the United States proscribe export subsidies. Under both sets of laws, the legal means for dealing with export subsidies is to impose a tariff on the subsidized exports, known as

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a countervailing duty, in order to offset the subsidy and raise the price of the product to the presubsidy price.

Health and safety standards. Governments often regulate the production and distribution of products deemed to be hazardous to the health and safety of their citizens. Sometimes, however, such standards are established merely to provide a mechanism for protecting domestic producers from foreign competition. Many such examples exist. For instance, in the mid-1980s, the government of Japan announced that foreign-made skis would not be allowed into Japan because they were unsafe. The reason cited for this regulation was a claim (no doubt encouraged by local manufacturers) that Japanese snow differed from snow in Europe or in the United States. After protest from foreign governments, the ban was rescinded.

The EU also uses such practices to limit trade. In 1989 it imposed an embargo on beef imports containing growth hormones. This ban has had a considerable effect on U.S. beef exports, since most cattle raised in the United States are treated with these (USDAapproved) hormones. The U.S. government has taken the position that the ban represents an illegal trade measure, since there is no conclusive evidence that the growth hormone has had any harmful effects on humans. It responded by raising retaliatory, prohibitive tariffs on $100 million worth of European agricultural exports. Since then, both sides in the dispute have eased their positions somewhat, with the EU allowing in hormone-treated beef for pet foods and the United States lowering a portion of its tariffs, but the ban continues on beef for human consumption.

In another squabble over health standards, the EU announced its intent to bar imports of pork and beef from the United States, because of its perception that U.S. slaughterhouses do not maintain sufficient hygiene standards. After a year of negotiations, the two sides signed an agreement in 1992 that recognizes equivalency between the veterinary inspection systems of the United States and the EU.

An imposition of health and safety standards by national governments is a legitimate form of government behavior. Such standards aim to guarantee that lives are not jeopardized unduly by exposure to the potentially adverse effects associated with certain products. However, these standards can also be a strong incentive to local producers for insisting that foreign products be made to conform to local standards or that they be restricted form the local markets even in situations where the health or safety of the local populace is not threatened. In either event, the result is for the prices to rise and for local producers to claim a larger share of the market.

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Protection of intellectual property rights. Intellectual property is defined as the innovative or creative ideas of inventors, artists or authors. Patent, copyright and trademark laws exist to provide incentives to create intellectual properties by ensuring that the owners of the intellectual properties maintain exclusive control over these ideas, at least for a certain period of time. For instance, patents allow inventors the opportunity to recover their investment and the costs of creating and marketing inventions. Copyrights give authors control over the reproduction, dissemination and public performance of their works. Trademarks assure consumers about product characteristics, such as quality. Different countries provide different levels of intellectual property protection, and this can have significant effects on international trade. For instance, the U.S. computer software industry estimates that 49 out of 50 software programs used in China are pirated and calculates its lost export sales to China to stand at $500 million annually. U.S government measures aimed at Chinese copyright piracy in 1996 almost led to a trade war between the two countries.

Similarly, another big problem in international trade is trade in counterfeit goods. Such goods are sold in international markets with fraudulent (or counterfeit) trademarks. Firms with valid trademarks lose more than sales due to counterfeit goods. Fraudulent copies are often substandard and perform poorly. Legitimate. manufacturers may be blamed for this performance and thereby lose their reputation and further sales of these and other products.

Because of the problems that inadequate intellectual property rights protection can cause, countries such as the United States pushed for and achieved expanded protection as part of the Uruguay Round of trade talks. The agreement on this issue, known as the Trade Related Intellectual Property Rights (TRIPs) agreement, covers patents, trademarks, copyrights, and industrial designs. It provides for minimal standards of protection in all member countries of the WTO, the organization that enforces the agreement. In some areas, such as copyrights, the agreement applies the principles of long standing international agreements. In other areas, such as patent protection, the agreement provides for higher standards than were previously required.

Vocabulary and language focus

1. Define the following terms and give Russian equivalents to them.

1)ad valorem duty

2)specific duty

3)tariff quotas

4)absolute quota

5)allocated quota

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2. Match up the words on the left with their definitions on the right.

3. Fill in the blanks with prepositions, where necessary

1.Russian government decided to levy a tax … imported Japanese cars.

2.The official price guarantees that a certain minimum import duty will be paid irrespective … the actual invoice price.

3.Orderly marketing arrangements differ … unilaterally imposed quotas and other trade barriers … that they result … negotiations … exporting and importing countries.

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4.The legal means … dealing … export subsidies is to impose a tariff … the subsidized exports.

5.Countervailing duty is used to offset … the subsidy and raise the price … the product … the presubsidy price.

6.These products are hazardous … the health and safety … our citizens.

7.There were some squabbles … health standards recently.

8.Many goods are sold … international markets … fraudulent trademarks.

9.Trademarks assure consumers … product characteristics, such as quality.

4. Translate into English.

1.Правительства развивающихся стран усиливают протекционистскую политику, защищая национальную промышленность от конкуренции иностранных компаний путем введения высоких таможенных барьеров и принятия законодательных актов, запрещающих закупки тех видов продукции и услуг, которые производятся или могут быть произведены национальными фирмами.

2.Для тарифного регулирования применяются следующие виды пошлин:

-адвалорные, исчисляемые в процентах к таможенной стоимости товаров;

-специфические, устанавливаемые к единице измерения товаров;

-сезонные пошлины, устанавливаемые на отдельные виды товаров (преимущественно товаров сельскохозяйственного происхождения) сроком не более чем шесть месяцев.

3.Под экспортными субсидиями понимаются пособия, преимущественно в денежной форме, предоставляемые государством предприятиям для стимулирования экспорта и повышения конкурентоспособности их продукции на зарубежных рынках путём предоставления им возможности снижать экспортные цены без сокращения прибыли.

4.Cубсидии являются таким же существенным элементом протекционизма, как и пошлины, но если последние устанавливаются для защиты отечественной продукции на внутреннем рынке с целью расширения производства в импортозамещающем секторе экономики, то экспортные субсидии – на внешнем. При предоставлении экспортных субсидий увеличивается выпуск экспортных товаров в результате отвлечения ресурсов из отраслей, конкурирующих с импортом. Экономические потери возникают из-за того, что стоимость выпуска экспортной продукции превышает доход от экспортных продаж. Кроме того, поскольку при предоставлении экспортных

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субсидий увеличивается отток товаров с внутреннего рынка на внешний, внутренние цены на экспортные товары возрастают. Потребителям приходится также платить дополнительные налоги, которые требуются для финансирования экспортных субсидий. В то же время экспортные субсидии способствуют стабилизации внутреннего рынка и могут улучшить положение страны в международной торговле.

