Tag Archives: competition

Marketing Authorities and Economists Think Differently: How They View– Market Structure Vs. Market Segmentation…

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Market structure: Many companies look to market structure and market segmentation to better understand the composition of markets and to identify and profile groups of people (i.e., potential customers) to grow their business… but is  ‘market structure’ the same as ‘market segmentation’ or do they differ? Market structure is often defined as the interconnected characteristics of a market, such as; relative strength of buyers and sellers, degree of collusion, types of competition, differentiation, barriers of entry… Whereas, market segmentation is defined as process of subdividing, targeting a mostly homogenous market into clearly identifiable segments having similar need, want, characteristic, demand… In segmentation the objective is to design a marketing mix that precisely matches the expectations of the customers…

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According to Jeanne Grunert; economists and marketing people each define the terms a bit differently: Economists look at the overall market structure with the goal of defining and predicting consumer behavior… Whereas, marketing professionals seek to define the market structure to create competitive strategies as part of their overall marketing plan… Economists examine market structure to help with decision-making and they seek to analyze broad trends in order to better understand consumer motivation… While marketers also look at trends, but they defer in that economists tend to focus more on the big picture… The economist want to know more about how this information affects large segments of various populations. Whereas, marketing is keen to understand the information, but apply it to their company’s specific marketing strategy…

Economist define market structure according to how an industry– that’s serving a market– is organized, and these structures typically include:

  • Monopolistic competition: Type of imperfect competition such that companies sell products, services… that are not identical with each other, but competitive… they are differentiated from each other by branding, pricing, quality… hence, they are not perfect substitutes…
  • Oligopoly: Market is controlled by small number of companies that together have the majority of market share… Duopoly: Special case of oligopoly with only two controlling the market.
  • Monopsony: Only one buyer in a market…
  • Oligopsony: Many sellers but meet only a few buyers…
  • Monopoly: Only one seller of a product, service…  Natural monopoly: Serves the entire market demand, typically at lower cost than any combination of two or smaller, and more specialized companies…
  • Perfect competition: No barriers to entry, an unlimited number of sellers and buyers, and a perfectly elastic demand curve…

Marketing, in contrast, defines market structure a little differently, when they know that an industry is organized as describe as one of the above restructures, i.e.,  oligopoly, perfect competitive… typically they will dig deeper into the industry, searching to better understand other factors, such as; nature of competition, vulnerability, customer behavior, price sensitivity… Understanding the market structure and landscape helps marketers develop relevant and effective marketing strategies… Hence, defining a structure from marketing perspective tends to seek answers to questions, such as:

  • What are the key motivational drivers that determine how, why, what… consumers buy?
  • How do product, service… packaging, features, brand, pricing… and other factors play into the consumer decision to buy?
  • What and where are the opportunities for growth in an industry through major innovation?
  • What are the key market differentiators and competitive factors?
  • Where are the key market opportunities, threats, risks?

Defining market structure isn’t always easy. Definitions remain fluid and subject to change even among various functions-groups within a company…  and it’s common that different companies view the same market structure differently… As may be observed, both marketing and economists confuse the terms; segments and structures, so much so that the line between the two is nearly obliterated. You can have a conversation with some of these people and, at the end, not only will you not know what they are talking about, but you feel completely confused about both subjects…

In the article What Can Economics Learn From Marketing Market Structure Analysis?  by Charles Fischer writes: The concept of market structure is central to both economics and marketing. The problem for economists and marketing professionals is that a meaningful operational definition of market structure is elusive… Each discipline takes a different methodological approach toward the definition… and each has its own strengths, limitations. Economics is concerned with broad socio-economic,  micro-economic issues, e.g., competitive fairness, predatory pricing… Whereas, marketing is more concerned about the managerial aspects of market structure… Although, each discipline touches on the primary domain of the other, the primary distinction between the two is just a matter of relative emphasis… In economics, markets are classified according to the structure of the industry serving the market… Industry structure is categorized on the basis of market structure variables which are believed to determine the extent and characteristics of competition… In the traditional framework, these structural variables are distilled into the following taxonomy of market structures:

  • Perfect Competition: Many sellers of a standardized product, service…
  • Monopolistic Competition: Many sellers of a differentiated product, service…
  • Oligopoly: Few sellers of a standardized or differentiated product, service…
  • Monopoly: Single seller of a product, service… for which there is no close substitute…

These four market structures each represent an abstract (generic) characterization of a type of real market… Market structure is very important because it affects business outcome through its impact on the– motivations, opportunities and decisions of economic players participating in the market… A key element of the economic market structure is product substitutability, which is strategically linked to market definition… however, this also complicated by the fact that consumers have their own perceptions of product substitutability…

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In the article Market Structure Analysis by Steven Struhl writes: Some of the confusion surrounding market structures arises from the fact that two contrasting traditions of– marketing and economics– have embraced it… Comparing and contrasting the marketing vs. economic methods are briefly summarized as:

  • Marketing approach: Basic elements– analyze the relationships among– target markets and segmentation, potential customers, competing brands, risks, opportunities, business strengths and weaknesses, pricing strategy…
  • Economic approach: Basic elements– analyze the trends of buyers and sellers, extent to which products, services… are substitutable, analysis of comparative costs, market barriers to entry, extent of mutual interdependence– extent to which buyers and sellers depend on each other…

One important point that the economists have in common with marketers is that they include demand elasticity and cross-demand elasticity (or words meaning the same thing) in market structures. Also, how economists get to their answers is usually very different from marketing practices, for example; economists can do much of their work without ever talking to an actual person, and some even act as if asking people what they do or think is, in fact, superfluous to understanding what is happening in a marketplace. This may seem slightly ridiculous, but we should remember that these people win ‘Nobel’ prizes, while humble marketers and market researchers do not, but perhaps they are onto something… The basic consideration in market analyses is reaching a definition of exactly what constitutes the market… Traditionally this is done by focusing on these factors:

  • Degree to which products, services… can substitute for each other, based on consumer perceptions…
  • Extent to which products, services… are intended to serve similar purposes…
  • Impact of products, services… on each other and as measured by elasticity of demand and its effects on each other, as well as cross-elasticity

In typical marketing approaches, it always start with the consumers… but, to reach an overall market structure, the needs of each consumer must be aggregated… This is an aggregated list of each consumer’s– behaviors, perceptions… The  two main aggregation methods are:

  • Behavioral aggregation; (linked to studying market impact)…
  • Subjective aggregation; (linked to the extent to which products, services… can substitute for each other, ratings, opinions, and perceptions)…

Aggregation is problematic: One question often asked is– what happens when aggregation consists of many idiosyncratic consumer opinions; in other words, how do you meaningfully aggregate all the individual consumer choices or opinions when these often reflect great diversity?  Since most marketing authorities do not consider market structures to be the same as market segments, hence finding segments almost always is taken to mean looking for groups that fit these following criteria:

  • Defined product, service… related needs different from those of all other groups…
  • Characterized or identified specific customer– needs, wants…
  • Reachable selectively (or targeted) through communications and marketing efforts…

