MODULE 3: INTERNATIONAL

BUSINESS EXPANSION
ENTRY MODES
Welcome to the third module of this course. You will be learning about
how businesses expand internationally. Several entry modes will be
discussed to enlighten you about possible strategies for your future
businesses. In addition, the use of Letter of Credit will be tackled
using it to finance exports. You will also be learning about how to
assess the external environment for international businesses using
global market opportunity assessments. The final requirement of this
course is for you to formulate an international business strategic plan.
May you have a fun-filled learning experience on this module.

Course Outcomes:

3. Recommend effective strategies in international trading.

Specific Learning Outcomes:

1. Evaluate business environment.

2. Recommend effective strategies in international trading.

Let’s Warm Up!

Imagine that the business you
have established will be
expanding internationally,
beyond the ASEAN region.
Which country would you
intend to expand? Draw your
business and the flag or
tourist spots of your target
country.

Instruction:
For printed module: You may draw in the specified box for
the activity. The rubric below will serve as your guide in
making your artwork.
For online mode: You may take a picture of your artwork
and submit it in our Google Classroom.

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INTERNATIONAL BUSINESS AND TRADE
Warm Up Activity
(You may draw here)

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 Introduction

As companies look for growth in new areas of the world, they

typically prioritize which countries to enter. In some cases,
the decision to enter a new market will depend on the
specific circumstances of the industry in which the company
operates. Entering a market means understanding the local
consumers and what they look for when making a purchase
decision. Therefore, when entering a new market, it’s vital for
firms to perform full, detailed market research in order to
understand the market conditions and take measures to account for them.

The best way for a company to learn the needs of a new foreign market is to deploy people to
immerse themselves in that market. Larger companies, like Intel, employ ethnographers and
sociologists to spend months in emerging markets, living in local communities and seeking to
understand the latent, unarticulated needs of local consumers. When entering a new market,
companies also need to think critically about how their products and services will be different
from what competitors are already offering in the market so that the new offering provides
customers value. Companies trying to penetrate a new market must be sure to have some
proof that they can deliver to the new market; this proof could be evidence that they have
spoken with potential customers and are connected to the market.

The common modes of international-market entry are exporting, licensing, franchising, joint
ventures, strategic alliances, acquisition, and greenfield venturing. Which entry mode a firm
chooses also depends on the firm’s size, financial strength, and the economic and regulatory
conditions of the target country. A small firm will likely begin with an export strategy. Large
firms or firms with deep pockets might begin with an acquisition to gain quick access or to
achieve economies of scale. If the target country has sound rule of law and strong adherence
to business contracts, licensing, franchising, or partnerships may be middle-of-the road
approaches that are neither riskier nor more expensive than the other options.

1. Exporting
Exporting is a typically the easiest way to enter an international market, and therefore most
firms begin their international expansion using this model of entry. Exporting is the sale of
products and services in foreign countries that are sourced from the home country. The
advantage of this mode of entry is that firms avoid the expense of establishing operations in
the new country. Firms must, however, have a way to distribute and market their products in
the new country, which they typically do through contractual agreements with a local company
or distributor. When exporting, the firm must give thought to labeling, packaging, and pricing
the offering appropriately for the market. In terms of marketing and promotion, the firm will
need to let potential buyers know of its offerings, be it through advertising, trade shows, or a
local sales force.

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 Among the disadvantages of exporting are the costs of transporting goods to the country,
which can be high and can have a negative impact on the environment. In addition, some
countries impose tariffs on incoming goods, which will impact the firm’s profits. In addition,
firms that market and distribute products through a contractual agreement have less control
over those operations and, naturally, must pay their distribution partner a fee for those
services. Firms export mostly to countries that are close to their facilities because of the lower
transportation costs and the often-greater similarity between geographic neighbors. The
Internet has also made exporting easier. Even small firms can access critical information
about foreign markets, examine a target market, research the competition, and create lists of
potential customers. Even applying for export and import licenses is becoming easier as more
governments use the Internet to facilitate these processes.

Because the cost of exporting is lower than that of the other entry modes, entrepreneurs and
small businesses are most likely to use exporting as a way to get their products into markets
around the globe. Even with exporting, firms still face the challenges of currency exchange
rates. While larger firms have specialists that manage the exchange rates, small businesses
rarely have this expertise.

2. Licensing
The license is consent or permit given to someone that can use the intellectual property rights.
Intellectual property rights can be patent, trademark of a product, manufacturing technology
of a product, and the method of selling a product. A license may be given even for technical
or business knowledge or so-called know– how. The license is different from the authorization.
Authorization is transferring the IPR such as to work or to produce something. With the license
the intellectual property right usually remains with the owner named as licensors, and it is not
taken from the one who receives the license - licensee. A license may be exclusive and non-
exclusive. Non-exclusive license refers to the right to use the intellectual property given to not
more than a single user license. Exclusive license means that the right of use of intellectual
property used alone for one user. That could mean that access to the licensee or licensee may
be someone who works in a certain area or of a particular country. Patent license is a consent
or authorization to produce, use or to sell patented products to use certain design or process.
The license for branded product or service is a consent or permission given by the owner of a
brand of product, so that product is manufactured or sold by another. This type of license is
distinguished from other types because the licensor retains some degree of control over the
nature and quality of the product or service. With this type of license, the licensor has the
control to ensure products are produced from the one that received the license having the
same quality as those of the licensor. Licensing works well for manufacturers.

3. Franchising
Franchising is one of the business strategies applied to ensure an increase of the number of
buyers. Franchising is a marketing system by which understanding picture of current and
future customers is created about how the products or services of company can serve to meet

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 their needs. Franchising is a method of products distribution and services to meet the needs
of the consumers.
Franchising is a network of independent business relationships that enables:
• identifying product brand;
• method for successful operation;
• real marketing system.