Understanding the main points

1.What effects on the economy of the country where they are imposed do tariffs have?

2.What is the reason for governments to set official prices?

3.What are VERs?

4.What nonquantitative nontariff barriers can you name?

5.What is the legal means to deal with export subsidy?

6. How can health and safety standards be used by domestic producers?

7.What is intellectual property?

8.What is the situation with trade in counterfeit goods in Russia? Give examples and statistics, if you know some.

3. Organizations that regulate international trade

To ensure that differences are resolved and that international business is conducted in a fair and orderly fashion, the countries of the world have created a number of international organizations that facilitate world trade. Philosophically, most of the groups listed in Table A.1 support the basic principle of free trade. They agree that each nation ultimately benefits if it trades freely, because it is exchanging the goods and services it produces most efficiently for goods and services it produces less efficiently.

United Nations Agencies. Two international organizations – the International Monetary Fund and the World Bank – are concerned with financing international trade. Both were established under the auspices of the United Nations in 1945, and both are funded by contributions from its 149 members. The International Monetary Fund lends money to countries that are having trouble with their balance of payments. The World Bank, officially known as the International Bank for Reconstruction and development, provides low-interest loans for specific projects.

Trade Pacts. Within specific regions of the world, a number of countries have formed economic communities to encourage trade among member nations. Although specific rules vary from group to group, these communities generally eliminate

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special taxes and other trade barriers among members and establish uniform barriers against goods entering the region from nonmember countries. There are currently eleven economic communities around the world, the best known being the European Economic Community (EEC), or Common Market, which includes most of Western Europe.

The General Agreement on Tariffs and Trade (GATT) is a large-scale trade pact established in the aftermath of World War II. GATT is actually two things: a treaty and an organization of about 300 people in Geneva who administer the treaty. Under the terms of the treaty, GATT members (which now number 92) have reduced taxes on imported goods from an average of 40 to 5 percent. Representatives from each GATT country meet about once a month to discuss trade issues, and individual members serve on various committees and panels to iron out differences among member nations. But the agency has no legal power to enforce its rulings. In recent years, many countries have erected other types of barriers that GATT has been unable to counteract. The United States and the Common Market – which account for 40 percent of world trade – have been among the worst offenders in ignoring GATT’s rulings and negotiating “voluntary” trade restrictions with selected trading partners. The limits of Japanese auto exports to the United States are a case in point. U.S. officials hope that an that an upcoming round of GATT negotiations will liberalize international trade in services and agriculture.Table A.1 International Organizations That Foster World Trade

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Economic Summit Meetings. Apart from participating in formal organizations that facilitate world trade a number of countries also hold occasional economic summit meeting with key trading partners. These policy-making sessions are generally attended by the finance ministers of the countries involved and are called to deal with such issues as exchange rates and trade imbalances. Because they are attended by high-ranking government officials, these meetings are quite influential in shaping trade relationships.

In recent years, the United States has relied increasingly on such meetings to resolve perplexing trade problems, either among the “group of five” (United States, Britain, France, West Germany and Japan), the “group of Seven (group of five plus Canada and Italy), or the “group of ten” (group of seven and Belgium, Netherlands, and Sweden, plus Switzerland, which joined late). In 1985, for example, thew group of five met in New York to hammer out an agreement to lower the value of the dollar relative to other currencies. In 1986, a meeting of the group of seven was convened in Tokyo to expand on the actions taken in New York. Participants at the Tokyo meeting agreed to attempt to stabilize exchange rates by coordinating domestic economic policies.

As an added incentive to exporting, the government also grants tax benefits to companies engaged in international business. Companies are allowed to set up foreign sales corporations (FSCs), marketing subsidiaries that can exempt some of their

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income taxes on profits from exports. The federal government also offers insurance against some of the political and economic risks associated with doing business abroad. The government-sponsored Foreign Credit Insurance Association and the Overseas Private Investment Corporation offer coverage for losses due to expropriation (takeover of the business by a foreign government), war, revolution, insurrection, credit defaults, and currency exchange problems.

Vocabulary and language focus

1.Find the definitions for the following terms:

-international trade organization

-International Monetary Fund

-The World Bank

-General Agreement on Tariffs and Trade

-Producers’ cartels

-Common market

-Foreign trade zones

-The International Development Organization

-Domestic International Sales Corporation

2.Discuss the following questions:

1.Why do the nations participating in international tarde join together?

2.What is the primary purpose of the International Monetary Fund and the General Agreement on Tariffs and Trade?

3.How does a common market work?

4.Why do countries enter into common markets agreements?

3. Look at the history of the European Union

1957. The European Economic Community (EEC) was founded in order to create a common market in which tariffs and quotas between member countries would be progressively eliminated. The six original member countries were Belgium, France, Italy, Luxembourg, the Netherlands and West Germany.

1973. Denmark, Ireland and the UK joined.

1981. Greece joined.

1981. Portugal and Spain joined.

1987. The single European Act created a single economic are from 1st January 1993, called the European Community (EC).

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1991. The Maastricht Treaty was signed, reinforcing economic and monetary union. 1993. In November the organization became the European Union (EU).

1995. Membership increased to 15 countries as Austria, Finland and Sweden joined the Union.

1999. The single European currency, the euro, was launched.

Communication skills

1.Find the information about the activities of the EU and make a presentation.

2.Speak about the position of euro in the international exchange market.

3. The World Trade Organization

Reading

The World Trade Organization came into being in 1995. One of the youngest of the international organizations, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT) established in the wake of the Second World War. So, while the WTO is still young, the multilateral trading system that was originally set up under GATT is already 50 years old.

The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on average by 6% annually. Total trade in 1997 was 14-times the level of 1950. GATT and the WTO have helped to create a strong and prosperous trading system contributing to unprecedented growth. The system was developed through a series of trade negotiations, or rounds, held under GATT. The first two rounds dealt mainly with tariff reductions but later negotiations included other areas such as antidumping and non-tariff measures. The latest round – the 1986-1994 Uruguay Round – led to the WTO’s creation.

