December 6, 2021

Introduction Financial management is that managerial activity which is concerned with the planning and controlling of the firm’s financial resources. It involves the decision of the three decisions of the firm i.e. a) Investment decision b) Financial decision c) Dividend decision Together they determine the value of the firm to its shareholders. The finance manager makes use of certain analytical tools in the analysis, planning and control activities associated with the major decisions of the firm. Role of the Finance Manager A financial manager is a person who is responsible in a significant way to carry out the finance functions. i) Interaction with the financial markets In order to raise finance knowledge is needed of the financial markets and the way in which they operate. ii) Investment Decisions have to be made concerning how much to invest in real assets and which specific projects to undertake (capital budgeting decisions). iii) Treasury management Many firms have large sums of cash which need to be managed properly too obtain a high return for shareholders. Other areas of responsibility might include inventory control, creditor management and issues of solvency and liquidity. iv) Risk management Exposures to interest rates changes and commodity price fluctuations can be reduced by using hedging techniques. These often employ instruments such as futures, options, swaps, and forward agreements. v) Strategy Managers need to formulate and implement log term plans to maximize shareholders wealth. This means selecting markets and activities in which the firm given its resources has a competitive edge. Functions of a Finance Manager Financial manager is concerned with; A. Investment decision or long term asset mix A firm’s investment decisions involve capital expenditures. Therefore referred to as capital budgeting decisions. It involves the decision of allocation of capital or commitment of funds to long term asset that would yield benefit (cash flows) inn the future. B. Financing decision The mix of debt and equity is known as the firm’s capital structure. The finance manager must strive to obtain the best financing mix or the optimum capital structure for his/ her firm. Broadly he/ she must decide when, where from and how to acquire funds to meet the firm’s investment needs. C. Dividend decision The finance manager must decide whether the firm should distribute all profits, or retain them, or distribute a portion and retain the balance. The proportion of profits distributed as dividend is called the dividend payout ratio and the retained portion is known as the retention ratio. D. Liquidity decision. Investment in current assets affects the firm’s profitability and liquidity. Current assets should be managed efficiently for safeguarding the firm against the risk of illiquidity. The profitability liquidity trade off requires that the financial manager should develop sound techniques of managing current assets.

PROMOTION STRATEGIES Promotion and Communication The purpose of promotion is both to communicate with buyers and to influence them. Most promotional mistakes in international marketing are attributable to one or several of these steps not properly reflecting cultural influences or a general lack of knowledge about the target market. Information source – Is a marketer with a product to sell to a specific target market. The product message to be conveyed should reflect the needs and wants of the target market; however, often the actual market needs and the marketer’s perception of them do not coincide. This disconnect is especially true when the marketer relies more on the self-reference criterion (SRC) than on effective research. It can never be assumed that “if it sells well in one country, it will sell in another.” Encoding – This step causes problems even with a “proper” message. At this step, such factors as color, timing, values, beliefs, humor, tastes, and appropriateness of spokespersons can cause the international marketer to symbolize the message incorrectly. Message channels – This must be carefully selected if an encoded message is to reach the consumer. Decoding – At this step problems are generally created by improper encoding, which caused errors. Example of Pepsi’s “Come Alive” slogan being decoded as “Come out of the grave.” Chevrolet’s brand name for the Nova model (which means new star) was decoded into Spanish as No Va!, meaning “it doesn’t go.” In another misstep, a translation that was supposed to be decoded as “hydraulic ram” was instead decoded as “wet sheep.” Decoding errors may also occur accidentally, as was the case with Colgate-Palmolive’s selection of the brand name Cue for toothpaste. The brand name was not intended to have any symbolism; nevertheless, it was decoded by the French into a pornographic word. In some cases, the intended symbolism has no meaning to the decoder. Receiver – Errors at the receiver end of the process generally result from a combination of factors: Feedback – This step of the communications process is important as a check on the effectiveness of the other steps. Promotion Mix To communicate with and influence customers, several promotional tools are available. These elements are Advertising, personal selling, publicity, public relations and sales promotion. Personal Selling / salesmanship This