In short, franchising can be defined as a strategic agreement between the two companies and
two commercial entities that build specific relationships and responsibilities in order to realize
mutual goals, and they can be expressed as a desire for conquest and domination of the
market, example attract and retain more customers or consumers than their competitors.
Franchising is a marketing system established between two countries or two companies on
the basis of an agreement. A particular company or a firm contract with each other to sell its
products or services in a particular market or in a certain area.

Franchising is not a business itself; it is a way to work. Franchising means building business
relationships in which the company realizing certain business alike - franchisor – by contract
with another company or companies - franchisees - allows its products to be sold directly to
the market and use the name of the company for certain period of time. Franchising of the
international market is defined as a continuous relationship between the person who gives
the franchise in order to provide benefits for business, the organization of work in sales and
management. Franchising works well for service and retail.

4. Joint Ventures
Joint ventures or business activities is a term that defines the companies which are formed
from two or more persons or companies in order to work together and make a profit. Joint
ventures represent a form of organization of the enterprises in which two or more entities
come together to accomplish certain activities and create profit. Each participant invests
funds and risk taking. In most cases, joint ventures or activities are bilateral. They are
considered as bilateral relations because it involved two sides of a business, they are partners
in order to build certain strategic advantages. The main reason for achieving such activities
may be, for example, access to new technical through which companies will gain competitive
advantages; getting certain intellectual knowledge, necessary human resources to the closed
channels for product distribution in certain regions of the world etc. Also, in this way the
difficulties in integrating the cultures of the organizations can be overcome. The term joint
ventures shows that it refers to a legal entity, organization, firm or company which is formed
by two or more persons or companies to undertake certain economic activities jointly.

Parties that undertake joint activities agree to create a new company to increase capital and
share profits and costs and to control the operation of the company. Realization of a specific
project or continuously working together can be considered as joint activity. The best way to
participate fully on foreign markets is the total ownership of the company which means a fully

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 independent capital management and business operations with the company. In this way, the
possibilities for communication and control remain fully in the hands of the owner. When a
company is working on the international market, ownership strategy and the strategy of the
management of the company must be determined, because it is based in order to maintain
competitive advantage. These decisions are made separately and depend on the size of the
company and the opportunities offered by the domestic market, the available resources,
market size, the available labor force and its facilities. Operations of foreign companies on
the market in another country have two characteristics, such as investment in physical
facilities and equipment and control activities in the marketing. Working in the foreign market
with their own means refers to broaden the knowledge and technology upgrades. This must
be done in order to ensure the creation of competitive advantages on that market, which no
other participants from the industry of such firm would have in their disposal.

5. Strategic Alliances
Another way to enter a new market is through a strategic alliance with a local partner. A
strategic alliance involves a contractual agreement between two or more enterprises
stipulating that the involved parties will cooperate in a certain way for a certain time to achieve
a common purpose. To determine if the alliance approach is suitable for the firm, the firm
must decide what value the partner could bring to the venture in terms of both tangible and
intangible aspects. The advantages of partnering with a local firm are that the local firm likely
understands the local culture, market, and ways of doing business better than an outside firm.
Partners are especially valuable if they have a recognized, reputable brand name in the
country or have existing relationships with customers that the firm might want to access.

Strategic alliances are also advantageous for small entrepreneurial firms that may be too
small to make the needed investments to enter the new market themselves. In addition, some
countries require foreign-owned companies to partner with a local firm if they want to enter
the market. For example, in Saudi Arabia, non-Saudi companies looking to do business in the
country are required by law to have a Saudi partner. This requirement is common in many
Middle Eastern countries. Even without this type of regulation, a local partner often helps
foreign firms bridge the differences that otherwise make doing business locally impossible.
Walmart, for example, failed several times over nearly a decade to effectively grow its
business in Mexico, until it found a strong domestic partner with similar business values.

The disadvantages of partnering, on the other hand, are lack of direct control and the
possibility that the partner’s goals differ from the firm’s goals. David Ricks, who has written a
book on blunders in international business, describes the case of a US company eager to
enter the Indian market: “It quickly negotiated terms and completed arrangements with its
local partners. Certain required documents, however, such as the industrial license, foreign
collaboration agreements, capital issues permit, import licenses for machinery and
equipment, etc., were slow in being issued.

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 6. Acquisitions
An acquisition is a transaction in which a firm gains control of another firm by purchasing its
stock, exchanging the stock for its own, or, in the case of a private firm, paying the owners a
purchase price. In our increasingly flat world, cross border acquisitions have risen
dramatically. In recent years, cross-border acquisitions have made up over 60 percent of all
acquisitions completed worldwide. Acquisitions are appealing because they give the company
quick, established access to a new market. However, they are expensive, which in the past
had put them out of reach as a strategy for companies in the undeveloped world to pursue.
What has changed over the years is the strength of different currencies. The higher interest
rates in developing nations have strengthened their currencies relative to the dollar or euro.
If the acquiring firm is in a country with a strong currency, the acquisition is comparatively
cheaper to make.

Acquisition is a good entry strategy to choose when scale is needed, which is particularly the
case in certain industries (e.g., wireless telecommunications). Acquisition is also a good
strategy when an industry is consolidating. Nonetheless, acquisitions are risky. Many studies
have shown that between 40 percent and 60 percent of all acquisitions fail to increase the
market value of the acquired company by more than the amount invested.

7. Foreign Direct Investment

Foreign direct investment (FDI) plays a very important role in the development of global
business. It may enable the company to provide new markets and marketing channels,
cheaper means of production, access to new technologies, products, knowledge and financial
resources. Foreign direct investment in its general definition is defined as investment of a
company from abroad in a particular country. Investments may take the form of physical
investment that mean build factories and provision of equipment and technique, direct
purchases from foreign companies, constructing facilities or investing in mutual activities and
encouraging the creation of strategic alliances intended to bring technology license or
intellectual knowledge. When it comes to direct investment it should be noted that they are
direct investments of means of production to a foreign firm in any country.
Investments may be:
• manufacturing - with the intention to create new operational or
production capabilities;
• establishing new or teaming up with existing firms;
• entry of international firms, companies that realizing business activities
in more than one country

Method of Payment in International Trade: LETTERS OF CREDIT

One of the most important international trade considerations is how you are going to
get paid for your exports. While relying on cash up front may eliminate the risk of non-

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 payment, it limits your universe of potential customers since it can cause cash flow and
other problems for the buyers.