Different segments of a market, may structure a market differently, since their needs are different… A clear understanding of a market’s structure and segmentation is paramount to understanding it’s– needs, buying processes, preferences, value perceptions, revenue potential… but then, as important, translating these insights into an actionable strategy is precursor to developing a successful business…

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Business Strategy — ‘Stuck-in-the-Middle’ or ‘Build-in-the-Middle': Bridging the Gap or Dead End Proposition…

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Business Strategy–‘Stuck-in-the-Middle’ or ‘Build-in-the Middle': Many business implement a ‘build-in-the-middle’ strategy, which tries to balance the key strategic elements of; competitive differentiation, product-service price, market focus… in order to build a sustainable, profitable business… However, according to Michael Porter classic book ‘Competitive Strategy'; he hypothesis that a business can secure a sustainable competitive advantage by adopting and executing only ‘one’ of three generic strategies, namely; cost leadership, differentiation, niche focus… and, when a business attempts to adopts more than one or a combination of these three strategies, then the business becomes ‘stuck in the middle’, which is a losing proposition… According to Robert F Bruner; a single-minded focus on ‘cost’ or ‘differentiation’ or ‘focus’… may be tomorrow’s business graveyard… Customers, markets, competition… are not static and business must be flexible, nimble, creative, innovative… to survive, grow, prosper… But, Porter says that business, which are ‘stuck in the middle’ have no clear business strategy, and are at serious risk… He stresses the idea that practising more than one strategy loses focus, and hence a clear direction for the future business trajectory cannot be established… However, D. Miller– questions the notion of being ‘caught in the middle’. He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded… According to Baden-Fuller and Stopford; most successful companies are the ones that can resolve what they call ‘the dilemma of opposites’… According to Davis; research has shown evidence of successful firms practicing a ‘hybrid strategy’… business employing a hybrid business strategy (e.g., low-cost and differentiation) outperform the ones adopting one generic strategy…

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According to Michael Porter in his book– Competitive Strategy: The business that fails to develop its strategy in one of the directions; cost leadership, differentiation, niche focus…  is a business  that is ‘stuck in the middle’ and is in an extremely poor strategic situation and is almost guaranteed low profitability… Businesses that are truly differentiated can fend off the competition because they are perceived as having a unique product-service, they are more likely to earn superior margins, and are virtually ‘competitive proof’… Porter’s strategy is embarrassingly simple– just pick one these strategies and align with it… According to John Kay; it’s true that a company that fails to develop its strategy in at least one of these three directions (i.e., a business that is stuck in the middle) is in an extremely poor strategic situation but the notion that business cannot pursue both cost reduction and product differentiation is clearly false… According to Anthony Fensom; being in the middle isn’t bad position provided that you offer value… business strategy can be driven by many objectives; ranging from gaining new customers, market share, improving turnover… or just generally supporting product positioning… and, being stuck in the middle can be a good place, at times– if the price is right…

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There is ample research on business strategy that suggests that the ‘middle’ is to be avoided for fear of being ‘stuck’ in it… According to Bob Bruner; problem is not the ‘middle’… but allowing the business to get ‘stuck’ at all– is the real issue… How the problem is being perceived has big implications for taking action, for example; some business experts argue that the ‘middle’ may not be all that bad since it provides the opportunity to test and discover possible new segments of ‘demand’… After all, demand can be defined well beyond just– cost and differentiation, for example; convenience, style, location… Then, there is the pesky problem that consumer demand keeps changing over time, which necessitates constant experimentation to discover new or evolving demand… Today’s single-minded focus on cost or differentiation may be tomorrow’s business graveyard; customers, competition, markets… are not static they are continually ‘changing’ and business is continually ‘jockeying for position’… But, being ‘stuck’ in a bad business without a viable exit strategy is a business waiting to fail… According to Stealers Wheel; ‘stuck in the middle’ is like being caught between clowns and jokers, they may be weak competitors, and thus may present a great opportunity for business to better serve their market, create value… and accelerate business growth… When this is true, then the middle is bad…

In the article Stuck In The Middle by Paul Simister writes: Effectively being stuck in the middle comes from trying to compromise– and it creates ‘muddle'; muddle is bad, muddle confuses customers– they don’t really know what you stand for or what to expect from you… muddle confuses employees– they don’t understand the priorities, and it affects work performance.. A stuck in the middle position happens when a business designed to be low-cost starts adding little extra frills, which don’t add a corresponding amount to the customer value– that’s when business suffers additional cost, but customers don’t get additional value… Or, when a differentiated business comes under pressure on price, perhaps due to a market disruption from new technology or a low-priced competitor, and in reaction the business starts cutting costs in areas which damages their advantage… If you think the business is stuck in the middle – or heading in that direction – then you must critically review business strategy and implement the appropriate adjustments… That means– you must decide what the business is, and what it isn’t… You must decide who the business customers are, and who they aren’t… You must decide what the business is selling, and what it’s not… Strategy is about making wise choices, and then having the courage, conviction to follow through– it’s commit to turning words, ideas… into action…

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In the article Oh, Professor Porter, Whatever Did You Do? by John Kay writes: One of the most famous propositions in business strategy is Michael Porter’s injunction not to be ‘stuck in the middle’… According to Porter; the worst strategic error is to be stuck in the middle, or to try simultaneously to pursue all the strategies. This is a recipe for strategic mediocrity and low performance, because pursuing all these strategies simultaneously means that a business unable to achieve any, due to the inherent contradictions… The trouble with Porter’s proposition is that– it’s just not true… Many successful businesses are stuck in the middle… to them ‘stuck in the middle’ means offering– medium cost, medium quality… in fact, they do slightly better than the clearly focused choices of high-cost, high-quality… or low-cost, low-quality… So perhaps Porter’s ‘don’t be stuck in the middle’ means– not that you must choose one or the other strategy, but if you don’t– you will fail… Perhaps then all that ‘don’t be stuck in the middle’ really means is that– it’s good to be good at something

In the article Stuck In The Middle? Take Flexible Approach by Bob Bruner writes: The problem is not the middle; it’s allowing the business to get stuck at all… The ‘middle’ seems to be what every executive wants to avoid these days. And perhaps for good reason. There is ample research on business strategy that suggests the middle is to be avoided for fear of being ‘stuck’ in it. The conventional view is to see the ‘middle’ as a no-win situation. I see things slightly differently; the problem is not the middle it’s allowing the business to get stuck at all… Being ‘stuck’ is one of the worst situations for business without a viable exit strategy, for example; think of manufacture operations that are obsolete and face exit costs that can ruin the economics of a business as it approaches its end… Or, minority investor who is stuck in an under-performing private firm looking to exit and investment-securities are illiquid… Or, an airline stuck with an aging fleet of airplanes, uneconomic union contracts, landing rights that don’t fit the more profitable segments of demand… Or, retailers stuck with stores in neighborhoods with the wrong demographic trends… Or, technology company stuck with commitment to obsolete technology… There are many of examples of ‘stuckness’ situations, whereby management makes inflexible commitments to what they think could be sustainable and attractive business strategy… when, in fact, these ‘difficult-to-reversible’ strategic decisions and commitments– exposes the business to potentially catastrophic consequences…

