The basic marketing mix consists of these four interconnected functions which we name as ‘Four Ps’. Those are Product, price, promotion and placement.
When developing a successful international marketing program the firm has to make several key decisions and the first two crucial questions the MNC asks are,
- Whether or not the marketing program can or should be standardized across all markets or adapt individually to each separate market.
- Whether marketing should be centralized or decentralized
Standardization greatly simplifies the complexity of the marketing process and might provide cost benefits to a firm. The major drawbacks would be risk of market loss by not adapting to the consumer taste or local behavior. So, basically standardization decision relies on the nature of product or the service. Typically, organizations decide among three alternatives regarding their marketing plan. Ethnocentric, polycentric and geocentric are the key factors.
While advertising methods are similar throughout the world other promotion tools such as sales promotion and publicity etc need adaptation to the local environment. Pricing methods such as, cost-plus and target-return can be used but have to consider about MNCs long term strategic objectives.
Maintaining an effective amount of working capital is a must for companies of all sizes but it’s more important for small but growing companies participating in international business. The reason is MNCs always have to face exchange risks, unnecessary costs, idle funds and short term borrowings, taxation laws etc
Intracompany pooling
This is a financing technique that seeks to optimize the total availability of resources globally or are-group basis.
Hedging against inflation
Dealing with inflation in different nations calls of active working capital management policies. High inflations erode the value of receivables but lessen the payable burden. So, when inflation expected to be risen the local receivables have to be delivered at the earliest possible date.
Managing blocked funds
Blocked funds are basically the resources of overseas entities that host government do not allow to be repatriated, at least temporarily. There are few main techniques to deal with blocked funds.
- Export orientation for multinationals
- Substitution of fresh investments
- Nonformal techniques
- Financial techniques
Transfer pricing
This refers the pricing arrangements made among different units of a multinational corporation.
Capital budgeting and financial structure of a MNC
The main factors to be considered are;
- Exchange control restrictions on remittances
- Political risks
- Tax considerations
- Source of funds
- Currency of borrowing investments
- Different inflation rates
Letters of credit in international trade
- A draft – It is a demand of payment from the buyer at a specific time. There are two types of drafts, sight drafts and time drafts. The sight draft requires money when the importer receives goods and the time draft extends credit to an importer for a specific period of time.
- Letter of credit – It’s a written commitment by a bank made at a request of a customer to effect payment if the seller complies with certain specific conditions. Clean letters of credit doesn’t require any presentation of documents other than the bill of exchange to obtain the payment. Most letter of credit are documentary letters of credit which needs document such as, the invoice, customer documents, proof of insurance, a packing list, an export license, the certification of product origin, inspection certificates, a bill of landing etc.
There are many kind of letters of credit use in the trade. A revocable letter of credit can be modified or revoked by the issuing bank without notice or consent from the beneficiary while irrevocable letter of credit can be modified or revoked only with the consent of the beneficiary. Stand-by letter of credit is where the bank guarantees the beneficiary can claim the payment if the principal does not fulfill its obligations.
MNCs must constantly maintain foreign exchange and transaction exposure. Parallel loans, timing of fund transfers credit and currency swaps are good techniques for that.