A letter of credit, or "credit letter" is a letter from a bank guaranteeing that a buyer's
payment to a seller will be received on time and for the correct amount. In the event
that the buyer is unable to make a payment on the purchase, the bank will be required
to cover the full or remaining amount of the purchase. It may be offered as a facility.

What are the advantages of letters of credit?

For the seller (that’s you)

Guaranteed payment upon presentation of correct documents. This guarantee is

provided by the buyer’s bank. In some cases, the buyer’s country may not allow
payment due to currency restrictions. If you have concerns about this happening
please contact your bank to ask them to add their ‘Confirmation to a Letter of
Credit’. Confirmation is where your bank adds their guarantee for a fee.

Ability to structure delivery schedule according to your own business’s needs and
interest

Opportunity to obtain finance for production (or purchase of goods) e.g., discount a
Term Letter of Credit (banks buy bank promises especially if it’s their own).

For the buyer

May be able to structure payment plan, introduce credit terms allow them better
interest rates than their own country offers

Can introduce documents which evidence quality control.

Payment is only made upon presentation of documents stipulated in the letter

of credit

Your responsibilities under a letter of credit

Seller (that’s you)

Be clear on bank charges: only pay using your currency for bank charges or make sure
you understand what you have covered in your price.

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 Try to get the letter of credit routed through your own bank – you can then work closely
with your bank can act as the Advising and Negotiating bank for the Letter of Credit,
which means they can assist you in checking and presenting documents.

Give a copy of the L/C to your freight forwarder to ensure documents are provided on
time.

Ensure everyone in the company knows their responsibilities to make this work.

Buyer

Ensure documents evidence quality /quantity e.g., inspection certificate exactly as

stated on the L/C.

A good credit rating will improve the prospects of the buyer’s bank issuing a letter of
credit, and terms applicable.

Agree all wording beforehand with seller (avoid amendments as they cost money)

Understanding a Letter of Credit

An LC, also referred to as a documentary credit, is a contractual agreement whereby

the issuing bank (importer's bank), acting on behalf of the customer (the importer or
buyer), promises to make payment to the beneficiary or exporter against the receipt of
complying stipulated documents. The issuing bank will typically use intermediary
banks to facilitate the transaction and make payment to the exporter.

The LC is a separate contract from the sales contract on which it is based; therefore,
the banks are not concerned with the quality of the underlying goods or whether each
party fulfills the terms of the sales contract.

The bank's obligation to pay is solely conditioned upon the seller's compliance with the
terms and conditions of the LC. In LC transactions, banks deal in documents only, not
goods.

LCs can be arranged easily for one-time transactions between the exporter and
importer or used for an ongoing series of transactions.

Unless the conditions of the LC state otherwise, it is always irrevocable, which means
the document may not be changed or cancelled unless the importer, banks and
exporter agree.

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Types of Letter of Credit

Commercial Letter of Credit

This is a direct payment method in which the issuing bank makes the payments
to the beneficiary.
Revolving Letter of Credit
This kind of letter allows a customer to make any number of draws within a
certain limit during a specific time period.
Traveler's Letter of Credit
For those going abroad, this letter will guarantee that issuing banks will honor
drafts made at certain foreign banks.
Confirmed Letter of Credit
A confirmed letter of credit involves a bank other than the issuing bank
guaranteeing the letter of credit. The second bank is the confirming bank,
typically the seller’s bank. The confirming bank ensures payment under the
letter of credit if the holder and the issuing bank default. The issuing bank in
international transactions typically requests this arrangement.

The Letter of Credit Process

1. The importer arranges for the issuing bank to open an LC in favor of the exporter.
2. The exporter forwards the goods and documents to a freight forwarder.
3. The freight forwarder dispatches the goods and either the dispatcher or the
exporter submits documents to the nominated bank.
4. The nominated bank checks documents for compliance with the LC and collects
payments from the issuing bank for the exporter.
5. The importer’s account at the issuing bank us debited.
6. The issuing bank releases documents to the importer to claim the goods from
the carrier and to clear them at customs.

My Takeaways

• The common modes of international-market entry are exporting, licensing, franchising,

joint ventures, strategic alliances, acquisition, and greenfield venturing.
• A letter of credit, or "credit letter" is a letter from a bank guaranteeing that a buyer's
payment to a seller will be received on time and for the correct amount.

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 Reflection Time

Instruction:
For printed module: You may answer in the specified box for the activity. The
rubric below will serve as your guide in making your artwork.
For online mode: You may type your answers in an A4-sized paper, Arial 12 font, and submit it
in our Google Classroom.

In October, a French company (seller) and a Shanghai company (buyer) have set up a contract
of selling 200 sets of electronic computers (1000 USD each), and the payment shall be made
according to the irrecoverable letter of credit. And the delivery should be made on December
at Port de Marseille. On November 15, Bank of China Shanghai Branch (issuing bank) made
a $ 200,000 irrevocable letter of credit according to the instruction of the buyer and
commissioned a French bank in Marseille to notify and negotiate this letter of credit. On
December 20, the seller loaded the 200 computers on board and got the bill of lading,
insurance policies, invoices and other documents as required by the letter of credit. And then
it went to the Marseille bank for negotiation. Upon review, the documents are consistent;
therefore, the bank had paid $ 200,000 immediately to the seller. At the same time, 10 days
the cargo ship left the harbor of Marseilles, the cargo, along with all the goods, sank into the
sea in a heavy storm. By that time the issuing bank had received the whole set of the
documents and the buyer had already known the total loss of the goods. Bank of China
Shanghai Branch intends to reimburse the negotiating bank to pay the purchase price of $
200,000 on the grounds that its customers cannot expect the goods.

