CHAPTER 1 & 2: SUPPLEMENTARY TOPIC

CHAPTER 1: COMPANIES THAT ARE WELL-KNOWN USING LOW-RISK AND HIGH-RISK METHODS
OF ENTERING INTERNATIONAL MARKETING.

1. Indirect Exporting
Procter & Gamble (P&G) was founded in 1837 in the United States, and it supplies its products to local
partners who handle selling and distribution abroad. This approach allows P&G to expand globally with
minimal investment and reduced risk. However, it also means less control over marketing and profits.
Overall, indirect exporting is an effective way for companies to enter international markets easily and
efficiently. One of the largest consumer goods companies in the world.

Produces everyday products like:

2. Direct Exporting
Nike directly exports its products by selling to foreign distributors and retailers, and even to consumers
through its official stores and online platforms. Nike operates in 190+ countries worldwide. Instead of
relying on middlemen in its home country, Nike manages international shipping and logistics, Pricing
strategies in different countries, Marketing and branding campaigns, and relationships with retail partners
worldwide. This means Nike has greater control over how its products are sold globally. It partners with top
athletes like Michael Jordan, making its brand globally influential.

3. Managing Contracting
Hilton expands internationally by managing hotels owned by local investors. Hilton operates 7,000+ hotels
in 100+ countries. The founder Conrad Hilton believed in spreading hospitality worldwide. Many Hilton
hotels are not owned by Hilton — they are managed. Hilton introduced the first centralized hotel reservation
system. Some Hilton hotels are located in iconic places like airports, resorts, and city centers. Hilton earns
management fees, while the owner earns from the hotel’s profits.

4. Licensing
The Coca-Cola Company uses licensing agreements and a network of local bottlers. The company
produces a syrup concentrate, then gives rights to local bottling companies to manufacture, bottle,
distribute, and sell the final drink in their countries. This spreads risk and reduces the need for Coca-Cola to
build bottling plants everywhere. Coca-Cola is one of the most licensed brands in the world. The exact
flavor formula (often called “Merchandise 7X”) is one of the company’s best-guarded secrets.

5. Franchising
McDonald’s didn’t build every restaurant itself in every country. It used franchising, where it lets local
entrepreneurs open and operate restaurants under the McDonald’s brand, using its proven systems and
menu. This allowed McDonald’s to grow fast around the world without spending huge amounts on building
and staffing every outlet. McDonald’s operates in over 100 countries, but most of its restaurants are owned
by independent franchisees, not by the corporation itself. Because local owners run the restaurants,
McDonald’s can adapt its menu — like offering McSpicy in Asia or McArabia in the Middle East.
6. Joint Venture
Sony Ericsson, The joint venture between Sony (Japan) and Ericsson (Sweden) was officially formed in
[Link] has strong in consumer electronics, music, and design while Ericsson is strong in mobile
communication technology and networks. The goal was to combine their expertise to compete in the rapidly
growing mobile phone industry. In 2012, Sony bought Ericsson’s share, ending the joint venture. Sony
Ericsson was among the top 5 mobile phone brands in the mid-2000s.
7. Turnkey Project
Samsung Engineering is part of the larger Samsung Group, a global conglomerate from South Korea.
While Samsung is widely known for phones and electronics, it also operates in construction, shipbuilding,
and large-scale engineering projects. Samsung Engineering focuses on building industrial plants and
infrastructure projects worldwide. Once completed, the project is “turned over” to the client, ready for
immediate use—like handing over the “key” to a fully finished facility. Samsung Engineering has handled
projects worth billions of dollars each. Some of its projects are as large as entire industrial cities. Samsung
Group also builds ships and skyscrapers, including parts of the Burj Khalifa, the tallest building in the world.
8. Foreign direct investment
Nestlé directly invests in factories and production facilities in multiple countries instead of just exporting
finished products from Switzerland. Countries with major Nestlé production plants include the United
States, Brazil, China, India, and the [Link] allows Nestlé to adapt products to local tastes (e.g.,
Milo in Asia, Nescafé variations worldwide), reduce import costs and tariffs by producing locally, create jobs
in local communities, boost goodwill and brand presence, and ensure control over production quality and
safety standards. This is a perfect example of FDI because Nestlé owns and manages foreign assets
directly, taking on investment risk in exchange for operational control. Nestlé produces over 1 billion
products every day enough to feed millions worldwide. It owns more than 400 factories in over 80 countries.
Nestlé is not just chocolate and coffee—it also produces water, pet food, cereals, and health products. Its
investment in local factories sometimes includes research and development centers, helping Nestlé adapt
products to local nutritional needs. Nestlé owns the KitKat brand, which is the #1 chocolate bar in many
[Link] some countries, Nestlé works with local farmers for raw materials, supporting sustainability and
local economies

9. Wholly-owned subsidiary
IKEA directly owns and operates many of its stores worldwide instead of franchising in these regions. It
maintains complete control over store layout, inventory, and customer service. Implement consistent pricing
and promotions globally. Ensure brand identity and experience are uniform across countries. By fully
owning stores, IKEA can also control supply chain operations, including logistics, warehouse management,
and product distribution. IKEA opens a new store roughly every 2–3 weeks somewhere in the world. The
company’s largest store is in Dalian, China, covering over 67,000 square meters. IKEA sells more than
10,000 products in each store, all standardized for quality and design. IKEA is known for its “flat-pack”
furniture, making global shipping and assembly easier and cost-effective. Even with WOS, IKEA sometimes
partners with local suppliers for sustainability and cost efficiency. The company’s catalog is translated into
32 languages and distributed to millions of households annually.

