CHINA: FORGING A GLOBAL REPUTATION

1. Can consumer goods from China be trusted?

China had developed a new identity as a more hospitable and accommodating country after
hosting the Olympic Games. However, the positive views of the Olympics was later negated by
two major scandals in the consumer goods sector, which led consumers to doubt the quality of
goods manufactured in China. The first incident occurred in 2007 when Chinese manufacturers
were found to have used lead paint in the production of many children’s toys, while the second
took place in 2008, popularly known as the Chinese milk scandal. Both these eclipsed the
reputation China had gained after the Olympics.

Meanwhile, reports justify the fact that the United States continued to rely on China for
production of low-cost goods post these scandals. Even after the lead paint incident, Chinese
exports to the United States grew by double digits in 2007. Imports to the EU from China
increased by nearly 30 percent in 2007. Moreover, some analysts argue that the world would
continue to rely on China as the major supplier of manufactured goods since recalls will not drive
away investors or companies. China will only be watched until it has established an
internationally suitable quality control standard.

2. How can retailers ensure that their products are safe?

Retailers should check whether the products meet the specific quality standards fixed by the
legislature before importing them. However, bribery and corruption allow certain products to pass
the quality tests, even without meeting the necessary standards. An example of this could be the
presence of lead paint in toys and tainted milk, both produced in China. One alternative for the
retailers could be to avoid imports from countries subject to product scandals. However, it is
often observed that such countries usually have a comparative advantage of lower production
costs. Thus, retailers need to compromise between quality and cost while importing products
which are safe for consumers.

3. Has the increase in globalization increased product risk?

An international marketer needs to comply with product safety laws and regulations imposed by
the legislature of different countries while internationalizing the product. The producer is liable
for any damage caused by a defect in his/her product. Thus, the product liability of the producer
increases with globalization. Moreover, firms encounter three major types of political risks with
internationalization of products: ownership risk, which exposes property and life; operating risk,
which refers to interference with the ongoing operations of a firm; and transfer risk, which is
mainly encountered when attempts are made to shift funds between countries. Apart from the
political and legal risks attached to the products, globalization also brings with it currency and
exchange rate risks.

THE CATFISH DISPUTE

1. Was it fair for the Vietnamese catfish importers to step in and capture market share while the
market has been expanded due to the significant efforts and investments of the domestic industry?
How should quality (if quality differences exist) considerations be reconciled?

The idea of free trade assumes that no matter whose efforts and in which ways were employed to
expand markets – there must be no barriers to market entry and trade. If the domestic industry is
competitive, it will retain profits in the long run and the investment costs will be paid off.
Otherwise, if tariffs are necessary to keep supply limited and to protect the profit margins of the
industry, it means that the industry expansion was not feasible in the first place and further
protection of it will distort the market and resource allocation.

However, if, as a result of thorough research and investigation, it is found out that the income and
spillover effects generated by the protected industry overweigh the benefits that consumers get
under free trade – tariffs and barriers may be applied. In this case, however, the international role
of the country and its foreign policy priorities, and integration in global economy must be taken
into consideration.

If, on the other hand, the imported and home goods have real quality differences, these can be
explained to consumers. Rules and regulations must be set up by relevant agencies in order to
scrutinize advertising campaigns and avoid unfair discrimination against imported goods.

2. The label regulation would probably make consumers pay a higher price than they would have
paid otherwise. Is this right?

Most of the neoclassical school economists agree that barriers to free trade are always hurting
consumer interests over the long run. There are cases, however, when introduction of at least
temporary tariffs and other trade barriers can be justified in terms of unfair practices of a foreign
nation, national security, or infant industry considerations. The administration or Congress should
consider comprehensive research on the cross industry and general public effects of such
measures if introduced. Such concepts as net loss in welfare for the society, feasibility of transfer
effects from consumers to producers, validity of infant industry, and other possible justifications
should be thoroughly considered.

3. Can any industry in the United States influence lawmakers to take decisions in their favor?

As the experience with steel and catfish shows, United States politics can be significantly
influenced by domestic industry interests, which is especially true under the conditions of a
weakening economy. After being organized, industry representatives can find ways to effectively
promote their interests through Congress and administration playing on public sentiment and
using future election leverage as well as past election promises. Industry organizations may also
refer to national security matters to promote their interests. This issue may be even more sensitive
in the post-9/11 environment.

It is important to recognize the fact that some of the American foreign policy goals cannot be
achieved with protectionism on the surge. It is true that the U.S. is the most attractive market for
foreign producers; however, foreign producers and their governments are very reluctant to put up
with American double standard policies and will retaliate. It may also hurt American prestige,
which nowadays is very important to retain when the U.S. needs international support in its
antiterrorism campaign.
 rging laws and rules pertaining to financing. The lack of credit bureaus, while impinging on
efficiency and profitability, should not hinder market entry.

Loan products should be monthly-payment consumer loans secured by either the vehicle or other
property. The lease option should allow for additional profitability. Since state imposed rate caps
limit the profitability of the financing, lease terms can be set so that GMAC realizes consistent
residual gains upon return and resale of these vehicles. Used vehicles returning to the market after
lease will likely be viewed as aspirational

purchases by those Chinese currently driving mini cars (the old GM/Sloan plan for graduating
customers from brand to brand should work in China starting with the GM/Wuling mini car
buyers). The channels through which GMAC offers loan products should not be limited to
franchised auto dealers but be inclusive of partner institutions’ branch offices.