can be defined as oral presentation in a conversation with one or more prospective purchasers for the purpose of making sales. Personal selling is used at every distribution level. In the Far East, Asian businesspeople do not like to discuss business deals with a foreigner who does not come highly recommended by a mutual friend. Personal contact is important to selling in South Korea, not only because of the value placed on personal relationships but also because such contact serves to bring the end user in touch with new processes and equipment. Sales Promotion Sales promotions are marketing activities that stimulate consumer purchases and improve retailer or middlemen effectiveness and cooperation. Sales promotions are short-term efforts directed to the consumer or retailer to achieve such specific objectives such as; For example, Procter & Gamble’s introduction of Ariel detergent in Egypt included the “Ariel Road Show,” a puppet show that was taken to local markets in villages, where more than half of all Egyptians still live. The show drew huge crowds, entertained people, told about Ariel’s better performance without the use of additives, and sold the brand through a distribution van at a nominal discount. Besides creating brand awareness for Ariel, the road show helped overcome the reluctance of the rural retailers to handle the premium-priced Ariel. In some less developed countries, sales promotions constitute the major portion of the promotional effort in rural and less accessible parts of the market. In parts of Latin America, a portion of the advertising sales budget for both Pepsi-Cola and Coca-Cola is spent on carnival trucks, which make frequent trips to outlying villages to promote their products. Public Relations This is creating good relationships with the popular press and other media to help companies communicate messages to their publics i.e. customers, the general public, and governmental regulators.  The job consists of not only encouraging the press to cover positive stories about companies but also managing unfavorable rumors, stories, and events. Corporate sponsorships might be classified as an aspect of sales promotions or public relations, though their connections to advertising are also manifest. Tobacco companies have been particularly creative at using sports event sponsorships to avoid countries’ advertising regulations associated with more traditional media. Other prominent examples are Coca-Cola’s sponsorship of European football (soccer) matches or Kia Motor’s sponsorship of the Australian Open tennis tournament. McDonald’s executed huge international IMC campaigns surrounding its sponsorship of the 2000 Sydney Olympics. Advertising International advertising is the practice of advertising in foreign or international media when the advertising campaign is planned, directly or indirectly, by an advertiser from another country. To advertise overseas, a company must determine the availability (or unavailability) of advertising media. Media may not be readily available in all countries or in certain areas within the countries. Advertising Strategy and Goals The goals of advertising around the world vary substantially. For example, Chinese manufacturers are establishing new brands as their economy expands; Unilever is introducing a new product-line extension, Dove Shampoo, in East Asian markets; and Russia’s airline Aeroflot is seeking to upgrade its quality image. All these marketing problems require careful marketing research and thoughtful and creative advertising campaigns in country, regional, and global markets. In many cases, standardized products may be marketed globally. But because of differences in cultures, they still require a different advertising appeal in different markets. For instance, Ford’s model advertising varies by nation because of language and societal nuances. Ford advertises the affordability of its Escort in the United States, where the car is seen as entry level. But in India, Ford launched the Escort as a premium car Finally, many companies are using market segmentation strategies that ignore national boundaries i.e. business buyers or high-income consumers across the globe

Domestic Merchants Export merchant Domestic merchants are independent businesses that are in business to make a profit rather than to receive a fee. There are several types of domestic merchants. Because they all take title, they are distinguished by other features, such as physical possession of goods and services rendered. One kind of domestic merchant is the export merchant. An export merchant seeks out needs in foreign markets and makes purchases from manufacturers in its own country to fill those needs. Usually the merchant handles staple goods, undifferentiated products, or those in which brands are unimportant. After having the merchandise packed and marked to specification, the export merchant resells the goods in its own name through contacts in foreign markets. The merchant assumes all risks associated with ownership. Export drop shipper An export drop shipper, also known as a desk jobber or cable merchant, is a special kind of export merchant. The mode of operation requires the drop shipper to request a manufacture to “drop ship” a product directly to the overseas customer. Upon receipt of an order from overseas, the export drop shipper