In accordance with international trade practices, the following questions are asked:
• When would the risk of the consignment be transferred from the seller to the buyer?
• Whether Issuing bank would exempted from the payment obligations due to the total loss of the
goods, If so, on what basis?
• How to compensate the loss of the buyer?

The answers:

1. The Risk shall be transferred from the seller to the buyer since the goods were
loaded on board at the port of shipment.
2. The issuing bank has no right to refuse payment. According to the International
Chamber of Commerce Uniform Customs and Practice for Documentary Credits, the
letter of credit transactions is independent from the sales contract. And the Bank is
only responsible for document examination. As long as the documents are in line with
the terms of the credit, the banks are required to assume its payment obligations.
3. The buyer could claim compensation from the Seller’s insurance company with other
relevant insurance documents and proof of the sinkage of the cargo ship.

Question: Is it fair enough on the part of the buyer? Explain your answer based on the
reflection essay rubric.
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 Rubric on Reflection Essay (20 points)

Excellent Good Fair Poor

(4points) (3points) (2points) (1point)
Depth of Writing Writing Writing Writing
Reflection demonstrates an demonstrates demonstrates demonstrates lack
in-depth reflection general reflection minimal reflection of reflection on
(20%) on the selected on the selected on the selected the selected
topics, with topics, with some topics, with few topics, with no
supporting details supporting details supporting details details
and examples and examples and examples
Content Writing surpasses Writing includes Writing includes Writing does not
required required few required include required
(20%) components of components of components of components of
the selected topic the selected topic the selected topic the selected topic
Quality of Information Information Information Information has a
Information clearly relates the clearly relates the clearly relates the little to do with the
main topic, main topic, main topic; no main topic
(20%) includes several includes 1-2 details and
supporting details supporting details examples are
and examples and examples given
Structure and Writing is clear, Writing is mostly Thought is not Writing unclear
Organization concise, and clear, concise, expressed well and disorganized
organized. and organized.
(20%) Thoughts are Thoughts are
expressed in a expressed in a
logical manner logical manner
Grammar There are less There are less There are more There are
than three than five grammar than 5 spelling numerous spelling
(20%) grammar and and spelling errors and grammar and grammar
spelling errors errors errors

Reflection Activity
(You may write your answer here)

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Reflection Activity
(Continuation)

Teacher’s Note

Great! You are almost done in this subject. You are now knowledgeable on how to
expand your business globally. I’m glad too that you were able to comprehend the
use of letter of credit in your international business transactions. Keep it up! 

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 GLOBAL MARKET OPPORTUNITY
ASSESSMENTS

Let’s Warm Up!

Imagine that the business you have

established has been expanding
internationally. How many
businesses were you able to
establish all over the globe? Draw
your businesses which are located in
different parts of the globe.

Instruction:
For printed module: You may draw in the specified box for
the activity. The rubric below will serve as your guide in
making your artwork.
For online mode: You may take a picture of your artwork and
submit it in our Google Classroom.

Warm Up Activity
(You may draw here)

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Warm Up Activity
(Continuation)

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 Introduction

Global market opportunity refers to favorable combination of

circumstances, locations, or timing that offer prospects for
exporting, investing, sourcing, or partnering in foreign
markets. Global business opportunities include: marketing
products and services; establishing factories or other
production facilities to produce its offerings more
competently or cost-effectively; procuring raw materials or
components, services of lower cost or superior quality;
Entering into collaborative arrangements with foreign partners.

Six Tasks of Global Market Opportunity Assessment:

1. Conduct an internal assessment of the firm’s readiness to initiate international business

activity.
2. Assess the suitability of the firm’s products and services for foreign markets.
3. Systematically identify the best markets to target with the chosen product(s) or service(s).
4. Estimate the industry market potential, or the “market demand”, for the product(s) or service(s) in
selected target markets.
5. Screen and select qualified business partners, such as distributors or suppliers.
6. Estimate the company sales potential for each target market.

Task 1. Organizational Readiness

Objective: To provide an objective assessment of the company’s preparedness to

engage in international business activity.
Outcomes: A list of firm strengths and weaknesses, in the context of international
business, and recommendations for resolving deficiencies that hinder achieving
company goals.
Criteria: Relevant financial and tangible resources; relevant skills and competencies;
senior management commitment and motivation

Issues to be Resolved in Organizational Readiness Analysis

•What does the firm hope to gain from international business? E.g., increasing sales
or profits, following key customers who locate abroad, challenging competitors in their
home markets, or pursuing a global strategy of establishing production and marketing
operations at various locations worldwide.
•Is international business expansion consistent with other firm goals, now or in the
future?

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 •What demands will internationalization place on company resources, such as
management, personnel, and finance, as well as production and marketing capacity?
How will such demands be met?
•What is the basis of the firm’s competitive advantage? Here, managers evaluate the
reasons for the firm’s current success.

CORE as Diagnostic Tool

• One can use diagnostic tools to facilitate a self-audit of the firm’s readiness to
internationalize. One of the best-known tools is CORE (Company Readiness to Export).
See: globaledge.msu.edu
•CORE asks managers questions about their organizational resources, skills, and
motivation to arrive at an objective assessment of the firm’s readiness to successfully
engage in exporting.
•CORE also generates assessments on both “Organizational Readiness” and “Product
Readiness.”

Task 2. Product Suitability

Objective: To conduct a systematic assessment of the suitability of the firm's products

and services for international customers; To evaluate the degree of the fit between the
product or service and customer needs.
Outcomes: Determination of factors that may hinder product or service market
potential in each target market; Identification of needs for the adaptations that may be
required to initial and ongoing market entry.
Criteria: Assess the firm’s products and services with regard to: foreign customer
characteristics and requirements government mandated regulations expectations of
channel intermediaries’ characteristics of competitors’ offerings.

