International Marketing Textiles and Garments

1. These slides are not necessarily be an original work rather these are a compilation of different

2. Prepared By : Prepared By : Mazadul Hasan sheshir ID: 2010000400008 13th Batch (session 2009-2013) Department : Wet Processing Technology Email: mazadulhasan@yahoo.com Blog : www. Textilelab.blogspot.com (visit) Southeast University Department Of Textile Engineering I/A 251,252 Tejgaon Dhaka Bangladesh

3. Total Textile Process at a Glance

4. Chapter 1

5. Process of International Marketing Commitment to Export Analyze External Factors Internal Factors Decide on -Market Environment -Product -Competitive Profile -Resources International Market Involvement Market Identification & targeting Entry mode selection Marketing Mix *Product *Price *Distribution *Promotion Set Targets Implement Organize Department Subsidiary Jt. Venture Export House Export Allocate Resources *Product *Arrange Resources Review Modify Set new target

6. WHY COMPANIES GO INTERNATIONAL? Two Factors: 1. Pull factors 2. Push Factors Pull factors: Proactive reasons – forces of attraction – pulls the business to foreign markets – profit, growth etc. Push factors: Reactive reasons – compulsion of domestic market prompts companies to internationalize – saturation etc. Profit Motive: •International business – profitable than domestic market – investment in low cost locations.

7. Strategic Vision Growth Profitability Spin - off benefits Economies of scale Why Should a Firm Enter International Markets? Govt. Policies & Regulations Spreading Risk Competition in Domestic market Access to Imported inputs Spreading R & D Cost Marketing Opportunities Due to life Cycle Uniqueness of Product or services

8. Market Entry Methods Marketing Entry Export Entry Contractual Entry Investment Entry -Assembly -Contract Manufacturing Indirect Direct -Licensing -Franchising Agents Export Houses -Co-production agreement -Management contract Commission Agent Exporters Agent Abroad Joint Venture Wholly Owned Subsidiary Major Minor 50:50 Acquisition Establishing own unit

9. The Concept of International Market Entry • An institutional mechanism by which a firm makes its products and services available to consumers in overseas markets • Franklin Roots defines the market entry strategy as a comprehensive plan which sets forth the objectives, goals, resources and policies that guide a company’s international business operations for achieving sustainable growth in world markets. • Once a firm has decided to establish itself in global market—it becomes necessary that the Company studies and analyzes the various options available to enter the international markets and select the most suitable one. • This decision is to be taken with utmost care—Not only is the financial resources in stake but the extent to which the company‘s marketing strategy can be employed in the new market also depends on this decision. • Mode of entry varies from low -risk ,low-control modes with minimum resource commitment eg. indirect exports to high-risk, high control modes with a higher level of commitment by establishing its own manufacturing facilities in foreign markets (subsidiaries).

10. Alternative Entry Modes Production in Foreign Country Production in Home Country Investment Mode Contractual Mode Exports Providing Offshore Services Direct Indirect Wholly Owned Foreign Subsidiaries Overseas Assembly or Mixing Joint Venture Contract Manufacturing International Licensing Turnkey Projects Management Contract International Strategic Alliance International Franchising BOO B & T BOT Production Alliance Technology Alliance Distribution Access

11. Production in Home Country Export Entry •A firm has two basic options for carrying out export operation. --Market contacted through a domestically located intermediary—an approach called Indirect Exporting --Market can be reached through an intermediary located in foreign market--an approach termed as Direct Exporting

12. Indirect Export --When firms do not have much exposure and has limited resources – Indirect Exports •Indirect exports occur -Selling to a domestic broker/ foreign buying agent in home country -Exporting through merchant intermediary-export house Direct Exports A firm’s product is directly sold to importers-Sole distributor Foreign country based intermediaries--Agents Company owned Sales Offices

13. Production in foreign country Contractual Entry Licensing : • A company assigns the right to a patent (which protects a product, technology or process) or a trademark( which protects a product name) to another company for a royalty • Licenser gives technology, manufacturing right, brand and also marketing right (unlike contract Manufacturing) • Licensee gains marketing right- Exclusive basis or Unrestricted basis • Variety of time period 5 to 15 years • Licensee makes all capital investments • Licensing agreements subject to negotiation –vary from Co. to Co. and industries to industries