in turn places an order with a manufacturer, directing the manufacturer to deliver the product directly to the foreign buyer. The manufacturer collects payment from the drop shipper, who in turn is paid by the foreign buyer. Use of a drop shipper is common in the international marketing of bulky products of low unit value (e.g., coal, lumber, construction materials). The high freight volume relative to the low unit value makes it prohibitively expensive to handle such products physically several times. Export distributor Whereas export merchants and drop shippers purchase from a manufacturer whenever they receive orders from overseas, an export distributor deals with the manufacturer on a continuous basis. This distributor is authorized and granted an exclusive right to represent the manufacturer and to sell in some or all foreign markets. The ED pays for goods in its domestic transaction with the manufacturer and handles all financial risks in foreign trade. An export distributor differs from a foreign distributor simply in location. The export distributor, in comparison, is located in the manufacturer’s country and is authorized to sell in one or more markets abroad. Trading company Those that want to sell and those that want to buy often have no knowledge of each other or no knowledge of how to contact each other. Trading companies thus fill this void. In international marketing activities for many countries, this type of intermediary may be the most dominant form in volume of business and in influence. Many trading companies are large and have branches wherever they do business. They operate in developing countries, developed countries, and their own home markets. Half of Taiwan’s exports are controlled by trading companies. In Japan, general trading houses are known as sogo shosha, and the largest traders include such well-known MNCs as Mitsubishi, Mitsui, and C. Itoh.The nine largest trading firms handle about half of Japan’s imports and exports. Even large Japanese domestic companies buy through trading companies. Functions of a trading company A trading company may buy and sell as a merchant. It may handle goods on consignment, or it may act as a commission house for some buyers. By representing several clients, it resembles an EMC As the name implies the trading company trades on its own account for profit The trading company gathers market information; does market planning, finds buyers; packages and warehouses merchandise; arranges and prepares documents for transportation, insurance, and customs; provides financing for suppliers and/or buyers; accepts business risks; and serves foreign customers after sales Distribution Channel Choice Decisions As in any domestic market, the international market requires a marketer to make at least three channel decisions: length, width, and number of channels of distribution. Factors to consider when selecting type of channels Factors that must be taken into account include legal regulations, product image, product characteristics, middlemen’s loyalty and conflict, and local customs. Legal regulations – A country may have specific laws that rule out the use of particular channels or middlemen. France, for example, prohibits the use of door-to-door selling. Saudi Arabia requires every foreign company with work there to have a local sponsor who receives about 5 percent of any contract. Not surprisingly, many Saudis, acting as agents, have become millionaires almost overnight. Because of government regulations, a foreign company may find it necessary to go through a local agent/distributor. In China, foreign firms cannot wholly own retail outlets, and they cannot engage in wholesaling activities. Product image – The product image desired by a manufacturer can dictate the manner in which the product is distributed. A product with a low-price image requires intensive distribution. On the other hand, it is not necessary nor even desirable for a prestigious product to have wide distribution. Clinique’s products are sold in only sixty-four department stores in Japan. Waterford Glass has always carefully nurtured its posh image by limiting its distribution to topflight department and specialty stores. Product characteristics – The type of product determines how the product should be distributed. For low-priced, high turnover convenience products, the requirement is for an intensive distribution network. The intensive distribution of ice cream is an example. Walls’ (formerly Foremost’s) success in Thailand may be attributed in part to its intensive distribution and channel adaptation. For high-unit-value, low-turnover specialty goods, a manufacturer can shorten and narrow its distribution channel.  Consumers are likely to do some comparison shopping and will more or less actively seek information about all brands under consideration. In such cases, limited product exposure is not an impediment to market success. Middlemen’s loyalty and conflict – One ingredient for an effective channel is satisfied channel members. As the channel widens and as the number of channels increases, more direct competition among channel members is inevitable. Some members will perceive major competing members and self-service members as being unfair. Some members will blame the manufacturer for being motivated by greed when setting up a more intensive network.