•Sell well in the domestic market. Those that are received well at home are likely to
succeed abroad, especially where similar needs and conditions exist.
•Cater to universal needs. International sales may be promising if the product or
service is relatively unique or has important features that are hard to duplicate by
foreign firms.
•Address a need not well served in particular foreign markets. Potential may exist in
developing countries or elsewhere where the product or service does not currently exist,
or where demand is just beginning to emerge.
•Address a new or emergent need abroad. For some products and services, demand
might emerge suddenly following a disaster or other large-scale or emergent trend. For
example, a major earthquake in Turkey can create an urgent need for portable housing.
Rising AIDS cases in South Africa can create a need for drugs or medical supplies.

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 Issues that Determine Potential Product Demand

•Who initiates purchasing? For example, homemakers are usually the chief decision
makers for household products. Professional buyers make purchases on behalf of
firms.
•Who uses the product or service? For instance, children consume various products,
but their parents may be actual buyers.
•Why do people buy the product or the service? Honda sells gasoline-powered
generators that customers in advanced economies use for recreational purposes;
customers in developing economies may buy these for basic household heating and
lighting.
•Where do consumers purchase the product or service? Once the researcher
understands where the offering is typically purchased, it is useful to visit potential
buyers to find out their potential interest.
•What economic, cultural, geographic, and other factors in the target market can limit
sales? Countries vary substantially in terms of buyer income levels, preferences,
climate, and other factors that can inhibit or facilitate purchasing behavior.

Task 3. Country Screening

Objective: To reduce the number of countries that warrant in-depth investigation as

potential target markets to a manageable few.
Outcomes: Identification of 5 to 6 high potential country markets that are most
promising for the firm.
Criteria: market size and growth rate; market intensity (that is, buying power of the
residents in terms of income level); consumption capacity (that is, size and growth rate
of the country’s middle class); country’s receptivity to imports; infrastructure
appropriate for doing business; economic freedom; political risk.

Focus of Screening Varies with Entry Strategy

• Firms that seek to source from foreign suppliers need to identify countries where
capable suppliers are located.
• Once a firm chooses a particular country, it needs to ensure that conditions for
importing from the country are favorable.
• For firms looking to make a direct investment in foreign markets, it is best to focus
on countries that promise long-term growth, substantial returns, while posing relatively
low political risk.
• Exporting firms should target countries with low tariff barriers, steady demand, and
qualified intermediaries.

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Cultural Similarity with Target Market may Matter

• Some firms target “psychically” similar countries, that is, countries similar to the
home country in terms of language, culture, and other factors. These countries fit
management’s comfort zone.
• E.g., Australian firms often choose the United States as their first target market
abroad. Many choose the U.K. rather than France or Italy, as their first target in Europe.
• The choice is logical because both the U.K. and the U.S. speak English and have
cultures similar to that of Australia.
• As managerial experience, knowledge, and confidence increase, the firms expand
into more complex, culturally distant markets, such as China or Japan.

Nature of Information Sought varies with Product/Industry

• For example, in marketing consumer electronics, the researcher would emphasize

countries with large populations of people with adequate discretionary income, and
ample energy production and consumption. • For farming equipment, the researcher
would consider countries with substantial agricultural land and farmers who enjoy
relatively high incomes.
• For health care insurance, the researcher targets countries that have numerous
hospitals and doctors. Criteria include: number of physicians per capita, number of
surgeries, number of hospital beds, etc.

Targeting a Region may Make Sense

• Compared to targeting one country at a time, targeting a group of countries is more

cost effective, particularly when the markets have similar demand conditions, business
regulations, and culture. • A good example is the European Union, which comprises
some 27 countries that are relatively similar in terms of income level, regulations, and
infrastructure.
• When entering Europe, companies often devise a pan-European strategy that
considers many member countries of the EU rather than planning separate efforts in
individual countries.

Gateway Countries and Regional Hubs

• Managers may target so-called gateway countries or regional hubs that serve as
entry points to nearby or affiliated markets.
• E.g., Singapore has traditionally served as the gateway to Southeast Asian countries;
Hong Kong is an important gateway to China; Turkey is a good platform for entering the
Central Asian republics; and Finland provides business-friendly access to the former
Soviet Union.
• Firms base their operations in a gateway country so they can serve the larger,
adjacent region.

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Gradual Elimination Method for Screening Countries

• The manager starts with a large number of prospective target countries and then
gradually narrows choices by examining increasingly specific information obtained via
research.
• The objective is to reduce to a manageable few the number of countries that warrant
in-depth investigation as potential target markets -- five or six high potential country
markets that are most promising.
• To save time and money, it is essential to eliminate unattractive markets as quickly
as possible. • At the same time, it is wise to be open-minded and consider all
reasonable markets. E.g., developing economies with a product that is not yet widely
consumed may be more profitable than targeting more competitive markets in Europe,
Japan, and the U.S

Indexing and Ranking Methodology for Country Screening

• Assigning scores to countries for their overall market attractiveness.

• For each country, first identify a comprehensive set of market potential indicators
and then use one or more of these indicators to represent a variable.
• Weights are assigned to each variable to establish its relative importance: The more
important a variable, the greater its weight.
• The resulting weighted scores are used to rank order countries.

Factors That Contribute to Market Attractiveness

•Market size and market growth rate are especially important for measuring market
potential. “Is the market big enough and does it have a future?”
• By itself, however, a sizable market is insufficient. It should also be growing at a
stable or substantial rate, particularly in terms of population or income. • For each
country, the researcher examines population, national income, and growth statistics
for the previous three to five years.
• In addition to large, fast-growing markets, the researcher should identify some
smaller but fast-emerging markets that may provide ground-floor opportunities. There
are likely to be fewer competitors.
• Countries in which the product is not currently available or which competitors have
only recently entered may also be promising.

Middle-Class is a Powerful Indicator for Emerging Markets

• The size and growth rate of the middle class are critical indicators of promising
targets. The middle class is measured by the share of national income available to
middle income households.
• These households are the best prospect for a typical marketer is the middle-class
consumer because the wealthier class in most emerging markets is relatively small,
and the poorest segment has little spending capacity. • The relative size of the middle
class, and the pace with which it is growing, also reflects how national income is
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 distributed in that country. If income is not equally distributed, the size of the middle
class will be limited and the market will not be very attractive.