The WTO’s overriding objective is to help trade flow smoothly, freely, fairly and predictably. It does this by:

-administering trade agreements

-acting as a forum for trade negotiations

-settling trade disputes

-reviewing national trade policies

-assisting developing countries in trade policy issues, through technical assistance and training programmes

-cooperating with other international organizations

Structure. The WTO has more than 130 members, accounting for over 90% of world trade. Over 30 others are negotiating membership. Decisions are made by entire

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membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements have been ratified in all members’ parliaments.

The WTO’s top level decision making body is the Ministerial Conference which meets at least once every two years. Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The

General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.

At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council. Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.

The first Ministerial Conference in Singapore in 1996 added three new working groups to this structure. They deal with relationship between trade and investment, the interaction between trade and competition policy and transparency in government procurement.

At the second Ministerial Conference in Geneva in 1998 ministers decided that the WTO would also study the area of electronic commerce, a task to be shared out among existing councils and committees.

Secretariat. The WTO Secretariat, based in Geneva, has around 500 staff and is headed by a director-genera. It does not have branch offices outside Geneva. Since decisions are taken by the members themselves, the Secretariat does not have the decision-making role that other international bureaucracies are given.

The Secretariat’s main duties are to supply technical support for various councils and committees and ministerial conferences, to provide technical assistance for developing countries, to analyze world trade, and to explain WTO affairs to the public and media. The Secretariat also provides some forms of legal assistance in the dispute settlement process and advises governments wishing to become members of the WTO. The annual budget is roughly 117 mln Swiss francs.

The WTO’s rules – the agreements – are the result of negotiations between the members. The current set was the outcome of the 1986-94 Uruguay Round negotiations which included a major revision of the original GATT.

GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also created new rules for dealing with trade in services, relevant aspects of

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intellectual property, dispute settlement and trade policy reviews. The complete set runs to some 30000 pages consisting of about 60 agreements and separate commitments (called schedules), made by individual members in specific areas such as lower customs duty rates.

Through these agreements, the WTO members operate a non-discriminatory trading system that spells out their rights and their obligations. Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.

Goods. It all began with trade in goods. From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other trade barriers; the text of General Agreement spelt out important rules, particularly non-discrimination.

Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in goods. It has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as state trading, product standards, subsidies and actions taken against dumping.

Services. Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport companies looking to do business abroad can now enjoy the same principles of freer and fairer trade that originally only applied to trade in goods. These principles appear in the new General Agreement on Trade in Services (GATS). The WTO members have also made individual commitments under GATS stating which of their services sectors they are willing to open to foreign competition, and how open those markets are.

Intellectual property. The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas and creativity. The rules state hoe copyrights, trademarks, geographical names used to identify products, industrial designs, integrated circuit layout-designs and undisclosed information such as trade secrets – “intellectual property” – should be protected when trade is involved.

Dispute settlement. The WTO’s procedure for resolving trade quarrels under the

Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly.

Countries bring disputes to the WTO if they think their rights under the agreement are being infringed. Judgements by specially-appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.

The system encourages countries to settle their differences through consultation. Failing that, they can follow a carefully mapped out, stage-by-stage procedure that

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includes the possibility of a ruling by a panel of experts, and the chance to appeal the ruling on legal grounds.

Policy review. The Trade Policy Review Mechanism’s purpose is to improve transparency, to create a greater understanding of the policies that countries are adopting, and to assess their impact. Many members also see the reviews as constructive feedback on their policies.

All WTO members must undergo periodic scrutiny, each review containing reports by the country concerned and the WTO Secretariat. Over 45 members have been reviewed since the WTO came into force.

Vocabulary and language focus

1. Give English equivalents form the article to the following Russian words and phrases.

1)многосторонняя торговая система

2)расти ежегодно на 5%

3)техническая помощь

4)ратифицировать соглашения

5)предшественник ВТО

6)обеспечивать юридическую помощь

7)процесс урегулирования конфликтов

8)гибкость в выполнении обязательств

8)приложение, дополнение

9)пользоваться принципами свободной торговли

10)решать торговые споры

11)проводить правила (законы) в жизнь

12)обеспечивать, гарантировать

13)поэтапная процедура

14)подвергаться тщательной проверке

2.Fill in the blanks with prepositions, where necessary.

1.The use of a majority vote was extremely rare … the WTO’s predecessor.

2.The complete set of the WTO’s rules runs … about 30000 pages.

3.The WTO members operate ….. a non-discriminatory trading system that spells … their rights and obligations.

4.Developing countries have some flexibility … implementing their commitments.

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5.The WTO’s procedure … resolving trade quarrels ….. the Dispute Settlement

Understanding is vital

6.Countries can settle their differences … through consultation.

7.Many members of the WTO see the reviews as constructive feedback …their policies.

Understanding the main points

1.What role does the WTO plays nowadays? 2.Speak about its activities.

Decide whether the following statements are true or false.

1.GATT and the WTO are two different organizations which have similar purposes.

2.The WTO assists only developed countries.

3.One of the purposes of the WTO is to settle trade disputes.

4.The General Council meets only once in two years.

5.The WTO Secretariat doesn’t have branch offices outside Geneva.

6.The WTO Secretariat plays the decision-making role.

7.The WTO doesn’t have its own rule-book for trade in goods.

V. INTERNATIONAL TRADE AND GLOBAL MARKETING

1. Products: the basis of commerce

Types of products.

There are many ways to categorize products, the most basic being to distinguish between goods and services. Another common approach among marketers is to distinguish between consumer and industrial items. The consumer and industrial markets have different purchasing patterns, and these differences have important implications for companies trying to optimize their marketing mix.

Consumer products.

Most marketing specialists divide the broad category of consumer products into three subgroups, according to the approach people take to shopping. In general, if the majority of people shop for an item in a particular way, marketers categorize it in one of the groups. However, any particular product might fall into more than one category, depending on the viewpoint of individual buyers. For example, one person might get the most convenient haircut, another might shop around for the best deal and a third might seek out a particular stylist. Because of differences in the way items are purchased, marketers tend to emphasize different marketing tools for each subgroup.

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Convenience goods and services. The things people buy frequently, without much conscious thought, are called convenience goods – inexpensive items like toothpaste, soda, and razor blades. Routine personal services like dry cleaning and haircuts are called convenience goods too. Because the buyer is already familiar with these things, habit is a strong influence in the purchase decision. People buy the same old brand or go to the same old shop because it is easy to do so. Unless something has made them particularly conscious of price, they often don’t even think about the relative cost of alternatives that could serve their purpose just about as well.