14. International Franchising • A special form of licensing in which a home company (Franchiser) makes a total programme of operation available to an overseas company (Franchisee) • It includes the brand name, logo, products and method of operation • Mc. Donald’s, KFC, Burger King, Holiday INN, Hertz, Carrefour, Benetton, Coca Cola (trade mark, recipe, and advertising)-independent bottlers around the world • It is a transfer of the entire system from one country to another

15. Difference between Licensing and Franchising Licensing Franchising Royalty Management Fees Products are major source of concern Covers all aspects of business including goodwill, trade marks, IPR etc 15-20 years 5/10 Years – renewable Licensing tends to be self selecting. They are often established businesses and can demonstrate that they are in a strong position to operate the license in question. A licensee can often pass a license to an associate with little or no reference back to the original licensor. The franchisee is selected by the franchiser. Even replacement is controlled by franchiser.

16. Licensing Franchising Concerned with specific existing products and technologies Franchisor franchisee the benefits of on- going research programs passes to the There is no goodwill attached to the licensing as it is totally retained by licensor Although franchisor does retain the goodwill, the franchisee picks up an element of localized goodwill Standard fee structure. Any variation will cause confusion Licensee enjoys substantial measure of fee negotiation Lesser control Exerts higher control

17. Overseas Turnkey Projects • Companies utilize technical expertise to enter international markets • Types of Turnkey Projects - Build and Transfer (Conceptualizes, designs, builds, testing and transfer the project to the owner - Build/Operate and transfer (BOT) (Build the the contracted period before transferring to the foreign owner) project and manage for - Build, operate, own (BOO) (Firm buys the project, once it has been built) International Management Contracts •Company provides its technical and managerial expertise for a specific duration to an overseas firm. • Low risk, low cost mode of entry. • Earn foreign exchange and optimally utilize its skilled manpower

18. Strategic Alliance • Refers to the relationship between two or more firms that cooperate with each other to achieve common goals but do not form a separate company. • Firms focus on their core competencies • Difference between strategic alliance and joint venture - In Joint Venture two partners contribute a fixed amount of resources and the venture develops on its own Joint Venture Parent Company X Company Z (Joint Venture) Parent Company Y -In strategic alliance each partner brings a particular skill or resource – usually they are complementary and by joining forces each expects to profit from the other’s experience-No equity participation Strategic Alliance Contractual Company Y Company X Agreement

19. Contract Manufacturing • An international firm arranges to have its products manufactured by an offshore localcompany on contractual basis Local manufacturers responsibility is only production Marketing responsibility is on Parent company No legal bindings – change contracted manufacturers to improve quality and cost effectiveness A number of global companies outsource manufacturing activities to low cost locations. • • • • • Globalization of business technologies and increasing pressure on international firms to be globally competitive in costs,product offering, speed to bring new products – driving force of international contract manufacturing • Economic development of a number of countries depend on contract manufacturing like China, Korea, Mexico, Thailand, Taiwan, Now Indonesia, Vietnam and India • Nike shoe – entirely manufactures through contractual basis

20. Local Manufacturing A common and widely practiced form of entry is local production of company’s products. Types: •Overseas Assembling • Joint Venture • Wholly Owned Subsidiaries Reasons for Local Production •Local cost, market size, tariffs, laws and political consideration may affect a choice to manufacture locally • Sometimes cost cutting rather than market entry – International firms establish plants in Taiwan, Malaysia, Vietnam, China – little intention to enter the market – export to third country