A big point should be GMAC’s indifference in terms of using the vehicle as collateral for auto
loans. GMAC’s market entry under current rules allows it entry through the side door into
China’s mortgage market which is potentially far more profitable than the auto market will ever
be. It is noteworthy that GMAC is the only foreign financial institution among those applying
(i.e., VW, Ford, and Peugeot) that has volume mortgage lending experience.

DAMAR INTERNATIONAL

1. Evaluate alternative expansion strategies for Damar International in the United States.
 Two feasible expansion alternatives open to Damar are to offer a wider selection of goods and to
expand its labor base. Due to the limitations imposed on Damar by artisans in Indonesia, not to
mention existing competition, it would be very difficult for Damar to target larger retail and
department stores. Because of the individual size of Damar's targeted market, the order sizes are
relatively small. Therefore to become more profitable Damar must target as many boutiques,
trade fairs, craft exhibitions and gift shows as possible. In order to do this, Damar must have a
larger labor base. (By hiring people on a commission basis, labor costs would be minimized.)
Furthermore, Damar would be able to respond to and process orders more quickly. A logical
expansion site would be New York. Not only would Damar be closer to the Indonesian trade
office to ease future red tape problems, but it would also be closer to the numerous boutiques and
trade fairs held in New York.

2. Discuss Damar's expansion alternatives in Indonesia and France and their implications for the
U.S. market.

If Damar wants to expand, it has to either find or borrow the resources necessary to expand and
organize the cottage industry production in Indonesia. By having a wider base in Indonesia --
perhaps by seeking out artisans from the different islands (and even different parts of the same
island), Damar can diversify its Indonesian hand-made crafts and be able to supply more stores
with goods. Sooner or later, Damar will have to hire people outside of family and friends to cover
all the work that needs to be done. The wider variety of crafts could lead to an expansion of the
U.S. market. By further expanding into France, Damar will diversify its goods and perhaps appeal
to an even wider selection of boutiques.

3. How can Damar protect itself against exchange rate fluctuations?

One way to protect itself against exchange rate fluctuations is to denominate the transaction in the
currency where the expenses are incurred. Although the customer might be able to pay in U.S.
dollars, the price would reflect any exchange rate changes. Another way is to trade in the futures
market by buying the necessary currency in advance so that it will know how much it will receive
in the local currency.

4. What are the likely effects of shipment delays on Damar? How can these effects be overcome?

Since Damar carries no inventory, shipment delays translate into late delivery, customer
dissatisfaction and lost sales. As Damar's business is almost entirely based on the cultivation of
personal contacts and by expansion suggestions from customers, customer satisfaction is
extremely important. Ways to overcome this problem are by maintaining some kind of inventory
in the United States and having alternate routes and methods of transportation open to be used if
necessary.

INTERNATIONAL MARKETING AND THE NBA

1. Discuss the following statement: “Yao Ming isn’t just China’s best basketball player. He’s the
most persuasive symbol of globalization.”

Yao Ming was the first international player ever selected as the number one overall pick by the
NBA’s Houston Rockets. Yao has received many honors for his contributions on and off the court
in both the United States and China. He serves as the perfect vehicle for multinational
corporations to approach 1.3 billion potential customers. Yao is everywhere in both the United
States and China because of his marketability. He represents more than a basketball player; he is
an international role model that has had a positive influence on individuals around the world. Yao
has proven to be an influential symbol of globalization and will continue to be in the future.

2. Consider China’s current issues such as intellectual property rights and logistical infrastructure.
How should an international marketer consider these concerns before entering the potentially
profitable yet elusive Chinese market?

International marketers should consider these current concerns in China by strategically using
their resources to channel their marketing efforts through an international superstar such as Yao
Ming. He serves as the cornerstone of the NBA’s international expansion strategy and has also
served as a vessel for promoting multinational corporations’ products to the Chinese customers.
He is a sports superstar who has the ability to connect with the potential customers of China as
well as other countries internationally. The elusive Chinese market is obtainable even with their
current issues by using an already established spokesperson for their country, such as Yao Ming.

3. With more international players joining the ranks of NBA teams, should the NBA begin to
position itself as an international basketball league? How would doing so affect its marketing
potential within and outside of the United States?

The NBA should not begin to position itself as an international league for several reasons. The
current U.S. market for the NBA is very profitable and will decrease with the

expansion of the NBA as an international league. U.S. consumers will not view an international
basketball league with the same degree of enthusiasm because it is no longer strictly a U.S. sport.
The caliber of basketball players may decrease if the league is expanded internationally because
there will be a need for more players even if they are not the best in the world. Also, setting up an
infrastructure to support an international basketball league will cost money that the NBA may not
be willing to spend. Outside of the United States, its marketing potential would be desirable by
basketball fans and the NBA. There are many complex issues to consider when analyzing this
issue; therefore, it is difficult to foresee whether this would truly be an option for the NBA in the
future.