To cultivate these strong buying habits, many companies that specialize in convenience goods use advertising and packaging to create an easily recognizable image. Special pricing and promotion tools may also be important element in the marketing mix.

Services that qualify as “conveniences” are typically sold on the basis of location and personal rapport between buyer and seller. A person will generally go to the closest dry cleaner, for example, unless the price is outrageous and service is dreadful.

Shopping goods and services. Purchases that require more thought fall in the category of shopping goods. These are fairly important things that a person doesn’t buy every day, like new stereo or a washing machine. People who are planning to buy such things tend to have a general idea of what they want but need more information to make a decision. The shopping process is a form of education; the more unusual and expensive the product, the more the buyer checks around to compare models, features and prices. Various sources of information are consulted – advertisements, salespeople, friends and relatives.

Because buyers shop around for the best deal on these sorts of products, the retailer plays an important role in the purchase. Personal selling is often a key factor, particularly if the product is relatively complicated – like personal computer, for example. The buyer is also influenced by price, product features and advertising.

Specialty goods and services. People use a different approach when they are shopping for specialty goods, items that have been mentally chosen in advance and for which there is no acceptable substitute. These are the goods or services the buyer especially wants and will seek out, regardless of location or price. The buyer is attracted mainly by the features of the product, although advertising may have helped create an aura of special value.

Industrial products

Industrial buyers tend to base their selection of goods and services on objective criteria, because they must justify purchase to their employers. However, their specific

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approach to buying varies, depending on the purpose and price of the item being procured. Marketers consider these differences in making decisions about elements of the marketing mix.

There are three types of industrial products, two of which are considered expense items. In other words, some goods and services are relatively inexpensive and are generally used within a year of purchase. Those that are more expensive and have a longer useful life are considered capital items. Buying behavior is different for these two classes of products.

Industrial support consumables. Industrial products that are relatively inexpensive items used to support business – are called support consumables. As they are generally used within one year, they are considered expense items.

Industrial buyers shop for these supplies and services in much the same way that consumers shop for convenience goods. As support consumables are relatively inexpensive from the company’s standpoint, price is not usually a major consideration. Nor is personal selling important, because the buyer is already familiar with the product. The most important factors in the buying decision are generally availability, familiarity and special ways of promotion.

Industrial process consumables. Goods and services that are used in the basic operations of a business – things like raw materials and component parts required in a manufacturing process – are process consumables. Like support consumables, process consumables are used up relatively quickly and must be replaced on a regular basis; thus they are also expense items. However, buyers devote more attention to buying them because process consumables are essential to the operation of a company and may have a significant impact on profits. With these products availability is the most important consideration – then price. Because the company’s operations depend on these goods and services, the buyer may line up two sources of supply. In addition, the purchasing decision is often shared – by engineers, production people, and purchasing agents. In buying this type of product personal selling may be an important factor.

Capital items and long-term services. Personal selling also influences the purchase of capital items, such as new factories or major pieces of equipment. In purchasing these items industrial buyers behave much like consumers who are purchasing shopping goods. They educate themselves about the alternatives before making a decision. A person-to-person explanation of the product’s features is generally an important part of the education process. If a capital item is particularly complicated or expensive, the purchase decision is often based on written, competitive bids. These bids are evaluated by a team of top managers and technical people who are carefully

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weigh product features and price. Often the selection process takes several months and requires a strong personal selling effort on the part of competing vendors. A similar purchasing process is employed when companies make long-term commitments to establish service relationships. When a company decides to hire an advertising agency or an accounting firm, for example, both parties hope the relationship will be an enduring one. The buyer shops carefully before selecting the service firm, making an effort to become educated about the pros and cons of various alternatives. Again, personal selling is a key element in the decision.

The product mix

Regardless of the type of product they sell, most companies continually reevaluate their markets and add or drop products as needed to meet changing demands. In this way they develop a product mix, a collection of items offered for sale. The simplest product mix consists of a single product. But most companies consider they need more than one product to sustain their sales growth. So, they create a product line, a group of products that are physically similar or are intended for similar markets. A product line may be narrow, consisting of a limited range of styles and colors, or it may include a broad range of similar products. A third alternative is an expanded product mix made up of any number of widely diversified product lines. Sears Roebuck and Company, for example, not only sells a variety of products in its retail outlets but has also added real estate, investment, insurance and credit services to its product mix.

Before deciding whether to stay with a single product, to produce a line of related products, or develop several product lines, a company must consider the risks and benefits of each approach. Some companies opt for limited product offerings because this method is economical: they can keep production costs per unit down and also limit selling expenses to a single sales force. Companies with relatively narrow product mix hope to achieve economies of scale by developing a specialized work force and finding a dependable source of process consumables (which are preferably interchangeable to some extent) for use in producing their various goods or services. Other companies follow the philosophy that a broad product mix is insurance against shifts in technology, taste or economic conditions.

Vocabulary and language focus

1.Give definitions to the following types of products and translate them into Russian.

1)convenience goods

2)shopping goods and services

3)specialty goods and services

4)industrial support consumables

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5)industrial process consumables

6)capital items

2.Find words or phrases in the text which mean the same as the following.

1)to develop buying habits

2)the way in which smth happens or develops

3)to obtain, esp. By effort or careful attention

4)the explanation, which a salesperson makes directly to a customer

5)complete list of all products that a company offers for sale

6)group of products which are physically similar or which are intended for similar markets

7)to make a choice

8)to control; prevent from increasing

9)reliable (source)

10)to keep in existence over a long period of time; to maintain

Understanding the main points

Decide whether the following statements are true or false.

1.Shopping goods are products, that are readily available, low-priced and heavily advertised and that consumers buy often and quickly.

2.Personal selling is very important when we want to buy shopping goods.

3.When people are shopping for specialty goods, they care a lot about the price.

4.Expense items are relatively expensive industrial products that have a long life and are used in the operation of the business.

5.Buyers are shopping for industrial process consumables in the same way that consumers are shopping for convenience goods.

6.A person-to-person explanation is very important in purchase of capital items.

7.Some companies opt for limited product offerings because this method is economical.

