International Law Managerial Implications

Question 1
She feels that she must have the support of the directors for any major overseas venture. What arguments can she offer to explain why SewTex should become active in the international markets? She understands that making a commitment is important but what does that really mean?

SEWTEX exports about 5 percent of its production of industrial machine, of which, the most sophisticated industrial machines go to German & Swiss textile firms, whiles its earlier models are sent to India, Pakistan & Brazil. There is currently some concern about the US Textile industry which has been slowly declining. In this case, the objective is to increase the company’s turnover, which means SEWTEX has to exports more & be the main actor on foreign market.

Major commercial advantages for SEWTEX to be active in the international market: * First, it is an opportunity to dramatically increase their sales. * Increase profitability, the extent of the export price which can generate sufficient margin and the profits will grow. * Gain of notoriety worldwide * Better understanding of the competition * Better using of their production capacity. For example if SEWTEX is not working at full capacity and if its facilities are under-utilized, it will increase its production through exports * Boost business * Exporting can bring a breath of fresh air in the business and allow to leave behind any bad habits and improve on new strategies, thus, positive consequences will be saved in the working methods of the company.
Arguments she can offer to explain why SEWTEX should make a commitment with foreign companies:

* Easier and faster market penetration for a company limited in financial and human resources, while profiting from distribution channels already well established by local partner, thus allowing it to achieve a higher sales volume in less time. * Reduction of financial risks and costs that are theoretically shared between the partners. A joint venture would allow certain business, through the pooling of resources, to fund projects that would otherwise be inaccessible. * A reduction of business risk is also an advantage because the company can benefit from market experience (culture, rules, contacts...) and management skills of his local partner. * A joint venture is not seen as a foreign company, which would help build bette relationships with local government and unions and simplify negotiations and paperwork (obtaining certifications or licenses) . In addition, it conveys an image of a stronger local branch and the subsidiary, which may be a key factor for commercial success with national consumers. * Market knowledge and control of the commercial policy of the joint venture are likely to be good provided the exporting company affects internal staff to the joint venture and has a say in decisions she finally allows access to technologies uncontrolled.

Question 2
If SewTex were to consider increasing its export base, what problems might it encounter? What are the advantages and disadvantages of exporting products to Europe? Should SewTex direct or indirect exporting in view of its products? If it chooses to continue exporting, how can it offer a repair service and a supply of spare parts to its customers?
If Sewtex were to consider increasing its export base, what problems might it encounter ?
If Sewtex decided to increase its export base, it should encounter some problems such as :
- Political risk:
War, unrest, confiscation, nationalization, import ban, boycott, new import measures (customs, non-tariff barriers, entry permits ...)
- Trade risk failure voluntary or involuntary of the customer, new standards, licensing, price and margins controls, problems linked to the intellectual property, restrictions of sales channels
- exchange controls and transfer risks:
Country's insolvency or refusal to authorize transfers of currency of the contract;
- legal risks :
Difficulties in enforcing judgments in the country, discrimination against foreign firms, texts contracts imposed biased interpretation of contracts ...
- Payment risk and use of guarantees:
Ignorance of the rights and customary practices in international cashing.
What are the advantages and disadvantages of exporting products to Europe ?
Advantages :
- New markets are a good way to increase the company’s
- Through current European customers SewTex has it already has some expirience experience in this market
- Possibility to create partnerships with other companies
Disavantages :
- Supply Chain :
Europe is on another continent which is far from the United States. Exporting the products may encounter logistical problems (transportations costs ; relocation of production plants….)
- Patent
SewTex’s patent works only on US products. So if the patent doesn’t work in Europe, competitors could easily copy the product.
- Legal risk
A New market in a new continent implies différents laws. Therefore, Sewtex should be careful about that with the goal of having no surprises and careful about the different types of cultures in Europe.
Should Sewtex use direct or indirects exporting in view of its products ?
If Sewtex uses direct exporting,
Advantages would be :
- A better return on investment than if you use an agent or distributor
- Possibility of setting a lower price that will allow you to be compétitive
- Close contact with your customers
Disadvantages would be :
- You do not have the services of an agent abroad
- It may take more time for your clients know
Indirect exporting is not as an aggressive of an approach to exporting as direct exporting, and a firm may not be able to fully maximize the profit potential in foreign markets
In my opinion, the company should start using direct exporting to enter into the European market through the use of a distributor to be more profitable.
If it chooses to continue exporting, how can it offer a repair service and a supply of spare parts to its customers ?
With Direct Exporting
The company should use more or less the same service than in USA taking account of the local modifications (laws, customers…)
With Indirect Exporting
The company should adapat it with the distributor‘s service. If something is wrong with the product, the customer can go to the local distributor which it has already made arrangements with the contract established with SewTex.

Question3
Should SewTex consider licensing its technology to one of the other textile machinery manufacturers in Europe? Compare the advantages and disadvantages of this methos of market entry of those exporting?