Criteria Relevant to Country Screening for FDI

• Long-term prospects for growth, as well as the potential for exports

• Cost of doing business: Potential attractiveness of the country based on the cost and
availability of commercial infrastructure, tax rates and wages, access to high-level skills
and capital markets
• Country risk: Regulatory, financial, political, and cultural barriers and the legal
environment for intellectual-property protection
• Competitive environment: Intensity of competition from local and foreign firms•
Government incentives: Availability of tax holidays, subsidized training costs, grants, or
low-interest loans.

Country Screening for Global Sourcing

• Global sourcing and offshoring refer to the procurement of finished products,

intermediate goods, and services from suppliers located abroad.
• As with FDI decisions, the types of screening variables managers consider in sourcing
are often distinct from those they consider for exporting.
• Managers will examine such factors as: cost and quality of inputs, stability of
exchange rates; reliability of suppliers; and the presence of a work force with superior
technical skills.

Task 4. Industry Market Potential Analysis

Objective: To estimate the size of relevant industry sales within each target country; To
investigate and evaluate any potential barriers to market entry.
Outcomes:3 to 5- year forecasts of industry sales for each target market. Delineation
of market entry barriers in industry
Criteria: Market size, growth rate, and trends in the industry; The degree of competitive
intensity; Tariff and non-tariff trade barriers; Standards and regulations; Availability and
sophistication of local distribution; Unique customer requirements and preferences;
Industry-specific market potential indicators.

Industry Market Potential

•Industry market potential– an estimate of the likely sales that can be expected for all
firms in the particular industry for a specific period of time. In other words, it is an
aggregate of the sales that may be realized by all companies in the industry.
• Industry market potential is different from company sales potential, which refers to
the share of industry sales the focal firm itself can expect to achieve during a year.

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• Most companies forecast sales at least three years into the future, of both industry
market potential and company sales potential.

Indicators of Industry Market Potential

• Market size, growth rate, and trends in the specific industry

• Tariff and non-tariff trade barriers to enter the market
• Standards and regulations that affect the industry• Availability and sophistication of
local distribution
• Unique customer requirements and preferences • Industry-specific market potential
indicators

Industry Specific Potential Indicators

•Industry-specific potential indicators are distinctive drivers of demand.

• Marketers of cameras, for instance, examine climate-related factors such as the
average number of sunny days in a typical year, given that most pictures are taken
outdoors.
• In marketing laboratory equipment, the researcher may explore government
expenditures on health care.
• A manufacturer of electric generators might examine the rate of industrialization and
dependence on hydroelectricity.
• A marketer of cooling equipment and industrial filters will consider the number of
institutional buyers, such as restaurants and hotels.

Practical Methods for Estimating Industry Market Potential

•Simple Trend Analysis. Likely industry market potential is derived from aggregate
production for the industry as a whole, adding imports from abroad and deducting
exports.
•Monitoring Key Industry-Specific Indicators. Caterpillar, examines announced
construction projects, building permits, growth rate of households, infrastructure
development, and other pertinent leading indicators.
•Monitoring Key Competitors. If Caterpillar is considering Chile as a potential market,
it investigates the current involvement in Chile of its number-one competitor, the
Japanese firm Komatsu.
•Following Key Customers around the World. Automotive suppliers can anticipate
where their services will be needed next by monitoring the international expansion of
their customers such as Honda or Mercedes Benz.
•Tapping into Supplier Networks. Firms can gain valuable leads from current suppliers
by inquiring with them about competitor activities.
•Attending International Trade Fairs. Industry trade fairs and exhibitions are excellent
venues for managers to obtain valuable information on foreign markets.

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Task 5. Foreign Partner Selection

Objectives: To decide on the type of foreign business partner; clarify ideal partner
qualifications; and plan mode of entry.
Outcomes: Determination of most suitable types of foreign business partners. List of
attributes desired of foreign business partners. Determination of value-adding
activities foreign business partner contribute.
Criteria: manufacturing and marketing expertise in the industry; commitment to the
international venture; access to distribution channels in the market; financial strength;
quality of staff; technical expertise; infrastructure & facilities.

Foreign Business Partner Selection

• Foreign business partners include distribution channel intermediaries, facilitators,

suppliers, and collaborative venture partners such as joint venture partners, licensees,
and franchisees.
• The focal firm needs to decide on: the types of partners it needs for its foreign market
venture; identify suitable partner candidates; negotiate the terms of its relationship
with chosen partners; and support as well as monitor the conduct of chosen partners.

Types of Foreign Business Partners

• Exporters tend to collaborate with foreign market intermediaries such as distributors

and agents.
• Firms that sell intellectual property, such as know-how, trademarks, and copyrights,
tend to work through foreign licensees. These licensing partners are independent
businesses that apply intellectual property to produce products in their own country.
• In franchising, the foreign partner is a franchisee – an independent business abroad
that acquires rights and skills from the focal firm to conduct operations in its own
market.
• In an international collaborative venture, collaborations may be project based or
involve equity investments. • Other types of international business partnerships
include global sourcing, contract manufacturing, and supplier partnerships.

Ideal Qualifications of Foreign Distributors

• Financially sound and resourceful so that they can invest in the venture and ensure
its future growth;
• Competent and professional management, with qualified technical and sales staff;
• Willing and able to invest in the focal firm’s business and grow the business;
• Possesses a good knowledge of the industry; and has access to distribution channels
and end-users;
• Known in the marketplace and well-connected with local government, as political
clout is helpful especially in emerging markets.
• Committed and loyal in the long run.
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 Searching for Foreign Business Partners

• Commercial banks, consulting firms, trade journals and industry magazines as well
as country and regional business directories, are helpful in identifying partner
candidates.
• Field research through on-site visits and gathering research from independent
sources and trade fairs are crucial in the early stages of assessing a partner.
• Firms also ask prospective partners to prepare a formal business plan before
entering into an agreement. The quality and sophistication of such a plan provides
insights about the capabilities of the prospective partner and serves as a test of the
partner’s commitment.