Case Study

Case 1. A Problem in Global Marketing

Universal Foods, Inc., a major company with offices throughout the United States, has made a decision to enter the international food market. Its food products include peanut butter, jellies, jams, cereals, and cookies. The Marketing Director, Wilbur Parks, wants to choose some of Universal Foods' best-selling products to export to

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several foreign markets. However, the marketing division has not yet decided which global marketing strategy to use. As a matter of fact, the division cannot come to agreement on this basic question, and, therefore, the product development process has not gotten off the ground.

The marketing division is divided into three camps in regard to marketing methods. Susan Stewart wants very much to use the phased internationalization strategy. She would like to visit various European and Asian countries and buy research to find out exactly what the people in those countries want in terms of new food products. Only after doing market research on product planning and development would she make a decision. Being a firm advocate of extensive consumer research and analysis, Susan likes to fine-tune the marketing strategy based on reactions from the marketplace.

Max Buchanon believes the global marketing approach is the only way to go. He wants to study the newly emerging needs of consumers in Europe and Asia, with special attention to consumer typology and behavior patterns. A market segmentation job would be his first priority. Max has always followed marketing trends, and he knows the global marketing strategy is certainly the trendiest today. Isabelle Larsen has been arguing strongly for the shot-in-the-dark strategy. She has the feeling that foreign consumers will go for Universal Foods' peanut butter, and she is willing to use the "let's try and see" approach, even though it is much riskier than phased internationalization or global marketing. She is aware of the low level of international convertibility of food products, but she believes Universal Foods' peanut butter can be successful in the worldwide export business, just as Coca-Cola and McDonald's are. Isabelle is working day and night to convince Wilbur Parks, Susan Stewart, and Max Buchanon that Universal Foods' peanut butter should be developed for global markets. Unfortunately, she is seen as being somewhat irresponsible and unimaginative by the other members of the marketing division.

Questions

1.How can Universal Food's marketing division arrive at a sound decision about a global marketing strategy?

2.What global marketing strategy should Universal Foods choose? Why?

3.What should the marketing division do after choosing the marketing strategy?

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4. How can Isabelle Larsen convince the other marketers that the shot-in- the-dark strategy is worth trying?

2. Pricing strategies

Pricing, the third element of the marketing mix, is an important and complex consideration in formulating the marketing strategy. Pricing decisions affect other corporate functions, directly determine the firm’s gross revenue, and are a major determinant of profits.

Pricing, a controllable variable. Most of marketers are aware that effective price setting consists of more that mechanically adding a standard markup to a cost. To obtain the maximum benefits from pricing, management must regard it in the same manner as it does other controllable variables, that is pricing is one of the marketing mix elements that can be varied to achieve the marketing objectives of the firm.

For instance, if the marketer wishes to position a product as a high-quality item, setting a relatively high price will reinforce promotion that emphasizes quality. However, combining a recognizably low price with a promotional emphasis on quantity could result in an incongruous pairing that would adversely affect its credibility with the consumer – the low price might be interpreted as the correct price for an inferior product. Pricing can also be determinant in the choice of middlemen, because if the firm requires a wholesaler to take title, stock, promote, and deliver the merchandise, it must give the wholesaler a much larger trade discount than would be demanded by a broker, whose services are much more limited.

These examples illustrate one of the reasons for the complexity of price setting – the interaction of pricing with the other elements of the marketing mix. In addition, two other sets of forces influence this variable:

1)interaction between marketing and the other functional areas of the firm;

2)environmental forces.

Interaction between marketing and the other functional areas. To illustrate this point, look ate the following:

1.The finance people want prices that are both profitable and conductive to a steady cash flow.

2.Production supervisors want prices that create large sales volumes, which permit long production runs.

3.The legal department worries about possible antitrust violations when different prices are set according to type of customer.

4.The tax people are concerned with the effects of prices on tax loads.

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5. The domestic sales manager wants export prices to be high enough to avoid having to compete with company products that are purchased for export and then diverted to the domestic market

The marketer must address all these concerns and also consider the impact of the legal and other environmental forces.

International standardization. Companies that pursue a policy of unifying corporate pricing procedures worldwide know that pricing is acted on by the same forces that militate against the international standardization of the other marketing mix components. Pricing for the overseas markets is more complex because management s must be concerned with two kinds of pricing: 1) foreign national pricing, which is domestic pricing in another country; 2) international pricing for exports.

Foreign national pricing. Many foreign governments in their fight against inflation have instituted price controls, and the range of the products affected varies immensely from country to country. Some governments attempt to fix prices on just everything, while others are concerned only with essential goods. Unfortunately, no agreement exists on what is essential, so in one market the price of gasoline, food products, tires, and even wearing apparel may be controlled, while in another market only the prices of staple foods can be fixed. In nations with laws on unfair competition, the minimum sales prices may be controlled rather than the maximum. The international marketer must be watchful of a tendency of many nations, especially EC members, to open up their markets to price competition by weakening and even abolishing retail price maintenance laws.

Prices can vary because of appreciable cost differentials on opposite sides of a border. One government may levy higher import duties on imported raw materials or may subsidize public utilities, while another may not. Differences in labor legislation will cause labor costs to vary. Competition among local suppliers may be intense in one market, permitting the affiliate to buy inputs at better prices that those paid by an affiliate in another market, which must purchase raw materials from a single supplier, possibly a government monopoly.

Competition on the selling side is also diverse. Frequently, an affiliate in one market will face heavy local competition and be severely limited in the price it can charge, while in a neighboring market, a lack of competition will allow another affiliate to charge a much higher price. As regional economic groupings reduce trade barriers among members, such opportunities are becoming fewer because firms must then meet regional as well as local competition.

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Because the firm, for a number of reasons, does not introduce a new product simultaneously in all markets, the same product will not be in the same stage of the product life cycle everywhere. In markets where it is in the introductory stage, there is an opportunity to charge a higher “skimming” price or a low “penetration” price, depending on such factors as market objectives, patent protection, price elasticity of demand, and competition. As the product reaches the maturity or decline stage, the price may be lowered, if doing so permits a satisfactory return. Because life cycles vary among markets, prices too will be different.

International Pricing.

International pricing involves the setting of prices for goods produced in one country and sold in another. A special kind of exporting, intra-corporate sales, is exceedingly common among worldwide companies as they attempt to rationalize production by requiring subsidiaries to specialize in manufacture of some products while importing others. Their imports may consist of components that are assembled into the end product, such as engines made in one country that are mounted in car bodies in another, or they may be finished products imported to complement the product mix of an affiliate. No matter what the end use is, problems exist in setting an intra-corporate price (transfer price).