DISTRIBUTION STRATEGIES Channels of distribution Companies use two principal channels of distribution when marketing abroad: Indirect selling, Direct selling. Direct selling is employed when a manufacturer develops an overseas channel. This channel requires that the manufacturer deal directly with a foreign party without going through an intermediary in the home country. The manufacturer must set up the overseas channel to take care of the business activities between the countries. Advantage of direct-selling channel Active market exploitation since the manufacturer is more directly committed to its foreign markets. There is greater control since the channel improves communication because approval does not have to be given to a middleman before a transaction is completed. Problems of direct selling It is a difficult channel to manage if the manufacturer is unfamiliar with the foreign market. The channel is time consuming and expensive since without a large volume of business, the manufacturer may find it too costly to maintain the channel. Indirect selling, also known as the local or domestic channel, is employed when a manufacturer in the United Kingdom, for example markets its product through another British firm that acts as the manufacturer’s sales intermediary (or middleman). As such, the sales intermediary is just another local or domestic channel for the manufacturer because there are no dealings abroad with a foreign firm. By exporting through an independent local middleman, the manufacturer has no need to set up an international department. The middleman, acting as the manufacturer’s external export organization, usually assumes responsibility for moving the product overseas. Advantages of employing an indirect domestic channel The channel is simple and inexpensive as the manufacturer incurs no start-up cost for the channel and is relieved of the responsibility of physically moving the goods overseas. Because the intermediary very likely represents several clients who can help share distribution costs, the costs for moving the goods are further reduced. Limitations of indirect channel In case the manufacturer has given up control, the situation may adversely affect the product’s success in the future. If the chosen intermediary is not aggressive the manufacturer may become vulnerable, especially in cases where competitors are careful about their distribution practices. Indirect channel may not necessarily be permanent. Being in the business of handling products for profit, the intermediary can easily discontinue handling a manufacturer’s product if there is no profit or if a competitive product offers a better profit potential. Types of Intermediaries in Direct Channel Foreign distributor – A foreign distributor is a foreign firm that has exclusive rights to carry out distribution for a manufacturer in a foreign country or specific area. Orders must be channeled through the distributor, even when the distributor chooses to appoint a subagent or sub distributor. The distributor purchases merchandise from the manufacturer at a discount and then resells or distributes the merchandise to retailers and sometimes to final consumers. The length of association between the manufacturer and its foreign distributor is established by a contract that is renewable provided the continued arrangement is satisfactory to both. A distributor may sometimes take on the name of the brand distributed even though the distributor is an independent operator and not owned by the manufacturer. Brother International Corp. is an independent US distributor of Brother Industries, Ltd., a Japanese firm. Longines-Wittnauer Watch Co. distributes the Swiss-made Longines watch in the US market. Benefits in using a foreign distributor The distributor is a merchant who buys and maintains merchandise in its own name. This arrangement simplifies the credit and payment activities for the manufacturer. To carry out the distribution function, the foreign distributor is often required to warehouse adequate products, parts, and accessories and to make facilities and personnel immediately available to service buyers and users. Foreign retailer – These are used in cases where the product in question must be a consumer product rather than an industrial product. The manufacturer contacts a foreign retailer through personal visit by the manufacturer’s representative to mailings of catalogs, brochures, and other literature to prospective retailers. The use of personal selling or a visit, although expensive due to travel costs and commissions for the manufacturer’s representative, provides for a more effective sales presentation as well as for better screening of retailers for the distribution purpose. The use of direct mail, although less expensive, may not sufficiently catch the retailers’ attention. For such big-ticket items as automobiles or for high-volume products, it may be worthwhile for a manufacturer to sell to retailers without going through a foreign distributor. In fact, most large retailers prefer to deal directly with a manufacturer. In Europe, for example, a number of retail food chains are becoming larger and more powerful, and they prefer to be in direct contact with foreign manufacturers in order to obtain price concessions. State-controlled trading company – For some products, particularly utility and telecommunications equipment, a manufacturer must contact and sell to state-controlled companies. Many countries, especially those in Eastern Europe, have state-controlled trading companies, which are companies that have a complete monopoly in the buying and selling of goods. Hungary has about a hundred state trading organizations for a variety of products, ranging from poultry to telecommunications equipment and for both imported and exported products. Being government sanctioned and controlled for trading in certain goods, buyers for state-controlled trading companies are very definitely influenced by their governments’ trade policies and politics. Most opportunities for manufacturers are limited to raw materials, agricultural machinery, manufacturing equipment, and technical instruments rather than consumer or household goods. Reasons for this limitation include shortage of foreign exchange, an emphasis on self-sufficiency, and the central planning systems of the communist and socialist countries. End user – This is where a manufacturer is able to sell directly to foreign end users with no intermediary involved in the process. This direct channel is a logical and natural choice for costly industrial products. For most consumer products, the approach is only practical for some products and in some countries. A significant problem with consumer purchases can result from duty