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The challenge for business leadership is not to avoid the middle, but rather to develop flexibility– such as a sensible Plan B– if the competitive situation turn against you. The middle is bad if you are stuck in some important way, for example; the inability to respond appropriate under new competitive conditions… It’s not particularly difficult to think of companies that are neither cost leaders nor differentiators that produce sub-par returns on invested capital, but many have historically ‘muddled’ along for years with incoherent strategies… However, the days of muddling along without a clear strategy are numbered… According to Porter; a company’s failure to make a choice between cost leadership and differentiation essentially implies that the company is stuck in the middle. There is no competitive advantage for a company that is stuck in the middle and the result is often poor financial performance… However, there is disagreement among scholars on this aspect of the analysis…

According to John Kay and D. Miller; cite empirical examples of successful companies like Toyota and Benetton, which have adopted more than one generic strategy. Both these companies used the generic strategies of differentiation and low-cost simultaneously, which led to the success of the companies... In contrast, according to Tim Friesner; Yahoo has been stuck in the middle for number of year… and future for the business is looking less and less certain. Google occupies the search and online advertising position, and Microsoft has negated its problem in the search space, with the successful development of Bing. It looks like Yahoo has remained loyal to its long serving strategists, at a time when it really needed fresh ideas. This is an example of not moving with the times in a very fast-moving and dynamic tech sector… Michael Porter has noted that strategy is as much about executives deciding what a firm is ‘not going to do’ as it’s about deciding what the business ‘is going to do‘… In many cases, business is ‘stuck in the middle’ not because executives fail to arrive at a well-defined business strategy but because businesses are simply out-maneuvered by rivals… According to Joseph Schumpeter, great economist; described the competitive turbulence of capitalism as the ‘gale of creative destruction’… being stuck in a bad business without a viable exit strategy– is a business waiting to fail…

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Pricing Strategies– Think Thru Your Price Model: Change Irrational Guesswork to Rational Analysis and Relevance

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Pricing strategies, price models– One of the secrets to business success is pricing products properly and it’s probably the toughest thing there is to do…. Price correctly and that will enhance how much you sell and create the foundation for a prosperous business. Get your pricing strategy wrong and you may create problems that the business may never be able to overcome. According to Charles Toftoy; it’s part art and part science– there’s no one surefire, formula-based approach that suits all types of products, businesses, or markets. Pricing usually involves considering certain key factors, including; pinpointing target customers, tracking how much competitors are charging, understanding the relationship between quality and price… The good news is that there’s a great deal of flexibility in how you set your prices, but that’s also the bad news… adopting a better pricing strategy is a key option for staying viable-relevant. Merely raising prices is not always the answer, especially in a poor economy: Many businesses have been lost sales because they priced themselves out of the marketplace but on the other hand, many businesses and sales staffs leave money on the table because they price too low. One strategy doesn’t fit all– adopting a pricing strategy is a learning curve that can only be mastered by studying the needs and behaviors of customers, competitors, markets…

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In the article Time to Rethink Your Pricing Strategy Andreas Hinterhuber and Stephan Liozu write: Companies differ substantially in their approach to price setting but most fall into one of three buckets: Cost-based pricing; Competition-based pricing; Customer value-based pricing. According to Warren Buffett; the single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you must have a prayer session before raising the price by 10%, then you’ve got a terrible business. Yet pricing receives scant attention in most companies. According to Professional Pricing Society; fewer than 5% of Fortune 500 companies have a full-time function dedicated to pricing… According to McKinsey; fewer than 15% of companies do systematic research on this subject… According to Association to Advance Collegiate Schools of Business; only about 9% of business schools teach pricing… This neglect is puzzling, as numerous studies have confirmed; pricing has a substantial and immediate effect on company profitability. Studies have shown that small variations in price can raise or lower profitability by as much as 20% or 50%. Over the past 18 months, we interviewed 44 managers in 15 U.S. based industrial companies. These companies varied in size from about 50 to more than 2000 employees and dramatically different pricing capabilities. In the course of research, we found that pricing power is not destiny, but a learned behavior. The companies we found that achieved better pricing all had top managers who championed development of skills in price setting (i.e., price orientation) and price getting (i.e., price realization). Regardless of their industry, the degree to which managers focused on developing these two capabilities correlated to their companies’ success in achieving a better price for their product than their competitors. Without managerial engagement, companies typically use historical heuristics, such as cost information to set prices, and yield too much pricing authority to the sales force.

In the article How to Price Products by Elizabeth Wasserman writes: The first step is to get real clear about what you want to achieve with your pricing strategy: The biggest mistake many businesses make is to believe that price alone drives sales. The ability to sell is what drives sales and that means– the right sales people and adopting the right sales strategy. At the same time, be aware of the risks that accompany making poor pricing decisions. There are two main pitfalls you can encounter; under pricing and over pricing. According to Laura Willett; many businesses mistakenly under price their products attempting to convince the consumer that their product is the least expensive alternative and hoping to drive volume; but more often than not it’s simply perceived as being– cheap. Remember that consumers want to feel they are getting their money worth (i.e., value) and most are unwilling to purchase from a seller they believe to have less value. On the flip side, over-pricing a product can be just as detrimental since the buyer is always going to be looking at competitors’ pricing… There are many methods available to determine the right price, but successful firms know that the key factor to consider is always the customer– first. The more you know about your customer, the better you’ll be able to provide what they value and the more you’ll be able to set your price higher… know the segments you’re targeting, and price accordingly… The key is to be brutally honest in your evaluation: One size does not fit all. You can only go so far by pricing based on a fixed markup from cost. The price should vary depending on a number of factors including, for example: What the market is willing to pay. How the brand is viewed in the market. What competitors charge. The estimated volume-quantity you can sell. But as important, you must constantly review cost and continuously monitor price and the underlying profitability… Remember: Listen to customers. Keep an eye on competitors. Have an action plan in place... Be relentless in managing pricing; how you set prices may very well be difference between success and failure of the business.

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In the article Pricing Strategy by Scott Allen writes: The most difficult yet most important issue in business is pricing– how much to charge for product, service… Pricing is tricky, but you’re certainly entitled to make a fair profit and even a substantial one, if you create value for customers. But remember, something is ultimately worth only what someone is willing to pay for it… While there is no one single right way to determine  pricing strategy, fortunately there are some guidelines that will help with the decision. Here are some basic factors that should be considered:

  • Positioning: How are you positioning in the market? Is pricing going to be a key part of that positioning? The pricing has to be consistent with positioning. People really do hold strongly to the idea that you get what you pay for.
  • Demand Curve: How will pricing affect demand? You must do some basic market research to find this out, even if it’s informal. Get a good sample of people to answer a simple questionnaire, asking them: Would you buy this product/service at X price? Y price? Z price?
  • Cost: Calculate the fixed and variable costs associated with the product, service… determine the cost of goods, fixed overhead… Remember that your gross margin (price minus cost of goods) has to amply cover your fixed overhead in order to turn a profit…
  • Environmental factors: Are there any legal or other constraints on your pricing? For example, for doctor’s insurance companies and Medicare will only reimburse a certain price… Also, what possible actions might competitors take?  Find out what external factors may affect pricing.

The next step is to determine pricing objectives. What are you trying to accomplish with pricing?