As it is possible for a firm as a whole to gain while both the buying and selling subsidiaries “lose” (receive prices that are lower than would be obtained through an outside transaction), the tendency is for transfer prices to be set ate headquarters. The reason for this apparent anomaly is that the company obtains profit from both the seller and the buyer.

The selling affiliate would like to charge other subsidiaries the same price that it can charge all the customers, but, when combined with transportation costs and import duties, such a price may make it impossible for the importing subsidiary to compete in its market. If headquarters dictates that a lower-than-market transfer price can be charged, the seller will be unhappy because its profit-and-loss statement suffers. This can be a very real headache to personnel whose promotion bonuses depend on the bottom line.

Both foreign and the U.S government are also interested in profits and the part transfer prices play in their realization, because of the influence of profits on the amount of tax paid. American and foreign tax agents have become aware that because of differences in tax structures, a firm can obtain meaningful profits by ordering a subsidiary in a country where corporate taxes are lower. The profit is earned where less income tax is paid, and the company clearly gains. Transfer prices may also be employed to

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circumvent currency restrictions. When a country is suffering from a lack of foreign exchange, it may impose controls that totally prohibit, or at least place a low limit on, the amount of profit that can be repatriated. Suppose Country A, lacking dollars, places severe controls on dollar transactions. There is a trade with Country B, which does have dollars or another convertible currency. The home office could order its subsidiary in A to buy from the B affiliate at a price well over cost, which would transfer A’s profit to B. Once in B, the profits could be sent home. He same strategy could be followed in any situation where it appeared necessary to either reduce A’s profits or take them out of the company, such as:

1)imminent currency devaluation.

2)government pressure to reduce prices because of excessive profits.

3)labor’s clamor for higher wages based on high profits earned.

The manipulation of transfer prices for the reduction of income taxes and import duties or avoidance of exchange controls has caused many governments to insist on arm’s- length prices – prices charged to unrelated customers.

Despite the advantages of price manipulation, many large American companies most often use the market price as the transfer price. One imposing reason is government intervention, in addition, it is much easier to monitor and evaluate foreign managers’ performance, when the market price is the transfer price.

Vocabulary and language focus

1.Give Russian equivalents to the following words and word-combinations.

1) to add a standard markup to a cost

2) long production runs

3) to pursue a policy

4) to militate against smth.

5) foreign national pricing

6) retail price maintenance law

7) transfer price

8) to circumvent restrictions

9) imminent currency devaluation

2.Complete the following sentences using suitable words or phrases from the list below.

To repatriate; return; maturity; to pursue a policy; headquarters; profit; decline; tax loads; transfer price; to circumvent

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1.Many companies _______________ of unifying corporate pricing procedures.

2.The tax people are usually concerned with the effects of prices on ________ .

3.As the product reaches _________ or __________ stage, the price may be lowered, if doing so permits a satisfactory ____________ .

4.Usually the __________ is responsible for setting a ___________ .

5.The law is very strict, so there are no ways _________ it.

6.The amount of _________ which can be ___________ form this country is limited.

3. Discussion questions

1.What factors are taken into consideration while setting a price?

2.Why is pricing for overseas markets is complex?

3.What are the reasons of the difference in prices for similar products in different countries?

4.What is transfer price (intra-corporate price)?

5.How can transfer price be used by multinational corporations?

3. Distribution strategies

The development of distribution strategies is a difficult task in the home country, but it is even more so internationally, where marketing managers must concern themselves with two functions rather than one: (1) getting the products to foreign markets (exporting) and (2) distributing the products within each market (foreign distribution).

Interdependence of distribution decisions. When making decisions on distribution, care must be taken to analyze their interdependence with the other marketing mix variables. For example, if the product requires considerable after-sales servicing, the firm will want to sell through dealers that have the facilities, personnel and capital to purchase equipment and spare parts and to train service people. This will necessitate using a merchant wholesaler, which will demand a larger trade discount than would an agent, because an agent does not perform these functions. Channel decisions are critical because they are long-term decisions; once established, they are far less easy to change than those made for price, product and promotion.

International standardization. Although management would prefer to standardize distribution patterns internationally, there are two fundamental constraints on its doing so: (1) the variation in the availability of channel members among the firm’s markets and (2) the inconsistency of the influence of the environmental forces. Because of these constraints international managers have found it best to establish a basic but

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flexible overall policy. The subsidiaries then implement this policy and design channel strategies to meet local conditions.

Availability of channel members. As a starting point in their channel design, local managers have the successful distribution system used in the domestic operation.

Headquarters’ support for a policy of employing the same channels worldwide will be especially strong when the entire marketing mix has been built around a particular channel type, such as direct sales force or franchised operators. Avon, McDonalds are examples of firms that consider their distribution systems inviolate, so locally there is little latitude in planning channel strategies. However, companies utilizing the more common types of middlemen are usually more inclined to grant the local organization greater freedom in channel member selections. Although a general rule for any firm entering a foreign market is to adapt to the available channels rather than create new ones, a number of companies have successfully avoided the traditional channels because of their appalling inefficiencies. Experienced marketers know they cannot get their products to the consumer by the same retail channel in every country, and even in Europe the differences are substantial. What is the best way to sell toys in France? A sure outlet is the hypermarket, which sells 36% of all toys purchased in France. In Germany, however, the hypermarket accounts for only 15% of toy sales. The most important kind of outlet for toys in Germany is independent retailers, which are organized into buying groups.

Foreign environmental forces. Environmental differences among markets add to the difficulty in standardizing distribution channels, changes caused by the cultural forces generally occur over time, but those caused by the legal courses can be radical and quick and can dramatically slow trends responding to cultural demands.

To illustrate, hypermarkets, which are changing distribution patterns in Europe and particularly in France, a nation of small shopkeepers, numbered only 11 in that country in 1972. The combination of lower prices and one-stop shopping caught on with the French consumer, and 51 hypermarkets were opened in 1973. Manufacturers that saw a quick end to small shopkeepers failed to appreciate their political power. The Royer Law, passed in 1973, gave local urban commissions, often dominated by small merchants, the power to refuse construction permits for supermarkets. After the law took effect, only 40% of the large-store applications were approved.