21. Wholly- owned subsidiary •Tata Tea entered into JV with Tetley group, UK in 1994,acquired Tetley in 2000 •Asian paints has 27 manufacturing plants in 24 countries •Aditya Birla Group has wholly owned manufacturing base in south east Asia Establishing local operation to gain new business An aggressive strategy – a strong commitment in international operation – often the only way to convince clients to switch suppliers  Important strategy in industrial market – service and reliability of supply main factors in the choice of suppliers Establishing Foreign production to defend existing business  Changing economic or political factors necessitate such a move E.g. Japanese car manufacturers, that had been subject to an import limitations of assembled cars, from USA imported from Japan, began to build factories in USA to protect their market.  In 1982 Honda became the first Japanese manufacturer to set up production in USA

22. Assembly • A firm locates a portion of the manufacturing process in the foreign country • Assembling consist of the last stage of the manufacturing and depends on a ready supply of components or manufactured parts to be shipped from another country • Involves heavy use of labor rather than expensive investment of capital outlets • In order to save in shipping costs and high import tariffs and counter non tariff barriers and take advantage of cheap labour cos exports components in CKD condition and assembles them overseas e.g Mahindra &Mahindra, has entered Kenya by assembling operation • Tata motors assembling operations with Nita Company Ltd in Bangladesh for commercial vehicles • Japanese automobile cos have entered European market by assembling to overcome import barriers • Sometimes Cos may use some of the local resources

23. Joint Venture Under a joint venture arrangement a foreign company invites an outside partner to share stock ownership in the new unit –minority or majority or 50:50share Reasons for JV • By bringing in new partner , company share the risk for a new venture • JV partner may have important skills or contacts of value to the firm • Local firm has good contacts with the government and represents local business interests • Provide greater control over production and marketing functions Examples: During 1960-70 Japanese market was viewed as a difficult environment—govt regulations—JV Mc Donald’s entered Japan in 1971 through JV with Fujita &Co Mc Donald’s in India through JV

24. Wholly -owned foreign subsidiaries In order to have complete control and ownership of international operations, a firm opts for foreign direct investment to own foreign operations. Benefits  Develops a foreign market with growth potential by way of product differentiation and competitive response Helps in overcoming import barriers-high tariffs, quota Gets benefits of incentives provided by host countries Helps a firm to spread risks over various markets Take advantage of lower cost of production in host countries—raw material. labor Avoids conflicts with overseas partners      Limitations:   Need substantial financial and other operational resources Need substantial international exposure before establishing WOS.

25. Ways of establishing WOS   Acquisition Acquisition Greenfield operation • A company can acquire a foreign company and all its resources in a foreign market • Acquisition provides speedy access to the resources of a foreign company such as skilled man power , the company’s product and brand and its distribution channels Green field operation • The firm creates the production and marketing facilities on its own from scratch Green field operations preferred under following situations •  Smaller firms with limited resources  Have the option of selecting own location on the basis of their own screening criteria.

26. Chapter 2:

27. Supply Chain Management Tier 3 to Initial suppliers Tier 3 Customers Tier 2 Suppliers Tier 2 Customers Tier 1 Suppliers Tier 1 Customer 1 1 2 Tier 3rd to n supplier 2 n Consumer or end customers 1 1 1 n Initial Supplier n 2 1 2 1 Tier 3 to n customer 3 n 2 Focal Firm 3 n 1 n n 2 1 n n

28. 3B’s of Supply Chain Network • Boxes (Material Flow) • Bytes (Information Flow)& • Bucks (Financial Flow)

29. Approaches of Supply Chain AGILE VOLUME LEAN

30. LEAGILE LONG LEAD TIME LEAN PLAN & EXECUTE LEAGILE POSTPONEMENT PREDICTABLE UNPREDICTABLE SHORT LEAD TIME LEAN CONTINIOUS REPLENISHMENT AGILE QUICK RESPONSE

31. Hybrid Approach (LEAGILE) Of SC Supplier Customer Buy-to-order Make-to-order Assemble-to-order Make-to-stock Ship-to-stock Agile Supply Chain Lean Supply Chain

32. Perceived Customer Value •Customer Support •Product Service • Flexibility to meet customer demand & market change •Meeting Customer requirement •Elimination of wastage •Continuous improvement X QUALITY SERVICE Value X COST LEAD TIME •Design & Engineering • Conversion & Distribution •Inventory •Materials •Time to Market •Order entry to Del. • Response to market forces •Lead time