CHAPTER 2: TRADE INSTITUTION

A. World Trade Organization (WTO) - Establishes rules for global trade, resolves disputes. The World
Trade Organization (WTO) started in 1995, but it evolved from the General Agreement on Tariffs and Trade
(GATT), which began in 1948. The WTO has 164 member countries, covering over 98% of world trade
B. International Monetary Fund (IMF) - provides financial support to stabilize countries’ economies,
indirectly affecting trade. o While the IMF is mostly about loans and economic stability, it also issues
special drawing rights (SDRs) – like an international “currency” used among countries.

C. World Bank is an international financial institution that provides loans and grants to countries to support
development projects and reduce poverty. Unlike the IMF, which focuses on economic stability, the World
Bank primarily funds projects such as building roads, schools, hospitals, and improving infrastructure. It
was created in 1944 during the Bretton Woods Conference alongside the IMF. The World Bank has over
189 member countries. One of the largest projects funded: the Three Gorges Dam in China, costing over
$24 billion. The World Bank publishes the “Doing Business Report”, ranking countries on how easy it is to
start and run a business—this influences trade and investment.
D. Regional Trade Institutions - Trade blocs can sometimes act like a “mini WTO” for their region.
1. ASEAN (Association of Southeast Asian Nations). Promotes free trade and economic integration.
Established in [Link] (10 countries):
1. Brunei 1. Myanmar
2. Cambodia 2. Philippines
3. Indonesia 3. Singapore
4. Laos 4. Thailand
5. Malaysia 5. Vietnam

2. European Union (EU) - A political and economic union with a single market and common currency
(Euro). 19 of the 27 EU countries use the Euro (€) as their official currency.
Members (27 countries):
1. Austria 10. France 19. Malta
2. Belgium 11. Germany 20. Netherlands
3. Bulgaria 12. Greece 21. Poland
4. Croatia 13. Hungary 22. Portugal
5. Cyprus 14. Ireland 23. Romania
6. Czech Republic 15. Italy 24. Slovakia
7. Denmark 16. Latvia 25. Slovenia
8. Estonia 17. Lithuania 26. Spain
9. Finland 18. Luxembourg 27. Sweden

[Link] (United States-Mexico-Canada Agreement, formerly NAFTA) - The USMCA replaced NAFTA in
2020 to modernize trade rules, especially for digital commerce and environmental standards.
Members (3 countries):
1. United States
2. Mexico
3. Canada

4. MERCOSUR (Southern Common Market) - MERCOSUR accounts for about 75% of South America’s
GDP.

Full Members (4 countries):

Associate Members (6 countries): they enjoy preferential trade benefits with MERCOSUR but are not full
members of the customs union:
1. Chile
2. Colombia
3. Ecuador
4. Guyana
5. Peru
6. Suriname
7. Panama – joined as an associate member more recently.

Suspended Member:
Although the initial suspension began in late 2016 after Venezuela missed a deadline to meet requirements,
in August 2017, the suspension was made indefinite by Argentina, Brazil, Paraguay, and Uruguay under the
democratic clause. The bloc bylaws do not provide for permanent expulsion, so the suspension remains in
place until democratic conditions are restored. Venezuela remains a suspended member, meaning it cannot
exercise the rights and duties of full membership in MERCOSUR until its political situation improves and it
again complies with the bloc’s standards.

TARRIFS

Ad Valorem Tariff
Scenario:
Imported laptops cost ₱50,000 each. The government imposes a 10% tariff. Quantity imported: 100 laptops.

Computation:
Tariff per laptop = 10% × ₱50,000 = ₱5,000
Total tariff = 100 × ₱5,000 = ₱500,000
Each laptop now effectively costs ₱50,000 + ₱5,000 = ₱55,000.

Specific Tariff
Scenario:
Imported cars are taxed ₱200,000 per car. Quantity imported: 10 cars.

Computation:
Tariff per car = ₱200,000
Total tariff = 10 × ₱200,000 = ₱2,000,000
Each car becomes more expensive by ₱200,000 due to the tariff.

Compound Tariff (Combination)

Computation:
Ad valorem portion: 5% × ₱150,000 = ₱7,500
Specific portion = ₱10,000
Total tariff per motorcycle = ₱7,500 + ₱10,000 = ₱17,500
Total tariff for 50 motorcycles = 50 × ₱17,500 = ₱875,000
Price per motorcycle after tariff = ₱150,000 + ₱17,500 = ₱167,500

NON-TARIFF BARRIERS
1. Import Quotas – Limits quantity of imported goods. Example: Only 10,000 tons of rice are allowed
annually.
2. Licensing Requirements – Importers need government permission. Example: Pharmaceuticals
need import licenses.
3. Technical Standards & Regulations – Quality, safety, or environmental rules. Example: Electronics
must pass energy efficiency tests.
4. Subsidies for Local Producers – Financial aid makes domestic goods cheaper. Example:
Government support for local sugar farmers.
5. Voluntary Export Restraints (VERs) – Exporting countries voluntarily limit exports.
6. Customs Delays & Administrative Barriers – Slow or complex procedures increase costs.
7. Anti-Dumping Measures – Extra duties on goods sold below fair market value.