  • Short-term profit maximization: This approach is common in companies that are bootstrapping, as cash flow is the overriding consideration. It’s also common among smaller companies hoping to attract venture funding by demonstrating profitability as soon as possible.
  • Short-term revenue maximization: This approach seeks to maximize long-term profits by increasing market share and lowering costs through economy of scale. For a well-funded company or a newly public company, revenues are considered more important than profits in building investor confidence.
  • Maximize quantity: There are a couple of possible reasons to choose this strategy. It may be to focus on reducing long-term costs by achieving economies of scale. Or it may be to maximize market penetration– particularly appropriate when you expect to have a lot repeat customers…
  • Maximize profit margin: This strategy is most appropriate when the number of sales is either expected to be very low or sporadic and unpredictable.
  • Differentiation: At one extreme being the low-cost leader is a form of differentiation from the competition. At the other end, a high price signals high quality and/or a high level of service…
  • Growth: In growth situations you must be flexible in pricing, such that– all costs are covered and the business can still sustaining the growth trajectory…

Once you’ve considered the various factors involved and determined your objectives for the pricing strategy, here are four basic ways to calculate prices:

  • Cost-plus pricing: Set the price with the production cost, including; cost of goods, fixed costs… plus a certain profit margin. So long as you have costs calculated correctly and accurately predicted sales volume, you will always be operating at a profit.
  • Value-based pricing: Price based on value created for the customer. This is usually the most profitable form of pricing, if you can achieve it. The most extreme variation on this is pay for performance pricing, in which you charge on a variable scale according to the results achieved.
  • Psychological pricing: Ultimately, you must take into consideration the consumer’s      perception of price, figuring things like: Positioning– If you want to be the low-cost      leader, you must be priced lower than your competition. If you want to signal high quality, you should probably be priced higher than most of  your competition. Popular price points– There are certain price points at which customers become much more willing to buy a certain type of product… Fair pricing– Sometimes it simply doesn’t matter what the value of the product is, even if you don’t have any direct competition: There is simply a limit to what customers perceive as fair. A little market testing will help determine the maximum price customers will perceive as fair.

In virtually every facet of business, companies develop strategies based on the truism that customers differ from each other. Diverse customers are courted with a variety of products (e.g., styles, colors, add-ons…), mix of marketing strategies, multiple distribution points… However, when it comes to pricing, companies behave as though customers are identical by just setting single prices. However, an epiphany to better pricing is to understand and actually to embrace the same insight that companies use to create strategies and profit in other areas of their business… The strategy of pricing involves acknowledging customers have different pricing needs and making efforts to profit from these differences. According to  Mat Marquis; Strategic pricing comes with practice and skills will grow over time. Pricing is a discipline that anyone can learn: But, first and foremost– do customers a favor–  charge customers what you’re worth that’s proportional to your value  (i.e., don’t over or under price) and you will both be happy… According to Tejvan Pettinger; optimal pricing strategy will depend on the type of business… For example, for premium brands– cutting price could be perceived as disastrous– as you lose brand image and fail to increase sales… For normal goods, with businesses looking to increase market share and gain more market dominance, it’s more important to offer competitive prices, and using strategies such as; penetration pricing, loss leaders… According to Nick Wreden; crafting the right strategies will not only strengthen the business, today; but it will also prime it for sustained growth…. Remember the big picture– profitability is not the only prism through which you should view pricing. Other important perspectives include: Impact on customer relationships, impact on the industry…  Also, don’t fight today’s sales wars with yesterday’s pricing strategies– review pricing strategies, models… and make adjustments, now… Pricing is life blood of profitability– it must be monitored, adjusted, kept relevant…

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International Trade– Models, Benefits, Risks: Global Economic Outlook, 2013… Open Markets Drive Trade Development

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International Trade: Countries cannot live in isolation. They must mutually share their resources, technical know-how, products and services, and undertake international trade in order to grow their economies and prosper… The world economies are closely inter-dependent; economic progress of all nations depends on their ties with other countries… International trade is a vital engine for economic development, and in most countries it represents a significant share of their gross domestic product (GDP)… According to Ben Bernanke: In U. S., as best we can measure, international trade is critically important. According to one study that used four approaches to measuring the gains from international trade, the increase in trade since World War II has boosted U.S. annual incomes on the order of $10,000 per household (research by Bradford, Grieco, and Hufbauer). The same study found that removing all remaining barriers to trade (i.e., free trade) would raise U.S. incomes anywhere from $4,000 to $12,000 per household. Other research has found similar results. Our willingness to trade freely with the world is indeed an essential source of our prosperity– and I think it’s safe to say that the importance of trade for the U.S. will continue to grow… While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries… The classical model of international trade was developed over 200 years ago by Adam Smith. He believed that different countries possessed unique advantages in the production of certain goods. He then showed that world output would rise if countries traded freely along the lines of their productive advantages... Torrens and Ricardo expanded on this theory by showing that even if a country did not have an absolute advantage in any goods, both it and other countries would still benefit from international trade. This would be the case if countries specialized in the production of goods with which they had the greatest absolute advantage, or the least absolute disadvantage– this is known as law of comparative advantage… Pre-trade relative prices, in many cases, determine the direction of comparative advantage and therefore the direction of trade… International trade is most commonly recognized as the exchange of goods or products; however, trading services such as, expertise in a particular field or the ability to facilitate the trade of goods is another common form of foreign trade. Trading capital on the foreign exchange market (FOREX) represents a third facet of international trade. Capital or currency held for foreign trade fluctuates in value hourly due to political, business, weather and other conditions and factors from nation to nation. Trading currency in the international market attempts to profit from the rising value of one nation’s currency through selling the lower value of another nation’s capital…

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In the article Different Types of International Trade Models?  by Peter Hann writes: International trade models may be traced back at least to the theory of absolute advantage put forward by Adam Smith. This theory demonstrated that it was beneficial for a country to specialize and to engage in international trade if it could produce some goods more efficiently than its trading partners. This theory was further developed by the comparative advantage theory of David Ricardo, which showed that a country should specialize in those goods in whose production it was comparatively efficient. Ricardo’s theory has been further refined in more recent times to produce neo-Ricardian theory that uses fewer assumptions than the original theory. Other important international trade models include; the Heckscher-Ohlin theory that emphasizes the importance of factors of production in a country, and the gravity theory that looks at the size and proximity of trading partners. While Smith only demonstrated that international trade was beneficial in certain specific circumstances, Ricardo’s theory showed it always makes sense for a country to specialize in producing those goods and services in which it is comparatively most efficient. This specialization increases productivity and boosts the total output of the country. A country does not need to have an absolute advantage in producing goods provided the opportunity cost of producing the goods is lower than that of its trading partners in producing the same goods. Ricardo’s theory of comparative advantage uses numerous assumptions. For example, it assumes that the only input to industrial production is labor and that labor is mobile between industries, but not between countries. Modern refinements to Ricardian theory have produced international trade models that can demonstrate comparative advantage across a range of goods and countries, rather than Ricardo’s original model that used two countries and two categories of goods. The Heckscher-Ohlin model of international trade emphasizes the resources available in each country and stresses the importance of factors of production in each country. The abundance of factors such as, labor or capital in a country determines the type of international trade the country engages in. The country produces and exports goods that take advantage of the factors of production that are abundant, and will import those goods that require the input of factors of production that are scarce in the country. International trade models also include the gravity model that looks at the economic mass of each country and the distance between the trading partners. The gravity model arrives at a prediction of the trade flows between the countries based on these elements and other factors such as, the historical context between countries that have affected trading patterns…

