Join Doug Ladd for an in-depth discussion in this video The impact of protectionism on international marketing, part of Marketing Foundations: International Marketing.
- It seems to happen every other week, the Wall Street Journal and many other business focused media report that the US International Trade Commission has determined to place a tariff on an import of a product from another country, or another government decides to levy a quota on the amount of product American producers can import into their market. Tariffs and quotas are tools that governments use to protect the industries in their home markets, or make it more difficult for nondomestic companies to succeed.
A tariff, sometimes called a tax or duty, is used by a government to raise the price of a product being imported into their country. The net result is that the price of the product moves higher. What's called cold rolled steel, the stuff steel pipe is made of, costs about $150.00 more when made in the US than it does when it comes out of the factories in parts of Asia, primarily due to higher labor costs, so because the US government doesn't want to see the people making steel in America lose their jobs, they levy a tariff on cold rolled steel coming out of Asian countries, but isn't this something for the company lawyers or the accounting team to figure out? What does this have to do with marketing? The reality is, you have to know if the product or category you're going to take into another market will be hit with a tariff, because this will take the price of your product higher.
Here's an example, rather than overcomplicate the situation with currency conversions we'll do everything in dollars. Let's say you work for a company in Vietnam making cloth, and your business typically operates on a 25 percent gross profit margin. You make your bold of cloth for four dollars, and you sell it for five dollars within Vietnam. While finalizing your strategic plan, you realize an increase in the volume demanded of your cloth would lead to your factory becoming more efficient, and thus decreasing your costs, so you look for ways to grow.
A potential buyer for your cloth in Tennessee tells you she's currently buying cloth from a mill in Georgia for six dollars a bolt. It turns out that US cloth manufacturers operate on a 20 percent margin, making cloth for five dollars. Your plan is to sell your cloth to her at five dollars a bolt, because the added cost to ship from Vietnam to Tennessee will be covered by the increased efficiencies you'll gain from the higher volume. Then you learn of the $1.25 per bolt tariff on cloth implemented by the US government that takes your price up to $6.25.
It would have been good to know about this tariff before you asked the factory to work a third shift. A quota is just a variation on the same theme. Rather than adding an extra tax onto the product, a government will limit the amount of product that can be imported. For example, South Korea has had a quota limiting the amount of rice that can be imported into the country for many years. This protects the rice farmers in South Korea, but much like tariffs raises prices for the end consumer.
The good news is that protectionism is declining across the globe as a result of the work of the World Trade Organization and similar entities, but it's important for you to do your research in advance to determine if your industry is involved in any trade disputes, or if you have to factor any tariffs or quotas into your planning process. You're probably wondering how do I find out this information. If you're in the US you do this by contacting the US Commercial Services at buyusa.gov, and asking if your industry is covered by any tariffs and or quotas.
They have offices in more than 100 cities in the US, and more than 80 countries around the world. If you're outside the US or you want to explore more other sources of information include industry trade groups, embassies, and export/import consultants. Virtually every country has a function of government focused on helping their industries export their products to other markets, they're a fantastic source of information.
The course also investigates options for global expansion, such as exporting, licensing, joint ventures, and direct investment, and details how to put together a successful marketing mix using distribution, promotional methods, and translation. Plus, learn where to turn for more information about your specific target markets.
- The rise of the global consumer
- Learning about customers in global markets
- Accessing foreign markets
- Adapting products
- Balancing risks and rewards