33. THE VALUE CHAIN •Brand Development & Management •Market development •Insource / outsource? •Manage variety, quality & costs •Product & service specification •Infrastucture supoort •Distributor liaison •Product & service liability Value Delivery

34. LOGISTICS SUPPLY CAHIN STRATEGY SUPPLY CHAIN OPERATIONS SUPPLY CHAIN PLANNING SC SUPPLY CHAIN MANAGEMENT LOGISTICS ENTERPRISE APPLICATION PRODUCT LIFECYCLE MGT. PROCUREMENT

35. LOGISTICS- THE KEY SUCCESS FACTOR IBM- IT based Organization BENETTON- Fashion Based Branded Manufacturer and retailer •WMS (Warehouse management system) •EDI (Electronic Data Interchange) •TMS (Transportation management systems) •WIDE (World wide Integrated Distribution Enterprise.) •RFID (Radio Frequency Identification) •ROBOTIC Distribution Centre. •TRP (Transportation Resource Planning) •Integration of ICT with innovative manufacturing process CAD, CAM •Logistics Outsourcing •POSTPONEMENT

36. Information Flow Tier 2 Supplier Tier 1 Supplier Customer/ End Customer Customer Logistics Marketing & Sales Purchasing Product flow Product flow Finance Production R & D Customer relationship Management Customer relationship Management Customer Service Management Customer Service Management Demand Management Demand Management Order fullfilment Order fullfilment Manufacturing Flow Management Manufacturing Flow Management Procurement Procurement Product Development and commercialization Product Development and commercialization Returns Supply Chain Business Processes

39. Chapter 3:

40. Pre-Shipment and Post-Shipment Finance Pre-Shipment Finance • It provides the exporters working capital between the time of the receipt of order and the time of shipment to arrange for production or procurement of goods. • Pre-Shipment finance is of particular importance to small-scale manufacturers and exporters who do not possess sufficient financial resources to meet the expenditure involved in the production of goods for export. • Pre-shipment finance is normally provided by the commercial banks. As in the case of any other advance, the bank takes into consideration a number of factors before making the necessary advance to the exporter namely, 1) honesty, integrity and capital of the borrower, ii) exporter’s experience in the line, iii) security offered, iv) the rate of interest, v) the bank’s experience about the exporter and vi) standing of the foreign buyer. • The security can be provided in the following form: i) Letter of credit, ii) Confirmed order as evidence of having received an order iii) Relevant policy issued by ECGC. iv) Personal bond in the case of the party already known to the banker.

41. Post-Shipment Finance • Post-shipment credits are intended to bridge the financial gap between the time of shipment of goods and the actual payment received by the exporter. • Post-shipment finance is provided in one of the following form: i) Export bills negotiated under letter of credit, Discounting of bills drawn against shipment of goods, iii) Advance against bills under collection. • The rate of interest on post-shipment credit is up to 90 days- not exceeding 10 percent. Beyond 90 days and up to six months from the date of shipment – 12 percent and beyond six months from the date of shipment, banks are free to charge any interest. • Repayment of the loan will generally take place when proceeds are received from abroad.

42. Payment Terms The export Sales Contract must clearly specify how and when the payment is to be made. Options of payments by the buyer: •Advance Payment •Open Account •Consignment Sales •Documentary bills Documents against payment (DP) Documents against acceptance (DA) •Documentary Letter of Credit (LC)

43. Payment in Advance • Most advantageous payment term for the seller point of view. • The importer sends remittance with the confirmation of order or before the shipment is made. • The remittance is made by draft, cheque, mail or transfer. • Advance payment may be insisted upon when goods are manufactured to order in accordance to the specification of the importer. • Buyers are unknown to the seller or his credit worthiness is doubtful. Open Account • Under this method the seller carries the entire financial burden. • Here the seller ships the goods with no financial documents to his advantage. • Because of great risks associated with the open account method by the seller, it is generally restricted to cases of transactions between inter- connected companies or where the exporter and overseas buyers have a long and well established commercial relationship.

