IMT-16: INTERNATIONAL TRADE

PART - A

Q1. Is specialization the key to success in the international market? Give reasons for your answer.

Q2. What is the significance of the law of comparative advantage in international trade?

Q3. Were favourable government policies solely responsible for the extraordinary growth in world trade after World War II? Give reasons for your answer.

Q4. Why do you think it was easier for the specialized activities of India and China to become part of the international supply chain?

Q5. The exports of major developing countries such as China and India depend, to a large extent, on the demand of the major developed countries. Explain how this affects their economies.

PART - B

Q1. How has India transformed from a slow growing economy to a liberalized and fast growing one?

Q2. What role do MNCs play in the host countries' economies? What does off shoring imply?

Q3. Why is the choice of trade strategy significant? What level of Government interference would you suggest for India?

Q4. What purpose does a letter of credit solve? What are the steps involved in the operation of a letter of credit?

Q5. When and how can a country draw upon its international reserves? Explain the consequences with respect to the balance of payments situation.

PART - C

Q1. How does balance of payments reflect the economic situation of a country?

Q2. Comment on the role of regional trade blocs in international trade.

Q3. How have the changes after 1973 improved the functioning of IMF with respect to the smooth functioning of the international monetary system?

Q4. What has been the role of WTO in promotion of international trade?

Q5. Why have regional trade agreements or RTA activities intensified across the world? How does it affect the multilateral trading system?

CASE STUDY 1

Kodak versus Fuji in 1995

Kodak started selling photographic equipment in Japan in 1889, and by the 1930s it had a dominant position in the Japanese market. Then came World War II and the subsequent occupation of Japan. In the aftermath of the war, US occupation forces persuaded most US companies, including Kodak, to leave Japan to give the war-torn local industry a chance to recover. Kodak reluctantly handed over the marketing of its products to Japanese distributors. Kodak was effectively priced out of the market by tariff barriers. Over the next 35 years, Fuji gained a 70 per cent share of the market while Kodak saw its share slip to a miserable 5 per cent. During this period, Kodak limited much of its activities in Japan to the sale of technology. To quote Albert Sieg, who headed Kodak's Japanese operations from 1984 until the early 1990s, 'Like most American companies (in the 1950s and 1960s), we were content to sell technology to the Japanese to make money, and we did. We sold technology to Fuji Photo Film and Konica and anybody who came to our door. That was the way we decided to make money in Japan. It was also a judgment - obviously not right - that we did not need to worry about the Japanese as a competitor'.

This situation persisted until the early 1980s when Fuji launched an aggressive export drive, attacking Kodak in the North American and European markets where for decades Kodak had enjoyed a lucrative dominance in colour film. Fuji's onslaught squeezed Kodak's margins, took market share, and forced the company to slash costs. Wth their backs to the wall, Kodak's top executives admitted that their company faced a global challenge from Fuji that would only grow. Deciding that a good offence is the best defense, in 1984, Kodak set out to invade its rival's home market. Over the next six years, Kodak spent an estimated $500 million in Japan. At a time when Fuji was committed to heavy spending on promotion abroad, Kodak outspent Fuji in Japan by a ratio of more than 3 to 1. It erected mammoth $1 million neon signs as landmarks in many of Japan's big cities. It sponsored sumo wrestling, judo and tennis tournaments and even the Japanese team at the 1988 Seoul Olympics, a neat reversal of Fuji's 1984 coup when it won the race to become the official sponsor of the Los Angeles Olympics.

Kodak realized that to make any headway in Japan, it had to control its own distribution and marketing channels. Rather than go it alone, Kodak established a joint venture with its distributor, Nagase Sangyo, an Osaka based trading company specializing in chemicals. Kodak also realized that it would not succeed in Japan unless it thought and acted just like a Japanese company. Today, apart from a small unit that liaises with Kodak's headquarters in Rochester, New York, all Kodak's employees in Japan are Japanese, complete with a Japanese boss and Japanese management. There are only 30 foreigners among Kodak's 4,500 employees in Japan. So thoroughly Japanese has Kodak become that it even has its own keirestu (family of suppliers with cross holdings in each other).