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Global Economic Outlook 2013, May 2013 Update: According to the World Trade Organization (WTO); global commerce is set to grow by 3.3% in 2013, as persistent gloom in the EU led it to cut a previous forecast of 4.5%. The announcement marked the second time that the WTO has reined in its figures for 2013, after initially estimating that world trade would expand by 5.6%. The WTO report said: In 2013, improved economic prospects for U. S. should only partly offset continued weakness in the EU, whose economy is expected to remain flat or even contract slightly according to consensus estimates; and, China’s growth should continue to outpace other leading economies, cushioning the slowdown, but exports will still be constrained by weak demand in the EU. As a result, this year looks set to be a near repeat of 2012, with both trade and output expanding slowly… In 2012, the WTO said, global commerce expanded by 2.0% from the level in 2011, compared with growth of 5.2% that year. In 2012, the dollar value of world merchandise exports increased by 0.2% to $18.3 trillion… That trend was driven by falling prices for traded goods with commodities such as; coffee, cotton, iron ore and coal seeing major drops, while oil remained relatively stable. Meanwhile, the value of world commercial services exports rose by 2.0% to $4.3 trillion…

 In 2013, First Quarter Trade Results: Merchandise trade growth increased in major economies during the First Quarter of 2013. Compared to Fourth Quarter of 2012, value of merchandise imports and exports for the total of G7 and BRICS countries increased by 1.3% and 2.8%, respectively. Compared to the previous quarter, merchandise– imports and exports– increased in First Quarter of 2013 in most major economies, for example: Germany (by 3.9% and 4.8%), China (by 0.9% and 5.6%), Brazil (by 5.1% and 4.9%), U. S. (by 0.7% and 1.0%), Italy (by 1.4% and 3.2%), Canada (by 1.6% and 1.2%), France (by 0.5% and 1.9%), and Russian Federation (by 4.9% and 0.0%). Conversely imports grew and exports contracted in South Africa (by 4.3% and minus 0.3%), while the opposite pattern (i.e. imports contracted and exports increased) held in UK (by minus 0.3% and 1.3%) and in India (by minus 0.9% and 6.1%). In Japan, imports contracted slightly in the First Quarter of 2013 (by minus 0.1%), whereas exports decreased more significantly (by minus 2.3%) for the fourth consecutive quarter…

Most countries of the world cannot have a growing economy or lift the wages and incomes of their citizens unless reach beyond their borders and sell products, services… to the world’s populations…  Exports support millions of jobs worldwide, for example; in U.S. more than 50 million workers are employed by companies that are engaged in global trade, and this represents approximately 40% of the U.S. private sector workforce… Often overlooked is the fact that more than 97% of the quarter million U.S. companies that export are small and medium-sized enterprises (SMEs), and they account for nearly a third of U.S. merchandise exports… International investment is also critical to the future prospects of world business, for example; multinational corporations earn trillions of dollars in revenue through their foreign operations, which create tremendous value for stakeholders… There are both benefits and pitfalls in international trade, and how these are managed determines the relative success of operations… Consider benefits: When trading internationally the universe of potential customers and suppliers increases significantly… The idea that a business relies solely on one market (e.g., home country) and directs all its resources into a single currency may prove to be more risky than it may first seem. Just look at the number of unprecedented global disasters over the last few years and the drastic impacts these have had on markets… While expanding beyond home markets can increase sales, provide better profit margins, reduce pricing pressure, and could reduce seasonal market fluctuations… The ability to stand out from competitors is a crucial factor in business: In the home market your business may be viewed as comparable to competitors, but when placed in another country’s environment it may be considered a unique product or service not to be missed. By making the product or service available to worldwide buyers, you instantly create another life-line for the business… boost sales potential and allow your business to flourish… However there are pitfalls, in international trade, and the key is managing risk… First and foremost, it’s crucial that you have a clear understanding of what international trade involves. It’s easy to become engulfed in the excitement of its benefits and marginalize risks… For example, it’s dangerous to assume that laws in countries are similar to those of the home country… and most critical is the development of meaningful relationships in the target countries… With so many aspects to consider when trading at an international level, it’s easy to leave currency exchange to the last-minute, and it could have a negative impact on business’ profit, and if you do not plan ahead, the market’s volatility could always change the worth of the currency– and not always for the best… International trade and investment is inevitable part of world economy, but international trade has to be approached sensibly and with a clear thought process so as to maximize the benefits and minimize the risks…

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Datafication– Reflects the Past and Drives the Future: A Revolution That is Changing How We Live, Work, Think…

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Datafication is the transformation of our entire world into oceans of data that can be explored– and providing a new perspective on reality. Datafication takes all aspects of life, and transforms it into a data format that makes it quantified; for example, Twitter datafies stray thoughts, LinkedIn datafies professional networks… Once things are datafied, we can transform their purpose and turn the data into new forms of value… Ultimately, datafication marks the moment when our information society finally fulfills the promise implied by its name… Data are center stage: All those digital bits that have been gathered can now be harnessed in novel ways to serve new purposes and unlock new forms of value. But it requires a new way of thinking; datafication is a resource and a tool and it’s meant to inform, rather than explain it points toward understanding but it can still lead to misunderstanding, depending on how well it’s wielded… So how is datafication being used to shape our business activities and create new forms of values? Collecting data is not enough; it depends on how data is used to unlock its values, not only its primary use but also its reuse– its option value. In other words, quantifying things that we didn’t previously think to quantify. One way that we are probably being datafied right now is by location: Smartphone applications draw upon our real-time geographic coordinates to recommend– restaurants, events… Social media also lends an interesting perspective on how society is now datafied… These online interactions can shed much light into our social dynamics and cultural future. These examples are just the tip of the iceberg, showing that datafication can apply to just about anything. Even though datafication holds enormous opportunity and value, there are negative impacts on privacy and sense of freedom… We didn’t used to look at our friends and view them as a rich source for data, but Facebook changed that by datafying friends… Similarly, we never used to think of our whispers, stray thoughts, professional networks as data-producing entities. Yet, according to Kenneth Cukier; Twitter, LinkedIn… changed that too. In short, we are datifying many aspects of our lives that we never actually thought as being informational before… and we’re just at the outset of the datafication era… consider all the potential uses of datafication as we move forward into the future…