44. Consignment Sales • The exporter makes shipment to overseas consignee/ agent, but retain the title to the goods even though the overseas agents will have the physical possession of the goods. • The payment is made only when the goods are ultimately sold by the overseas consignee to other parties. • The procedure is costly and risky to exporter. • His payment will be due on a date which cannot be foreseen – As a result he may be faced with cash flow problem. • This type of payment is risky too – if the consignee fails to sell the goods, he may return the goods any time at the seller’s expense. • Moreover the price to be realized is also uncertain and will depend on market conditions. • Advantage of such sale is that the buyer gets an opportunity to examine the goods and the seller may get a higher price if the buyer is satisfied with the quality etc.

45. Documentary Bills Documentary bills act as a bridge between: a) Exporter’s unwillingness to part with the goods until he is paid for and b) Importer’s unwillingness to part with his money unless he is sure of receiving the goods. Banks provide a via media by giving the necessary assurances to both the parties. Under this form of payment, the exporter agrees to submit the documents to his bank. DP •Exporter ships goods to foreign buyer. •Exporter’s bank sends documents including bill of exchange and bill of lading to its Correspondent Bank in the buyer’s country. •Correspondent Bank presents documents to buyer and on payment of the bill of exchange, delivers the documents to him so that the can take possession of the goods. •The correspondent bank sends the money received from the buyer to the exporter’s bank which is ultimately credited to exporter’s account.

46. DA •The correspondent bank will submit the bill of exchange to be signed by the buyer to indicate his acceptance of the payment obligation. •After the buyer accepts the bill, he will get possession of the documents. •On the due date of payment, the bank will again present the bill to the buyer who then makes the payment. •The money received is remitted through the usual banking channels to be credited to the exporter’s account. •DP bills are drawn on “sight” i.e. no credit is involved. •DA bills involve credit for a fixed period and are therefore drawn on “usance” basis.

47. Documentary Letter of Credit •Under documentary credits, the importer approaches his bank, which on the basis of the instructions given by the importer, gives a written undertaking to the overseas exporter that if the exporter presents documents the bank will make payment of the given amount to the exporter. •In effect, the credit of the issuing bank is substituted for that of the buyer. Parties to the letter of Credit •The Opener – The opener is the buyer (the importer) - The LC is opened at the initiative and request of the buyer. •The Issuer – The issuer also called the opening or Issuing Bank is the bank in the importer’s country issuing the LC at the request of the buyer. •The Beneficiary – The beneficiary is the party in whose favour the credit is issued – seller or the exporter. •The confirming Bank – The confirming bank is a bank in the exporter’s country which guarantees the credit.

48. How LC Works This is explained by the following example: •Suppose a US-based buyer wants to purchase goods from an Indian exporter. •The Indian exporter instead of drawing directly on the US importer, requests him to arrange a LC. •The US importer applies to his bank in USA to issue a letter of credit. •In his application for the LC to the bank, the importer sets forth the terms of sale and mentions the documents which shall accompany the draft, the usuance, the date of shipment etc. •If the bank is prepared to issue the credit, the importer will sign the LC contract, in which he will have agreed to reimburse the bank for all outlays and give such securities as the bank demands.

49. •The issuing bank will now notify its correspondent bank in the exporters country and request the latter to confirm the credit to the exporter. •The correspondent bank will now inform the exporter that a LC has been arranged. •The exporter will now ship the goods to the US buyer, draw a time draft on the issuing bank in India. The Indian bank will mail the draft and documents to its own correspondent bank in USA, which in turn, will present it to the drawn bank for acceptance. •The accepting bank will deliver the documents to the importer. Usually against a “trust receipt”, an instrument under which the bank retains title to the merchandise. The importer makes payment when the draft matures.

50. International Trade Procedures & Documentation Step by step of Export transaction framework Identify an importer Strike a deal (Export Contract) Description of goods Price of each item Net & gross shipping weight The terms of delivery The terms of payment Insurance & shipping cost Currency of sales Port of loading Port of discharge Estimated shipping date Validity period of contract