Task 6. Estimate Company Sales Potential

Objective: To estimate the most likely share of industry sales the company can achieve,
over a period of time, for each target market.
Outcomes:3 to 5-year forecast of company sales in each target market. Understanding
of factors that will influence company sales potential.
Criteria: Capabilities of partners; access to distribution; competitive intensity; pricing
and financing; market penetration timetable of the firm; risk tolerance of senior
managers.

Company Sales Potential

•Company sales potential is an estimate of the share of annual industry sales that the
firm expects to generate in a particular target market.
• Estimating company sales potential is often much more challenging than earlier
tasks. It requires the researcher to obtain highly refined information from the market.
• The researcher needs to make certain assumptions about the market, and project
the firm’s revenues and expenses for 3-5 years into the future. The estimates are never
precise and require quite a bit of judgmental analysis.

Factors Determining Company Sales Potential

•Partner capabilities. The competencies and resources of foreign partners determine

how quickly the firm can enter and generate sales in the target market.
•Access to distribution channels. The ability to establish and make best use of channel
intermediaries and distribution infrastructure in the target market.
•Intensity of the competitive environment. Local or third-country competitors are likely
to intensify their own marketing efforts when confronted by new entrants.
•Pricing and financing of sales. The degree to which pricing and financing are
attractive to both customers and channel members is critical to initial penetration.
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•Human and financial resources. Such resources are a major factor in determining
the proficiency and speed with which success can be achieved.
•Market penetration timetable. Gradual entry gives the firm time to develop and
leverage appropriate resources and strategies, but may cede some advantages to
competitors in getting established in the market. Rapid entry may allow the firm to
surpass competitors and obtain first-mover advantages, but it can tax the firm’s
resources and capabilities.
•Risk tolerance of senior managers. Management’s tolerance for risk in the market.
•Special links, contacts, capabilities of the firm. The focal firm’s network in the market
– its existing relationships with customers, channel members, and suppliers.
•Reputation. The firm can succeed faster in the market if target customers are already
familiar with its brand name and reputation.

Practical Approaches to Estimating Company Sales Potential

•Survey of end-users and intermediaries. The firm can survey a sample of customers
and distributors to identify a potential market.
•Trade audits. Managers visit retail outlets and question channel members to assess
relative price levels of competitors’ offerings and perceptions of competitor strength.
The trade audit can indicate opportunities for new modes of distribution, identify types
of alternative outlets, and provide insights into relative competitive strength.
•Competitor assessment. The firm may benchmark itself against principal
competitor(s) in the market and estimate the level of sales it can potentially attract
away from them. What rival firms will have to be outperformed? Even in those countries
dominated by large firm’s research may reveal market segments that are underserved
or ignored altogether.
•Obtaining estimates from local partners. Collaborators such as distributors,
franchisees, or licensees already experienced in the market are often best positioned
to develop estimates of market share and sales potential.
•Limited marketing efforts to “test the waters.” Some companies may choose to
engage in a limited entry in the foreign market – a sort of ‘test market’ – as a way of
gauging long-term sales potential or gaining a better understanding of the market.
From these early results, it is possible to forecast longer-term sales.

My Takeaways

• Global market opportunity refers to favorable combination of circumstances,

locations, or timing that offer prospects for exporting, investing, sourcing, or
partnering in foreign markets.
• Six Tasks of Global Market Opportunity Assessment are Organizational Readiness,
Product Suitability, Country Screening, Industry Market Potential Analysis, Foreign
Partner Selection, and Estimate Company Sales Potential.

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 Assessment Time
Case Analysis: The CEO of Citrine Company, a jewelry retailer is considering of
expanding the business internationally. The question is: Where in the world to
expand their business?

Company Background: Citrine Company is founded in Europe last 1990s. The company offers
great selection of gold, silver and gemstone jewelries in various designs, sizes, and colors. The
jewelries offered are bracelets, earrings, rings, and necklaces. The company has exemplary
formulated its vision and strategies which helped the business to grow and expand in the other
regions. It sells a wide selection of jewelries for men and women accompanied with excellent
customer service. It aims to offer jewelries with fashionable designs and with high quality
which will be suitable to varied attires from casual to formal. The company also intends to
increase their sales per year by 20% and develop a sustainable marketing strategy that will
help exceed customer’s expectation. It attracts and maintain customers by offering unique
designs, quality and excellent level of personalized customer service and fashion
recommendations. The company is guided by its core values on excellence, passion, and
integrity. The management of company is enthusiastic about the international expansion.

Instruction:
For printed module: You may answer in the specified box for the activity. The rubric on the next
page will serve as your guide in making your artwork.
For online mode: You may type your answer in a bond paper, A4-sized, single space, Arial 12
and submit it in our Google Classroom

CASE ANALYSIS FORMAT

I – Facts of the Case

II – Point of View
III – Issue to be Addressed
IV – SWOT Analysis
V – Alternative Courses of Action
VI – Recommendation
VII – Conclusion
VIII - References

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 Rubric for Case Analysis (70 points)

Excellent Good Fair Poor

Criteria
(4) (3) (3) (1)

Completeness All parts of the 1 part of the 2 parts of the More than 2
case study are case is missing case is missing parts of the
(10%) present. case is missing

Identification of The central The central The paper does No central

the central problem of the problem of the not clearly problem of the
problem case is clearly case is present the case is
identified and identified and 1 central problem identified and
(20%) all issues are issue is of the case and no issues
presented. missing. more than 1 presented.
issues are not
identified.

Appropriateness Presented 3 Presented 2 Presented 1 No appropriate

of Alternative appropriate appropriate appropriate courses of
Courses of Action courses of courses of courses of action action based
action based action based based from the from the
(20%) from the from the problem problem
problem problem identified. identified.
identified. identified.