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In the article New Buzzword: Datafication by Jeff Bertolucci writes: Just when you thought you had mastered all the data-riffic buzzwords out there, another rears its trendy head. We’re talking about datafication; the notion that organizations today are dependent upon data to operate properly– and perhaps even to function at all. According to Andrew Waitman; datafication is a different concept– what’s happening in the world of data is that more businesses are fundamentally data businesses. Even if you think of– online retail, online grocery stores… they don’t operate without data infrastructure. According to Waitman; you could argue that no online business could be operating without their backend data infrastructure… As trends go, datafication is not new: Many multinational corporations have processed and analyzed massive data sets for decades, but with little fanfare. For example, financial, energy, retail… were early adopters of data-style analysis… Walmart and Target have been doing large data analysis for years– storing large volumes of customer data– and than later going back and doing post-analysis of that data. Google has done big data analysis since it started for optimizing their search engines… The ubiquity of powerful and personalized computing devices combined with– store everything mentality– has made it easier for organizations to analyze huge data sets. Decades ago, people had to make decisions on the metrics they needed and the specific data type that they were going to store in the mainframe computers. But now you store everything, and do a post-facto query. In today’s big data world, organizations typically capture and store all information, even if they’re not sure what insights the data will provide…

In the article Rise of Big Data, Big Brother by Cathy O’Neil writes: Datafication is an interesting concept: We are being datafied or rather our actions are and when we ‘like’ someone or something online, we are intending to be datafied or at least we should expect to be. But when we merely browse the web, we are unintentionally or at least passively being datafied through cookies that we might or might not be aware. And when we walk around in stores or even on streets, we are being datafied in completely unintentional way… This spectrum of intentionality ranges from us gleefully taking part in a social media experiment we are proud of to all-out surveillance and stalking. But it’s all datafication. Our intentions may run the gambit, but the results don’t… Once we datafy things, we can transform their purpose and turn the information into new forms of value. But, who is ‘we’ and what kind of value? If you assumed that ‘we’ means– the people– then, you might re-think it, since ‘we’ really means– companies, governments… and they are becoming more efficient with datafication. According to Cukier-Mayer-Schoenberger; the datafication revolution consists of three things: 1. Collecting and using a lot of data rather than small samples. 2. Accepting messiness in your data. 3. Giving up on knowing the causes. They describe these steps in rather grand fashion by claiming that datafication doesn’t need to understand causes because the data is so enormous. It doesn’t need to worry about sampling error because it’s literally keeping track of the truth– it’s all really about understanding what we can do with data and the potential behind it…

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In the article Datafication: Lens of How We See Ourselves by Lyndsay Grant writes: Datafication is both backward-facing, representing what has happened so far and also forward-facing, driving future behavior… Yet the way that datafication informs future action is not always straightforward… While providing an illusion of certainty and control, the data itself only provides a starting point for asking more questions… Facebook is a prime example of how datafication attempts to influence our behavior, for example; displaying numbers of our– likes, shares, comments, friends… Facebook encourages its users to spend more time on the site creating and sharing content, which will increase our numbers and that provides more valuable data about us, which makes it easier for marketers to effectively target us with advertisements… The use of data to drive online behavior does not stop at Facebook. By using cookies to track interaction across multiple sites and then aggregating this information, marketers get an even more accurate and nuanced picture of who you are, and therefore the advertisements you are more likely to respond to… The effects of datafication also arguably extend to our offline behavior, and influence how we see ourselves and the world around us. If numbers of our– friends, likes, comments… are what drives our interaction online, then particular attitudes and perspectives are being cultivated that we may carry offline… While datafication may give the illusion of more certainty about us and our world, it does not in itself provide final answers. If data is to open up opportunities for thinking and acting differently in the future, it can only ever really succeed in posing more questions… According to Dawn Nafus; this is the more-and-yet-less quality of data. Measuring data gives more information, but only succeeds in posing more questions about what data really means…

Datafication exposes variability and enhances value: Companies use data to create better products, airlines use data to plan flights at times… Datafication leads also to improved decision-making, e.g., companies like Proctor and Gamble use their data to plan expansions into new markets… According to an MIT Sloan study; companies that utilize data driven decision-making have seen 5-6% greater output and productivity than what was expected… A recent McKinsey report says; the next frontier for innovation is in healthcare, and if data is used creatively and effectively it will drive efficiency and quality, which could create more than $300 billion in value every year… According to Viktor Mayer Schönberger-Kenneth Cukier; the scale of datafication allows us to extract new insights and create new forms of value in ways that will fundamentally change how we interact with one another. These new insights can be used for good or for ill, but that’s true of any new piece of knowledge, but what is most disconcerting about datafication– it’s on a direct collision course with our traditional privacy paradigms… The fear is that well-meaning organizations may become so fixated on the data and so obsessed with the power and promise it offers that they will fail to appreciate its limitations… According to Kate Crawford; datafication is full of hidden biases… data and data sets are not objective, they are creations of human design… Organizations and individuals must become more aware of the biases and assumptions that underlie the datafied world. According to Jules Polonetsky and Omer Tene; organizations must disclose the logic underlying their decision-making processes, as best as possible, without compromising their algorithmic– secret sauce. This information has two key benefits: it allows us to monitor how data is used and it also allows individuals to become more active participants in how their data is used… According to Paul Vallée; while many organizations are coming to grips with the brute impact of the data explosion, others are already starting to experience some of its deeper consequences… Businesses create trillions of bytes of data each day. People share more than 30 billion pieces of content a month on Facebook… Passive devices like sensors in cars, computers, smartphones, energy meters… log trillions of bytes… Datafication is a resource and a tool. It is meant to inform, rather than explain; it points toward understanding but it can still lead to misunderstanding, depending on how well it is wielded. And, however dazzling the power of datafication may appear, we must not be blinded by its inherent imperfections… Rather, we must adopt the technology with an appreciation not just of its power, but also of its limitations…

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Shadow World of Economic–Offsets– An Anomaly in Business Practice: Cost to Compete for International Trade Agreements

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Offsets are ‘terms in a sale’ that leverages the sale to obtain compensatory benefits for the buyer, generally in many international trade arrangements… Offsets are an integral part of trade agreements between companies (i.e., suppliers) and governments (i.e., buyers); whereby suppliers must agree to buy products or provide other forms of commitment to the buying countries, in order to win the contract. Offsets are mechanisms to compensate typically, governments for outflow of their countries economic resource… Their use is becoming increasingly important with more than 120 countries having international trade offsets policies… Even though the definition of ‘offsets’ is often disputed the main concept is simple: A country (buyer) that wishes to purchase and import, say, $100 Million worth of military arms from another country or company… and presumably the only economic value gained in return, for the purchase, is the putative national security-value of the imported arms. Therefore, to increase the ‘economic exchange value'; the importing country (buyer) stipulates that the exporting country-company (seller) contractually must take a percentage (offsets) of the $100 Million purchase, and set-up a ‘flow-back’ to the buyer, e.g.; provide for co-production facilities in the buyers country, or commit to a variety of other possible activities that would secure the ‘flow-back’ percentage, of the $100 Million, to the importing country (buyer). This ‘flow-back’ or ‘offset’ is part of the trade contract… The importing country’s advertised benefit are; they obtain the necessary arms, plus the country’s public funds that are spent on the purchase remain in the country for use in other domestic activities, such as; stimulating the country’s economic development… Countries use offsets for a variety of reasons, e.g.; ease the burden of large purchases on their economy, increase-preserve employment, obtain desired technology, promote industrial sectors… It’s interesting to note: Developed countries with established defense industries use offsets to channel work or technology to their domestic defense companies. Countries with newly industrialized economies are utilizing both military and commercial related offsets that involve the transfer of technology and know-how… The developing countries with less industrialized economies generally pursue indirect offsets to help create profitable commercial businesses and build infrastructure. Overall, offsets continue to be an important and necessary factor in a climate of increased international competition…