All this activity has brought success. Between 1984 and 1990, Kodak's sales in Japan soared six fold to an estimated $1.3 billion. Kodak's share of sales to amateur photographers has grown by a steady 1 per cent each year for the past six years. Kodak now has a 15 per cent share of that market and may well overtake second place Konica within the next few years. Kodak's success has been even more impressive in Tokyo, where it now has 35 per cent of the amateur market. In addition, Kodak now has 85 per cent of the market for medical X-ray film and photographic supplies to the graphic arts and publishing industries. Perhaps the most important effect of Kodak's Japanese thrust, however, is that Fuji's margins in Japan have been squeezed. Kodak has put Fuji on the defensive, forcing it to divert resources from overseas to defend it at home. By 1990, some of Fuji's best executives had been pulled back to Tokyo.

All this success, however, was apparently not enough for Kodak. In May 1995, Kodak filed a petition with the US Trade Office that accused the Japanese government and Fuji of "unfair trading practices'. According to the petition, the Japanese government helped to create a 'profit sanctuary' for Fuji in Japan by systematically denying Kodak access to Japanese distribution channels for consumer film and paper. In Japan, unlike in the United States, film manufacturers do not sell directly to retailers and photofinishers; in between stand the distributors. Kodak claimed Fuji had effectively shut Kodak products out of four distributors having a 70 per cent share of the photo distribution market. Fuji has an equity position in two of the distributors, gives large year-end rebates and cash payments to all four distributors as a reward for their loyalty to Fuji, and owns stakes in the banks that finance them. Kodak also claimed that Fuji used similar tactics to control 430 wholesale photo-finishing labs in Japan to which it was the exclusive supplier. Moreover, Kodak's petition claimed the Japanese government had actively encouraged these practices.

Fuji did not take these charges lying down. In a 585 page document called 'Rewriting History', Fuji stated bluntly that Kodak's charges were a clear case of the pot calling the kettle black. Fuji claimed that Kodak had locked up chunks of the US market through exclusive dealing arrangements with retailers won by upfront payments and rebates. Among other charges, Fuji's document claimed Kodak had an exclusive agreement with Eckerd Corp., the fourth largest photo retailer in the United States, that Kodak paid rebates of $2.7 million per year to the Army and Air Force Exchange Services for an exclusive arrangement, and that Kodak offered Genovese Drug Stores Inc., a 144 store chain based in New York, $40,000 plus rebates if the Company promised to carry no brand of film other than Kodak. Kodak responded that while it did offer incentives, 'Retailers are free to carry other brands if they wish. These relationships are completely voluntary'.

Questions:

Q1. How might it be said that Kodak helped to create a competitor in Fuji Photo Film?

Q2. From the evidence given in the case, do you think Kodak's trading practices against Fuji are valid, or are they simply a case of the kettle calling the pot black?

CASE STUDY -2

Servicing Global Travellers

The international hotel industry is so hugely competitive that it is heartening to hear that the general managers of two very different hotels recently acknowledged that they might learn something from each other.

The Athenaeum Hotel and Apartments in London's Piccadilly is a small privately owned hotel with the majority of its guests comprising business travellers from the US. Sally Bulloch, General Manager, says one way of finding out if the hotel was giving customers what they wanted was to compare it with what they are offered in the US.

She suggested swapping jobs for a week with Valerie Ferguson, general manager of the Ritz Carlton in Atlanta, Georgia and Secretary of the American Hotel and Motel Association.

Ferguson decided to take up Bulloch's offer and go ahead with the swap. She said: 'I had no idea what I would get out of it but I saw it was an opportunity to gain an insight into how I could further develop my product. About 35 per cent to 40 per cent of our guests are international and I wanted to walk away with a better idea of how to service that business and build it up.'