Analysis of Presented 3 Presented 2 Presented 1 Did not present

Alternative appropriate appropriate appropriate any advantage
Courses of Action advantages advantages and advantages and and
and disadvantages disadvantages for disadvantage
(20%) disadvantages for each each alternative course of action.
for each alternative courses of action
alternative courses of
courses of action
action

Congruence of Recommended Recommended Recommended Recommendatio

Recommendation solution solution solution answers n is not
answers the answers the the problem congruent to the
(10%) problem problem but identified but problem
identified cost outweigh failed consider identified.
based on the the benefit the cost-benefit
least possible implication
disadvantages

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INTERNATIONAL BUSINESS AND TRADE
Relevance of The conclusion The conclusion The conclusion Does not
Conclusion contains a contains a contains a contain
synthesis or synthesis or synthesis or synthesis of the
(10%) summary of summary of the summary of the issues and
the issues in issues in the issues in the case implication of
the case and case but the but the the
the implication implication of implication of the recommendatio
of the the recommendation n
recommendati recommendatio is not stated.
on. n is not clearly
stated.

References and All sources are One or two More than 2 Student failed to
Citation properly cited sources are not sources are not cite sources.
and reflected properly cited properly cited and Very few
(10%) in the list of and not not reflected in references given
references reflected in the the list of throughout
following the list of references. paper, even
prescribed references. though the
standards content clearly
under APA did not originate
style from the
student.

Assessment
(You may answer here. You may add more paper if necessary)

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INTERNATIONAL BUSINESS AND TRADE
Assessment
(Continuation)

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INTERNATIONAL BUSINESS AND TRADE
Assessment
(Continuation)

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INTERNATIONAL BUSINESS AND TRADE
Assessment
(Continuation)

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 Reflection Time

Instruction: What is/are your personal learning about international business

expansion modes?

For printed module: You may answer in the specified box for the activity. The rubric below will
serve as your guide in making your artwork.
For online mode: You may type your answer in A2-sized paper, Arial 12 font, and submit it in
our Google Classroom.
Question: Do you want your business to expand globally, knowing all the risk involved? Explain
your answer based on the reflection essay rubric.

Rubric on Reflection Essay (20 points)

Excellent Good Fair Poor

(4points) (3points) (2points) (1point)
Depth of Writing Writing Writing Writing
Reflection demonstrates an demonstrates demonstrates demonstrates lack
in-depth reflection general reflection minimal reflection of reflection on
(20%) on the selected on the selected on the selected the selected
topics, with topics, with some topics, with few topics, with no
supporting details supporting details supporting details details
and examples and examples and examples
Content Writing surpasses Writing includes Writing includes Writing does not
required required few required include required
(20%) components of components of components of components of
the selected topic the selected topic the selected topic the selected topic
Quality of Information Information Information Information has a
Information clearly relates the clearly relates the clearly relates the little to do with the
main topic, main topic, main topic; no main topic
(20%) includes several includes 1-2 details and
supporting details supporting details examples are
and examples and examples given
Structure and Writing is clear, Writing is mostly Thought is not Writing unclear
Organization concise, and clear, concise, expressed well and disorganized
organized. and organized.
(20%) Thoughts are Thoughts are
expressed in a expressed in a
logical manner logical manner
Grammar There are less There are less There are more There are
than three than five grammar than 5 spelling numerous spelling
(20%) grammar and and spelling errors and grammar and grammar
spelling errors errors errors

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Reflection
(You may answer here)

Teacher’s Note

Amazing! You are done learning about International Business and Trade. I hope
that you will be able to implement the strategies you’ve learned for your own
business. God bless you! 

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 References
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Retrieved from https://bookboon.com
Buckley, P., & Ghauri, P. (2015). International business strategy. Theory and practice. (1st
Edition). Routledge
Gaspar, J., Kolari, J., Hise, R., & Bierman, L. (2017). Introduction to Global Business (2nd
Edition). Boston, MA: Cengage Learning, 20 Channel Center Street, Boston, MA
02210 USA
Grozdanovska, V., Jankulovski, N., & Bojkovska, K. (2017). International business and trade.
International Journal of Sciences: Basic and Applied Research (IJSBAR). 31. 105-
114. Retrieved from
https://www.researchgate.net/publication/329487447_International_Business_a
nd_Trade
Hill, C. (2017). International Business: Competing in the Global Marketplace 10th Edition. New
York, NY: McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York,
NY 10020
Hill, C., & Hult, T. (2016). Global Business Today Ninth Edition. New York, NY: McGraw-
Hill Education, 2 Penn Plaza, New York, NY 10121
Katsioloudes, M., & Hadjidakis, S. (2007). International business: A global perspective.
Elsevier Inc.
Lahti, A. (2017). Globalization and The Nordic Success Model –Part I: Globalization and Product
Differentiation as Options 2nd Edition. Retrieved from https://bookboon.com
Lahti, A. (2017). Globalization and the Nordic Success Model –Part II: Global Challenge and the
New Economics 2nd Edition. Retrieved from https://bookboon.com
Lui, C. (2017). Cyberattack and Cybersecurity: What, Why, and How 1st Edition. Retrieved from
https://bookboon.com
Mukerjee, G. (2017). Economics of Globalization: A Handbook. Retrieved from
https://bookboon.com
Orcullo, N. (2011). Principles of eCommerce/eBusiness. Manila, Philippines: Rex Book Store,
Inc. (RBSI)
Parboteeah, P., & Cullen, J. (2018). International business: Perspectives from developed and
emerging markets (2nd Edition). Routledge. Taylor & Francis Group
Raghunat, S., & Rose, E. (2017). International business strategy: Perspectives on
implementation in emerging markets. Palgrave Macmillan
Schneider, G. (2016). Electronic Commerce 7th Edition. Taguig City, Philippines: Cengage
Learning Asia Pte Ltd
Shenkar, O., Luo, Y., & Chi, T. (2015). International business 3rd Edition. Routledge
Zamborsky, P. (2016). International business and global strategy. Retrieved from
https://bookboon.com

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