Product Alterations in Foreign Markets

By: Carl Phelps, Research Associate with GLOBAL ID LLC.

There are three main reasons for making product alterations when introducing your product into a foreign market. Legal requirements may cause you to alter your product, usually related to product safety. All countries have different product safety requirements. For example, the United States has stricter pollution standards than many other countries, which causes foreign automobile manufacturers to alter their products. Additionally, foods and pharmaceuticals are often subjected to different testing and labeling requirements when exported to foreign markets.
There are also cultural reasons for the alteration of products. Religious differences can cause problems with the introduction of products. For example, food companies shouldn’t expect to sell as much pork in Islamic countries or as much of any meat in India. Other cultural differences are difficult to detect, and it often takes trial and error to correct the product. For example, Toyota was fairly unsuccessful at selling pickup trucks in the United States until they altered the trucks to have enough headroom for drivers to wear large cowboy hats.
A third reason for product alterations comes from economic differences. To accommodate countries with lower average incomes a company may have to design a cheaper model. It is sometimes more beneficial for companies to sell their products in smaller package sizes, as people with lower incomes tend to buy products as they need them, instead of planning ahead. Also, countries with lower average incomes tend to have poorer infrastructure, which cause alterations in products such as automobiles. For additional information on foreign production email: carlphelps@globalidllc.com

Mercantilism

The first form of international trade theory was the concept of Mercantilism. This theory began around 1500 AD and lasted through the colonial era. The theory behind Mercantilism was that measurement of a country’s wealth was based on the amount of gold it was holding. Therefore, it was important to export more than the country imported in order to gain gold from other countries. This gold was then used to fund armies and solidify a central government. Under this theory, countries would restrict their imports and heavily subsidize domestic industries in order to increase exports.

Mercantilism also encouraged countries to use their colonies in order to support their trade objectives. The colonies would supply raw materials and low value goods to the colonizing country. Colonies were also forced to import the high value goods from the mother country. Mercantilism weakened around 1800 AD as other trade theories were established and governments stopped limiting the development of industry within their colonies. Today, the term Neomercantilism is used to indicate that a country is trying to run a favorable trade balance in order to achieve some political objective.

Written by Carl Phelps, Research Associate for GLOBAL ID LLC.
For additional information, please visit our website: http://www.globalidllc.com/

The Foreign Corrupt Practices Act

In international business, bribery often takes place to influence government decisions. In 1977, The Foreign Corrupt Practices Act (FCPA) was passed by the United States in order to combat the growing problem of bribery. The act made it illegal for U.S. companies to pay bribes to any foreign government officials or political parties. Today, the act also applies to any foreign firms operating in U.S. territory or quoted on any U.S. stock exchange.

One motive for bribery is to facilitate government services such as registrations, permits, and import clearances. The FCPA allows payments to officials in order to expedite services that are legal, but does not allow payments to officials who are not directly involved in a process. The reason for this is that some foreign governments will stall imports at customs indefinitely until they receive a bribe. The FCPA allows for the U.S. companies to bribe the customs officials in order to obtain import clearance. There are many critics of the FCPA who claim that U.S. companies lose business in foreign markets because competitors from other countries are allowed and even encouraged to make bribery payments. Recently, the FCPA has appeared to be an effective deterrent of bribery as many executives of large companies have either resigned or been fined by the U.S. government.

Written by Carl Phelps, Research Associate for GLOBAL ID LLC
For additional information, visit our website: http://www.globalidllc.com/

EU-US Relations

The European Union (EU) and the United States (US) are two of the largest economies in the world. The two markets trade heavily with each other, as the US is the EU’s largest trading partner. Relations between the two, however, have always been strained. In 2001, the US passed steel tariffs and farm subsidies that worsened the relationship between the two powerhouses. The tensions eased, however, when the World Trade Organization (WTO) pressured the US into dropping the steel tariffs.

In 2004, a new dispute between the US and EU, arose regarding the aircraft industry. The US accused the EU of providing launch aid to Airbus, which are illegal according to the WTO. These soft loans would not have to be completely repaid unless Airbus performs well in the market. In retaliation, the EU accused the US government of giving Boeing illegal tax breaks and funneling Research & Development money to Boeing through NASA and the Pentagon. Both sides filed complaints with the WTO, and agreed to enter into bilateral negotiations in order to avoid harsh penalties from the WTO.

Today, the relationship between the US and the EU remains somewhat strained due to these disruptive disputes. Ironically, the largest union in the US, the AFL-CIO, will be lobbying the US government to purchase Boeing planes rather than Airbuses for an upcoming procurement. Union representatives will be in Washington DC on May 19, 2008.

Written by Kelly Kasic and Carl Phelps
For additional information, visit our website: www.globalidllc.com

Ethical Dilemmas in the Pharmaceutical Industry

Tiered pricing is the pharmaceutical industry’s answer to providing low-income developing nations with the drugs that they need. In order for pharmaceutical companies to cover their large Research and Development (R&D) expenses, they must charge a high price for their drugs while they are patented. Once a patent expires (usually about 17 years), the drugs are produced by several generic drug manufacturers that can charge lower prices because they don’t have the large R&D budget. Many low-income developing nations have the largest number of people who are in need of these innovative drugs (yet cannot afford them). As a solution, pharmaceutical companies employ a tiered pricing system in which they charge much higher prices in industrial countries, and a much lower price for developing countries.

One major problem with the tiered pricing system is that some deadly diseases don’t exist in industrial nations. This means that the pharmaceutical companies can’t use tiered pricing to cover their high R&D costs. As a result, there is no development by pharmaceutical companies of vaccines and drugs against some of the world’s deadliest diseases, such as malaria. This is where governments and companies fall short of expectations to be socially responsible and solve the problem of disease in developing countries. In the case of Malaria, not-for-profit organizations such as the Bill and Melinda Gates Foundation have stepped in to help fund the development and distribution of a vaccine that could help stop this deadly disease.

Written by Carl Phelps, Research Associate with GLOBAL ID LLC.
For more information, contact us: carlphelps@globalidllc.com