Business travel is increasingly based on the notion of servicing global travellers with similar wants and needs. Ferguson said, however, that there could be enormous differences.

'One thing that has left an indelible impression is that European travellers are not as vocal as Americans - you have to take more time to pull the information out. In America, a guest might go to the front desk and say, 'My breakfast was terrible,' but the British are just not going to do that. We've got to find a way of getting that feedback, rather than assuming that everything is OK.' One way might be to contact visitors after they have left the hotel. 'I don't think they will speak to you unless something major happens but once they get home or to the office, they might,' she said.

Guests with limited English could be inhibited by language difficulties, and Ms Ferguson believes one of her achievements over the past five years at the Ritz-Carton is to ensure that staff speaking a number of languages are available at all times.

She was impressed by the efforts made at the Arthenaeum to make guests feel at home. 'There are all these reminders that you are at home - whether it's a bowl of apples or wonderful nick-nacks on the lobby. We like to think you can get a homely atmosphere in a Ritz-Carlton - we have afternoon teas and a special breakfast for Japanese guests - but customers don't want it so comfortable that it's like an old pair of shoes.'

For her part, Sally Bulloch of the Athenaeum believed there was a difference in attention to detail. 'It's higher over here. For instance, I've often found if there is a bowl of fruit in an American hotel, it tends to stay there all week, whereas we change it everyday.' But she admires the informality of US hospitality, and wanted to incorporate more of it in her hotel. 'We can sometimes be too British,' said Ms Bulloch. 'It took me 10 years to get a hamburger on our room-service menu. I kept suggesting that was what our guests wanted but kept being told 'that is not what we do at the Athenaeum.'

She added: 'Many travellers want a quick tea or coffee but do not want to sit at a table. At the Ritz- Carlton, outside the breakfast room, they had this wonderful silver urn and attractive cups, not paper cups, so people could just have some coffee. It's very American but then why not give our American guests what they want rather than what we think they should have?'

Despite the difference in size between the two hotels - the Ritz-Carlton has 457 rooms and the Athenaeum has 157. Ms Ferguson said the day-to-day management was very similar. 'It's the same except for the British accent.' But decisions can be made quickly in a smaller hotel, she said, 'Product development is managed quite differently in an independent hotel than in a chain. While our standards are very similar and our company is decentralized with a lot of decisions made at the hotel, the decision-making process here is faster - we're trying to regain that entrepreneurial spirit.'

Ms Bulloch said she had been struck by the amount of time spent by senior staff in the US hotels on administration. 'My impression has always been that senior staff tend to be in meetings or handling paperwork.

But you don't know what's going on unless you are on the floor, and guests often want to meet the manager,' she said.

Ms Ferguson said she was going back to Atlanta with 'an increased awareness of the importance of face-to-face contact. Each employee here tries to establish a relationship with the guest; they try and remember the guest's name.'

Both would like to extend the swap to other staff. 'I would eventually like some of our housekeepers and reception staff to do the swap and to experience what it's like to travel as a guest - especially when you are jetlagged,' Ms. Bulloch. 'There's nothing worse than arriving at 7:30 a.m. and being told by a smiling girl at the reception, 'Sorry, your room won't be ready till 11'. Since lots of people leave early, we get the maids to start at 6 a.m. instead of 8 a.m. With three maids, a room can be ready in eight minutes.'

She went on to say: 'We ought to be able to understand our guest's needs. When you are in the US, for example, you notice how people will give detailed orders in a restaurant. I don't think our staff wants to know what a guest is talking about if they ask for a low-sodium meal.'

Ms Ferguson would like to use the idea of a swap as an incentive to staff by offering it to the hotel's 'employee of the year.'

Questions:

Q1. What lesson might an international manager learn from this case?

Q2. What business characteristics lend themselves most to organizational learning from using this practice? What characteristics are least conducive to learning from this practice?

Q3. What are the advantages and disadvantages of using the methods described in the case?