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In the article Market Trends and Analysis of Offsets by Asif Khan writes: Offsets are industrial compensation practices that are required as a condition of purchase. The seller is required to compensate the buyer for perceived losses to the local economy. This practice has been part of international trade for more than fifty years… Offsets are also used in other industries, such as; power generation, telecommunications, infrastructure projects… For example, Pepsi signed an agreement with the Ukraine to expand its bottling plants and, in return, marketed approximately US$1 Billion worth of shipments of goods over an eight-year period… There are many who favor the practice of offsets, and there are many who oppose this practice. Some refer to offsets as kickbacks and as being counter to the free market approach, while others, especially some people in the defense industry, view offsets as a reasonable component of market practices and as a business development tool without which there would be no sales: The World Trade Organization (WTO) permits only civilian offsets (civil-civil) for developing countries only… Offsets are now an accepted practice in the international business arena, and this is especially true in the defense industry. Many countries see offsets as a means of enhancing their local economies, and politically justifying spending on defense items and acquiring the latest technologies… Marketers should be aware of offset policies and practices of their foreign customers and governments to better prepare for the competitive bidding process. Defense firms should be aware of the trends in offsets and the demands of the respective markets, such as; local partnerships and production… Three approaches are prominent when considering offsets policies: 1) policy adaptation requiring a mandatory offset component, 2) flexible case-by-case approach based on mutual benefits, and 3) best endeavor approach based on a partnership. Some countries start with one strategy, then after having some experience they might change the approach… Defense contracting firms have two options; engage in offsets or walk away from the deal... The defense industry views offsets as counter-balance for trade distortions imposed by government interventions… Also, as a tool for risk mitigation, access to capital, markets, technologies, and enhanced local workforce skills… In response to a survey of U.S. defense firms conducted by the U.S. Commerce Department; 59% of respondents agreed with the concept that offsets are essential to win contracts, and based on the past transactions, offsets have proved to be a key decision criteria in international defense sales… Offsets exist in formal and informal forms: Some countries have adopted mandatory offsets, while others have adopted flexible offsets policies that focus on, e.g., long-term partnerships, dual-use technology, regional approaches… Countries with skilled workforces, public-private enterprises, and developed international business relationships are better positioned to absorb the transfer of technologies than countries without these attributes. Based on the last fifteen years of U.S. export data, the overall trend shows that there has been a steady increase in the demand for offsets…

How Do Offsets Work? International offsets activities are directly related to the size of the international exports trading businesses: According to Stockholm International Peace Research Institute(SIPRI); the world’s 100 largest arms dealers, excluding China, sold weapons and military services worth US$411.1 Billion dollars in 2010… U.S. firms dominated the Top 100, with sales by 44 US-based companies accounting for over 60% of the market, or US$246.6 Billion… Assume that the offsets on these export agreements might average about 90%, and then the U.S. exports of US$246.6 Billion would result in about US$222 Billion of future offset obligations, as the export contracts are fulfilled… Here is an example of a typical ‘offsets’ proposal: Consider a hypothetical case of ‘NationP’ (buyer) buying 300 tanks from defense company ‘CompanyS’ (seller). Assume that the total contract is US$400 Million and NationP (buyer) requests 120% of offsets. Hence, the defense CompanyS (seller) is obliged to fulfill these offsets, if they want to win the contract. Then, NationP and ConpanyS agree on a list of specific offsets items, i.e., deals, programs… The offsets agreement includes both direct and indirect offsets. NationP also assigns a credit value for each typology of offsets offered by CompanyS. The credit value for the offsets obligations is not the ‘actual value’ but it’s the ‘actual value by a multiplier’, which expresses the degree of interest of NationP in the proposed offsets. In other words, something that is deemed very valuable by NationP will have a high multiplier, which expresses the importance and the value to NationP for that type of offset. The multiplier (e.g., 2, 5, 7…) translates NationP‘s ‘attached value’ into the ‘credit value’, and that eventually accounts for the fulfillment of the agreed sum of US$480 (120% offsets). Most offsets are divided into ‘direct’ and ‘indirect’: Here is a hypothetical proposal between CompanyS and NationP using both ‘direct’ and ‘indirect’ offsets:

Direct Offsets:

  • Co-production: NationP chooses one or more local companies to manufacture some components of the tanks, such as turrets and some of the internal components. The actual value of the components is US$70 Million. NationP assigns a multiplier of 3, since this develops capabilities of its military industrial base and creates jobs in NationP. The total credit value for the fulfillment of the overall offset obligation is US$70 Million x 3 = US$210 Million.

Indirect Offsets:

  • Foreign Direct Investments: CompanyS makes investments in 5 (defense or non-defense) companies in NationP. The total value of investments is US$14.5 Million, and the multiplier is 4, a high multiplier, since NationP suffers from a chronic lack of ‘Foreign Direct Investments’. This makes an additional credit value for CompanyS of US$58 Million.
  • Technology Transfer: CompanyS provides water desalination technologies to one NationP company. This technology is particularly appreciated by NationP. Its actual value is US$20 Million, but the credit value is 7 times the actual value, which equals US$140 Million.
  • Export Assistance and Marketing: CompanyS provides commercial assistance to market products and services of a NationP’s company in a difficult market… The assistance is offered for 8 years, at the value of US$3 Million per year. NationP considers this assistance important to create new revenue streams and jobs for its company, and sets multiplier of 3. Credit Value US$72 Million. CompanyS may not be  expert on marketing and export assistance, so it may hire a subcontractor for the job. Such a subcontractor is also known as an ‘offset fulfiller’.

In these agreements, NationP controls-manages not only the supply of the deliverables, but also the implementation of the offsets according to the offset agreement, included or related to the main supply contract. This control is within the Minister of Defense and/or Ministry of Economy or Finance, or Ministry of Industry and Trade. Often arms importing nations establish special agencies for the supervision of their defense offsets…

Welcome to the murky world of ‘offsets’… The practice came of age in the 1950s, when Dwight Eisenhower forced West Germany to buy U.S.-made defense gear to compensate for the costs of stationing troops in Europe. Since then it has grown steadily and is now accepted practice in 120 countries… According to the Global Offset and Countertrade Association; the industry could double in size over the next few years. Yet its very structure serves to mask the build-up of unrecognized financial liabilities of companies… also, critics argue that it fosters corruption, especially in poorer parts of the world… According to ‘Avascent’, consultants; estimates that defense and aerospace contractors have accrued offsets obligations, i.e., investments they have promised but not yet made– that amount to about $250 billion today, and could increase to almost $450 billion by 2016… However, the industry’s own estimates are lower, but all agree that the trajectory is upward… In a survey of 200 international business leaders; respondents were nearly unanimous on the importance of international business to their organizations, and equally convinced of the value of strong ‘offsets plans’ for the success of their business development efforts… However, the character of offsets– seen as either obligation or opportunity– was more contentious… The pressure to do more and better on offsets is clear… Meanwhile, many investors that invest in  companies that trade internationally are unaware of the role and risks of offsets– despite the importance of international growth… In addition, many governments using offsets; lack transparency, effective decision-making, little communication… leaving stakeholders to rely on informal networks to navigate the role and risks of offsets in their countries… Remarkably, offsets are now said to be the main criterion in international trade contract evaluation… offsets may be little-noticed side deals that are negotiated in the shadows, but when it comes to weighing up bids they are at the front of decision-makers’ minds…