Economic differences also make international standardization difficult, although marketers an adapt to economic changes. In 1960 very frozen food was sold in France because of the consumer’s preference for fresh food. However, tight economic conditions forced many housewives to seek employment, and with less time to spend

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preparing meals, they turned to frozen food. An added attraction of frozen food items was that their prices did not rise as fast as those of fresh foods. The result has been sales increases of 10% or more a year since 1973.

In Japan high prices have also forced women to find jobs, and they no longer have time to shop and prepare the traditional Japanese foods. They fill their needs by purchasing more convenience foods advertised on TV with home delivery or by going to the more than 50 chains of convenience stores.

Vocabulary and language focus

1.Give synonyms or definitions to the following words and phrases and translate them into Russian.

1) to necessitate smth/doing smth

2) inconsistency of smth

3) to implement a policy

4) to employ channels worldwide

5) little latitude in planning channel strategies

6) middleman

7) retail channel

2.Read the text about the American company Wal-Mart, the world’s largest retailer. Replace the words in italics with these words from the text.

profits, overheads, niche, range, suppliers, discount

Wal-Mart is already manouevring to bring its vision of retailing to the European consumer. In the United States the company operates stores that are often twice as big as their European equivalents and which sell a huge selection of quality products at a significant price reduction. However, duplicating its success on the old continent may prove to be just as difficult as conquering the New World’s markets. Firstly, Europe with its limited space available for building new stores and its high operating costs may make it more difficult for the company to produce the same positive financial results that it has had in the US. In addition to that, it may be difficult to persuade companies that provide goods for retailers to do business with them in the same way as they do in the US. But with its purchase of the British supermarket chain ASDA, Wal-Mart clearly wants to establish a particular market for itself in Europe.

Understanding the main points

Discuss the following.

1 Why is it difficult to develop distribution strategies internationally?

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2.What should be taken into account when making decisions on distribution?

3.Is it possible to standardize distribution patterns internationally? Give reasons.

4.How can economic differences make international standardization difficult?

4.Brands

Imagine a world without.brands. It existed once, and still exists, more or less, in the world's poorest places. No raucous advertising, no ugly billboards, no McDonald's. Yet, given a chance and a bit of money, people flee this Eden. They seek out Budweiser instead of their local tipple, ditch nameless shirts for Gap, prefer Marlboros to homegrown smokes. What should one conclude? That people are pawns in the hands of giant companies with huge advertising budgets and global reach? Or that brands bring something that people think is better than what they had before?

The pawn theory is argued, forcefully if not always coherently, by Naomi Klein, author of "No Logo", a book that has become a bible of the anti-globalization movement. Her thesis is that brands have come to represent "a fascist state where we all salute the logo and have little opportunity for criticism because our newspapers, television stations, Internet servers, streets and retail spaces are all controlled by multinational corporate interests." The ubiquity and power of brand advertising curtails choice, she claims; produced cheaply in third-world sweatshops, branded goods displace local alternatives and force a grey cultural homogeneity on the world.

Brands have thus become stalking horses for international capitalism. Outside the United States, they are now symbols of America's corporate power, since most of the world's best-known brands are American. Around them accrete all the worries about environmental damage, human-rights abuses and sweated labor that anti-globalists like to put on their placards. No wonder brands seem bad.

Product power or people power

Yet this is a wholly misleading account of the nature of brands. They began as a form not of exploitation, but of consumer protection. In pre-industrial days, people knew exactly what went into their meat pies and which butchers were trustworthy; once they moved to cities, they no longer did. A brand provided a guarantee of reliability and quality. Its owner had a powerful incentive to ensure that each pie was as good as the previous one, because that would persuade people to come back for more.

Just as distance created a need for brands in the 19th century, so in the age of globalisation and the Internet it reinforces their value. A book-buyer might not entrust a company based in Seattle with his credit-card number had experience not taught him to

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trust the Amazon brand; an American might not accept a bottle of French water were it not for the name of Evian. Because consumer trust is the basis of all brand values, companies that own the brands have an immense incentive to work to retain that trust.

Indeed, the dependence of successful brands on trust and consistent quality suggests that consumers need more of them. In poor countries, the arrival of foreign brands points to an increase in competition from which consumers gain. Anybody in Britain old enough to remember the hideous Wimpy, a travesty of a hamburger, must recall the arrival of McDonald's with gratitude. Public services live in a No Logo world: attempts at government branding arouse derision. That is because brands have value only where consumers have choice, which rarely exists in public services. The absence of brands in the public sector reflects a world like that of the old Soviet Union, in which consumer choice has little role. Brands are the tools with which companies seek to build and retain customer loyalty. Because that often requires expensive advertising and good marketing, a strong brand can raise both prices and barriers to entry. But not to insuperable levels: brands fade as tastes change (Nescafe has fallen, while Starbucks has risen); the vagaries of fashion can rebuild a brand that once seemed moribund (think of cars like the Mini or Beetle); and quality of service still counts (hence the rise of Amazon). Many brands have been around for more than a century, but the past two decades have seen many more displaced by new global names, such as Microsoft and Nokia.

Now a change is taking place in the role of brands. Increasingly, customers pay more for a brand because it seems to represent a way of life or a set of ideas. Companies exploit people's emotional needs as well as their desires to consume. Hence Nike's "just-do-it" attempt to persuade runners that it is selling personal achievement, or Coca-Cola's relentless effort to associate its fizzy drink with carefree fun. Companies deliberately concoct a story around their service or product, trying to turn a run-of-the-mill purchase (think of Haagen-Dazs ice cream) into something more thrilling.

This peddling of superior lifestyles is something that irritates many consumers. They disapprove of the vapid notion that spending more on a soft drink or ice cream can bring happiness or social cachet. Fair enough: and yet people in every age and culture have always hunted for ways to acquire social cachet. For medieval European grandees, it was the details of dress, and sumptuary laws sought to stamp out imitations by the lower orders; now the poorest African country has its clothing markets where second-hand designer labels command a premium over pre-worn No Logo.

The flip side of the power and importance of a brand is its growing vulnerability. Because it is so valuable to a company, a brand must be cosseted, sustained and protected. A failed advertising campaign, a drop-off in quality or a hint of scandal can all quickly send

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customers fleeing. Indeed, protesters, including Ms Klein's anti-globalisation supporters, can use the power of the brand against companies by drumming up evidence of workers ill-treated or rivers polluted. Thanks, ironically enough, to globalisation, they can do this all round the world. The more companies promote the value of their brands, the more they will need to seem ethically robust and environmentally pure. Whether protesters will actually succeed in advancing the interests of those they claim to champion is another question. The fact remains that brands give them far more power over companies than they would otherwise have. Companies may grumble about that, but it is hard to see why the enemies of brand "fascism" are complaining.