There are two methods to sell in a foreign market: exporting or licensing.
Intellectual property, like copyrights, patents or trademarks can be sold or licensed for use to others through a licensing agreement. Sewtex has patents for its technology which it can grant certain rights to a foreign firm under specific condition for a specific amount of time to use. Licensing agreements represent an important foreign market entry method for firms with marketable intellectual property, such as SewTex. Licensing can provide a greater entrance into to the foreign market than possible through exporting. There are many advantages a foreign company can have in having a local company produce and sell products based on its intellectual property instead of simply shipping finished goods to that market. Licensing to a firm allows the licensor to go around trade restrictions by having the products produced locally. It also allows entrance to the foreign market with minimal initial start-up costs. In return, the licensor might choose to receive a guaranteed return based on a percentage of gross revenues, which would not be the case in exporting. Some of the disadvantages of licensing agreements is the licensor cannot monitor the licensee at all time, the licensor may find that the licensee is not following procedures or cutting corners and it is not producing at the optimal level of quality. The licensor can also lose some control over how the licensee utilizes its intellectual property which can lead to piracy of the product or intellectual property. To prevent some of these issues SewTex would have to research the local laws of the country it is wishing to license its technology to make sure everything is mentioned in detail in the license agreement beforehand.
The other form of entry would be exporting. This method has many advantages as it is the easiest way to enter into a new market and requires the least amount of initial investment. However the disadvantages in this case would outweigh its advantages. First of all it requires a lot of commitment and time because of the adjustments to multiple factors. Because the subject in question is heavy machinery it would also mean the cost of delivery would be high and the long-distance shipping could result in a delay in filling orders. Exporting also requires a familiarity with the local culture, laws and its demands which means that the company must do previous research or have the help of a local company, such as an EMC or ETC. Redesign of products or technology for the foreign market may also be necessary due to certain laws or to adjust to the needs of the country it is in. An exporter may also have to overcome trade restrictions such as quotas or tariffs, set by foreign governments to protect their own domestic industry.

In conclusion Sewtex should license its technology in the beginning because of its low costs, easy entry into the European market, licensed manufacturing, protection on intellectual propert. But for the most sophisticated machines there is a risk: Sewtex won’t be able to control quality. Exporting is obviously not a good point for Sewtex because of its expensive shipping due to the weight of the finished product, quotas and tariffs when dealing with this type of machinery.

Question 6
SewTex’s president is interested in knowing more about its market potential in Latin America for both types of Machines Can you advise her on the best methods for SewTex to penetrate that market? How would your plans for entry into the Latin American market affect SewTex’s assembly operations and sales efforts worldwide?

I believe that Sewtex would benefit by going into the Latin American market in many ways including establishing itself in a new market and reducing production costs by eventually establishing a production plant in the long run. It is noted that the market in Brazil is very promising, which would make it a good starting point for Sewtex to begin exporting to, with the long term goal of eventually expanding throughout other Latin American countries. I believe that because of all of the manufacturing plants, throughout the continent, the industrial machines would have a more promising market than personal machines. When thinking about the best method of doing so, we should keep in mind several factors. First of all Exporting requires a long term commitment to expand business or production to another country. It is advisable to do some market research and identify foreign-market potential of the firm’s products and assessing economic, political, and cultural factors as well. Exporting is the easiest method to expand business in Latin America as it requires the least capital investment. Exporting is also a good way to see the market potential in Latin America before investing in a manufacturing plant. Some other important factors to look at and evaluate are cost effectiveness, shipping arrangements, banking arrangements for getting paid, custom’s regulations, tariffs and other trade barriers that may arise. To lower the risks Sew-Tex can face in the beginning on doing business in Brazil I think it would be advisable for them to look into an exporting management company or a exporting trading company, which will engage in foreign market research, help establish foreign channels of distribution, fill out legal documentation, handle language translation and have knowledge of other barriers that may also arise. I believe that over the years as Sewtex establishes itself in Brazil and becomes more successful it would eventually look into direct foreign investment in Brazil such as through a joint venture. This would eliminate shipping costs, eliminate quotas or tariffs that are acquired when exporting into Brazil, provide better service and be able to adapt products to local tastes and market trends as well as take advantage of local labor and manufacturing economies of scale Brazil has a as a developing country. Overall entering into the Latin American country would benefit SewTex to increase its international presence, which will increase profits despite the slowdown in the domestic textile industry.

Question 7
Can you Advise SewTex on copyright, patents, and trademark issues related to its penetration of foreign markets? What are the major issues and concerns?

An aspect of increasing operations overseas involves copyrights, patents, and trademarks.
As we know a copyright is legal right to an artistic, audiovisual, or written work. A Trademark is the legal right to use a name or symbol; that identifies a firm or its product. Finally, a Patent is a governmental grant to inventors assuring them of the legal right to produce, use and sell their invention for a period of years.
Such assets do not necessarily apply to foreign countries. Before entering a market, we must assess the status of our patented technology in each location and determine where it will be protected. Many countries maintain laws governing copyrights, patents, and trademarks that could still benefit our ventures, even if they do not honor our existing U.S. versions. It would be to our advantage to secure such assets before entering a foreign market. If we do not, our technology could essentially be stolen legally under the jurisdiction of a foreign government. This would undoubtedly dispose of our technological advantage in the textile industry.
Again, this can be protected in foreign markets by taking the proper steps to secure our proprietary technology. Taking proper steps, means hiring a lawyer who is working in the country we want to go. He would be totally aware about laws in the country and will know how and where to register. It is definitely better to hire a native lawyer from the U.S. or at least one who speaks English properly.