PRICING STRATEGIES Price Standardization A study of the marketing mix by large US-based industrial firms in their Latin American businesses found that the degree of standardization varies across individual elements, with branding and product being least adapted. According to one study, most American multinational firms standardize their prices in most world markets because they are probably cost driven. Pricing Decisions Factors to consider when pricing a product in case of international marketing Supply and demand – The law of supply and demand is a sound starting point in explaining companies’ price behavior. Cost – In pricing a product, it is inevitable that cost must be taken into account. British Airways at one time blindly matched the competition’s prices without carefully considering its cost structure. The typical costs associated with international marketing include: market research; credit checks; business travel; international postage, cable, and telephone rates; translation costs; commissions, training charges, and other costs involving foreign representatives; consultants and freight forwarders; product modification; and special packaging. A number of international marketers use marginal cost pricing, which is more polycentric and decentralized. This pricing method is oriented more toward incremental costs. An implicit assumption is that some of the product costs, such as administration costs and advertising at home, are irrelevant overseas. Exchange rate – The exchange rate is one factor that is quite crucial in international marketing. One pricing problem involves the currency to be used for billing purposes. As a rule, a seller should negotiate to bill in a strong currency, and a buyer should try to gain acceptance in a weak currency. These exchange rate/price relationships are basic in measuring the impact of an exchange rate change on countries’ actual trade balances. Market share – A high market share provides pricing flexibility because the company has the advantage of being above the market if it so chooses. The company can also choose to lower its price because of the better economies of scale derived from lower production and marketing costs. Market share is more crucial for late entrants because market share acts as an entry barrier. Market share can be bought with a very low price at the expense of profit. Compaq shocked the Japanese market in 1992 by selling desktop PCs for less than half the price of Japanese manufacturers. Hysteresis is a type of market inertia that says that the relationship between two or more variables depends crucially on past history. Hysteresis can occur when a firm has increasing returns to scale or when consumers are loyal to particular brands, making it very difficult for new entrants to sell their products at the same level of profit as established firms. Tariffs and distribution costs – As a rule, a product sold in a foreign country should cost more than an identical item sold in a manufacturer’s home market. This is the case because the overseas price must be increased to cover tariffs and extra distribution costs. In Japan, both tariffs and quotas combine to restrain imports and force the prices of imported goods upward. In addition, the long distribution channel (i.e., many middlemen) common in many countries around the world is responsible for price escalation, often without any corresponding increase in distribution efficiency. Culture – Home manufacturers should keep in mind that neither the one-price policy nor the suggested list price will be effective in a number of countries. In the USA, a common practice is for retailers to charge all buyers the same price under similar  buying conditions. In most other countries, a flexible or negotiated price is common practice, and buyers and sellers often spend hours haggling about price. Thus, price haggling is an art, and the buyer with the superior negotiating skills is expected to do better on price than those unfamiliar with the practice. Alternative Pricing Strategies These strategies include the timing of the price change, number of price changes, time interval to which price change applies, number of items to change, use of discount and credit, and bundling and unbundling. The effect of price can be masked and greatly moderated by financing or credit terms. Airbus, a European consortium owned jointly by four companies from France, Germany, the United Kingdom, and Spain, assembles and markets airplanes as an alternative to carriers that prefer not to buy American. In its eagerness to penetrate the US market, the consortium provided export financing that subsidized Eastern Air Lines by more than $100 million. For Boeing, the consortium engaged in predatory export financing just to get sales. Discounts (cash, quantity, functional) may be used to adjust prices indirectly. Large buyers are in a position to command a higher discount if it can be granted legally. Although a quantity discount may provide an incentive for dealers to work harder, it often discriminates against smaller middlemen. Another method used to moderate the price effect is to bundle or unbundle the product. Bundling adds value and increases prices a little or not at all for added value. This is the strategy used by Japanese car makers, who increase the base price of their cars just enough to cover actual costs. The Japanese also sell cars in the USA with more standard equipment and fewer options. The strategy makes sense because their vehicles must be shipped from overseas factories, and any custom orders would only serve to delay production and shipment. Moreover, the price charged covers a “bundle” of standard equipment and represents good value for buyers. Bundling offers a buyer more product for less money while simplifying production and marketing activities. A product can be unbundled so that the buyer does not have to pay for any extras not wanted. In effect, the price can be made more affordable by unbundling the product. Dumping Dumping is a form of price discrimination. It can be described as the practice of charging different prices for the same product in similar markets. As a result, imported goods are sold at prices so low as to be detrimental (unfavorable) to local producers of