Vocabulary and language focus

1.Find the English equivalents to the following words and phrases.

1) нести ответственность перед кем-либо

2) быть пешками в руках гигантских компаний

3) мировое влияние

4) надежный, заслуживающий доверия 5) пародия на что-либо, жалкое подобие чего-либо 6) причуды моды 7) упорные попытки

8) законы, подавляющие подделки со стороны простого народа

9) обратная сторона чего-либо

10) снижение качества

2.Find the words and phrases in the article, which mean the same as the following.

1) to reduce in degree or effect, to limit

2) to add strength or support to

3) appearing, happening, existing everywhere

4) avoid losing trust

5) no longer operating effectively

6) to invent (smth false) so as to deceive

7) an average, usual purchase

8) to pay a great deal of attention to making smb comfortable, happy 9) to be ethically strong

10) quality, which constantly adheres to the same features, patterns

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3.Complete the following sentences with appropriate words and phrases from the article.

1.In pre-industrial days a brand provided a guarantee of ________ and ________ .

2.The ________ and power of brand advertising ___________ choice.

3.Brands help companies to build and _________ customers’ _________ .

4.Companies ___________ a story around their service or product trying to _________ a

_____________ into smth more thrilling.

5.I am not sure you can __________ this company with your credit-card number, the company is not ___________ .

6.__________ quality is very important for the brand to be successful. If there is a

__________ in quality, it will be very hard to restore customers’ loyalty.

7.Poor countries are usually ___________ in the hands of giant companies.

8.If a brand seems to be ___________ once, it doesn’t mean it is impossible to

__________ it.

9.The power of multinationals __________ the choice of consumers all over the world.

10.This is a company with huge advertising _________ and global __________ .

Understanding the main points

1.What are the arguments of anti-globalisation movements against brands? What is your opinion about these arguments?

2.What have you learnt about the history of brands?

3.What incentive do companies that own brands have?

4.What impacts does the arrival of foreign brands to poor countries have?

5.What do brands help companies in?

6.What change in the role of brands is taking place now?

7.Why does the author of this article speak about vulnerability of brands?

8.What must companies consider while promoting the value of their brands?

Listening.

You will watch some CEOs of global companies talking about brands. Listen and be ready to answer the following questions.

1.What does a company’s brand name mean according to Dick Bryan (Cable and

Wireless)?

2.What does the Virgin brand represent?

3.What is a core competence?

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5. Communicational skills – Case study

Case 1. U.S. Pharmaceutical of Korea.

U.S Pharmaceutical of Korea (USPK) was formed in 1969. Its one manufacturing plant is located just outside Seoul, the capital. Although the company distributes its products throughout South Korea, 40% of its total sales of $5 million were made in the capital last year.

There are no governmental restrictions on whom the company can sell to. The only requirement is that the wholesaler, retailer, or end user have a business license and a taxation number. Of the 400 wholesalers in the country, 130 are customers of USPK, accounting for 46% of the company’s total sales. The company also sells directly to 2100 of the country’s retailers; these accounts for 45% of total sales. The remaining sales are made directly to high-volume end users, such as hospitals and clinics.

Tom Sloane, marketing manager of USPK, would prefer to make about 90% of the company’s sales directly to retailers and the remaining 10% directly to high-volume users. He believes, however, that this strategy is not possible because there is a risk involved in extending them credit. USPK tends to deal directly with large urban retailers and leaves most of non-urban retailers to wholesalers.

However, the use of wholesales bothers Sloane for two reasons:

1)he has to give them larger discounts than he gives retailers that buy directly form the firm;

2)because of the intense competition (300 pharmaceutical manufacturers in

Korea), his wholesalers frequently demand larger discounts as the price for remaining loyal to USPK.

This intense competition affects another aspect of USPK’s operations – collecting receivables. USPK has found that many wholesalers collect quickly from retailers but delay paying it. Instead, they invest in ventures that offer high short-term returns. For example, lending to individuals can bring them interest rates up to 3% a month. The company’s receivables, meanwhile, range from 75 to 130 days. Wholesalers are also the cause of another problem. Many are understaffed and have to reply on “drug peddlers” for sales. The drug peddler (there are perhaps 4000 just in Seoul) make most of the money either by cutting the wholesalers margins (selling at lower than recommended prices) or by bartering USPK products to other pharmaceuticals. They do this by finding retail outlets where the products are sold for less that the printed price. They exchange USPK’s products at a discount for other drugs, which they sell to other retail outlets at a profit. As a result, USPK’s products end up on retailers’ shelves

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at prices lower than those that a company and its reputable wholesalers are selling them for. The pharmaceutical industry has made some progress in persuading wholesalers and retailers to adhere to company price lists, but non-adherence is still a serious problem. One issue that manufacturers have not been able to resolve as yet is the manner in which demands from hospitals and physicians for gifts should be handled.

Sloane believes the industry can do much to solve these problems, although intense competition has thus far kept the pharmaceutical manufacturers from joining together to map out a solution.

1.What should Tom Sloan and U.S. Pharmaceutical of Korea do to improve collections from wholesalers?

2.How would you handle the distribution problem?

Case 2. International Leatherware.

Background

The International Leatherware Association (ILA) represents leather goods manufacturers and retailers. One of its main functions is to promote the use of leather for new products. Each year the Association awards prizes to companies with outstanding new ideas. Companies send a detailed product description and a marketing plan, and the four best proposals are selected. These companies then present their product concepts to a panel of judges. The presentations and awards are televised and the event is broadcast worldwide.

ILA guidelines to competitors

1.The purpose of the competition is to encourage innovation in the leather goods industry. The competition aims to raise the profile of leather as a material for producing goods.

2.Any product made with leather may be entered in the competition.

3.Product concepts should be very creative and have excellent sales potential.

4.It will be an advantage if a company can offer a product showing a new use for leather.

Innovative designs at ILA awards

There was huge excitement and tension before Solange Marchand, President of the International Leather Association, announced the winner and runner-up. Could it be

Hungary's turn with Stephen Nalti’s 'Mobile Office', a state-of-the-art briefcase, with