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Winners–Losers: It’s All About Having Real Grit, Superior Passion vs. Just Let It Happen– Don’t Get Bitter, Get Better

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Winners–Losers: Passion and perseverance may be more important to success (i.e., winners), than mere talent. In a world of instant gratification, ‘grit’ may yield the biggest payoff of all. Grit is defined as ‘perseverance and passion for long-term goals’, and it may  be at least as good a gauge of future success as talent itself… According to Angela Duckworth; individuals that are deemed winners (i.e., more successful), typically possess traits that are above normal ‘ability’ but more important, they also possess– ‘zeal and persistence’ of motive and effort; or, in other words, high in ‘grit’. Grit is conceptualized as a stable trait that does not require immediate positive feedback. Individuals high in ‘grit’ are able to maintain their determination and motivation over long periods despite experiences with failure and adversity. Their passion and commitment towards the long-term objective is the overriding factor that provides the stamina required to ‘stay the course’ amid challenges and set-backs. Essentially, the ‘grittier’ person is focused on winning the marathon, not the sprint… Winning is important– that’s why we compete– When we play, we play to win… According to Ned Hardy; the difference between winners and losers are:

  • Winner is always part of the answer; Loser is always part of the problem.
  • Winner always has a program; Loser always has an excuse.
  • Winner says; Let me do it for you; Loser says; That is not my job.
  • Winner sees an answer for every problem; Loser sees a problem for every answer.
  • Winner says; It may be difficult but it is possible; Loser says, It may be possible but it is too difficult.
  • Winner makes commitments; A Loser makes promises.
  • Winners have dreams; Losers have schemes.
  • Winners say; I must do something; Losers say; Something must be done.
  • Winners are a part of the team; Losers are apart from the team.
  • Winners see the gain; Losers see the pain.
  • Winners see possibilities; Losers see problems.
  • Winners believe in win-win; Losers believe for them to win someone has to lose.
  • Winners see the potential; Losers see the past.
  • Winners are like a thermostat; Losers are like thermometers.
  • Winners choose what they say; Losers say what they choose.
  • Winners use hard arguments but soft words; Losers use soft arguments but hard words.
  • Winners stand firm on values but compromise on petty things; Losers stand firm on petty things but compromise on values.
  • Winners follow the philosophy of empathy: Don’t do to others what you would not want them to do to you; Losers follow the philosophy: Do it to others before they do it to you.
  • Winners make it happen; Losers let it happen.
  • Winners plan and prepare to win. The key word is preparation.

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In the article Winning Is a Losing Concept by Wim Rampen writes: Winning in sports is easy… that is, it’s an easy concept… Winning in business is not… The concept of winning requires someone else to lose… Not a problem in sports, it’s a game. Losing is not a concept that works well in business though. Even negotiation works best if the outcome is beneficial for both parties to the table… Winning in business should be about creating nothing but winners, because even if both you and your competitors grow, this means that you are growing the total ‘pie’ (i.e., market)… And growth of the market means customers are winning as well… Winning in business is not about outperforming the competition. Winning in business is about co-creating superior value with all stakeholders, and for all stakeholders. It’s about building an ecosystem that is so unique, it becomes a market, or category, in itself. Being a winner in business is all about finding your spot in the ecosystem, where you can best help others be winners too…

In the article Winning–Losing: Out-Played or Out-Talented by Wayne GoldSmith writes: In high performance sports you have a relatively simple equation to evaluate performance – you either win or lose. When you lose, it is natural to look for the reasons ‘why’.  A critical aspect in understanding the ‘losing process’ is to find the answer to the following question: Were you outplayed or out-talented? What does it mean to be out-played? Being outplayed means– your opponent planned and prepared better than you did. Being out-talented means– you were beaten by someone who possessed a superior talent… What’s the difference? The difference between being ‘out-talented and out-played’ is that being out-played is totally your own fault and you had complete control and responsibility over your own preparation. The most important principle in any competition is that you must out-prepare… excuses do not count… blame does not improve performance. It’s pointless blaming losing on having ‘less talent’ than your opposition, unless you know with absolute certainty that you have prepared better in every other aspect than the competition…

In the book ‘Top Dog: The Science of Winning and Losing’ by Po Bronson and Ashley Merryman write: We examined the science of winning and losing, and why a lucky few are top dogs and the rest of us aren’t. When the stakes are high, when it’s all on the line, some people rise to the occasion, others don’t… Forget about the power of positive thinking. When it comes to competing you need focus, intensity, and readiness to face expected obstacles and adversity. A bit of insecurity and self-doubt motivates you to try harder. Instead, positive thinking makes you mellow and takes success for granted without being aware of the needed effort to actually succeed… Many studies have confirmed that positive thinking is not associated with superior performance: What matters is not ‘positive vs. negative thinking’, its ‘additive vs. subtractive thinking’… Additive thinking is reviewing your performance and uncovering opportunities for improvement. Subtractive thinking is regretting you did not do this or that without thinking of the necessary skill improvement needed to move forward… Teamwork is way overrated, and people underestimate how much time is wasted in teamwork… A conflict free team means no one is bringing anything to the table that might engender controversy; and from a performance standpoint, that’s bad… How one interprets stress is a key… Stress can also be interpreted as a challenge associated with a gain-oriented mode (i.e., seeking opportunities, risk taking, maximizing gains…); playing not to lose vs. playing to win…

In the article Winners and Losers by Gary Lockwood writes:  We frequently hear people being labeled as winners or losers. We seem to instinctively know the difference. In this article, we explore the essence of character that distinguishes the winners from the losers. She’s a winner! He’s a real loser. We frequently hear people labeled as winners or losers. We seem to instinctively know the difference. Many years ago, I read a poem that discusses the difference between winners and losers. I don’t know who wrote it, but I tip my hat to her/him, because the poem captures the essence of character that distinguishes winners from losers. I’ll share it with you now– with my thoughts:

                BE A WINNER! Right here in the title is an acknowledgment of what most people want: To be a winner, and to feel like a winner. With all the talk of win-win thinking, we still want to be a winner and to enjoy the positive emotions that accompany being a winner.

Winners make commitments. Losers make promises: While some people do treat their promises as commitments, many make empty promises knowing that they may not actually perform. The meaning of this stanza is clear: When winners make a commitment, they see it through to completion. You can count on a winner to come through.

Winners go through a problem. Losers go around it, never get past it: This little-known secret of winners is powerful. When encountering a problem, don’t just work around it this one time. Solve the problem then keep going to solve the source of the problem. Fix it for good, not just for now.

Winners say: Let’s find out. Losers say: Nobody knows: An insatiable curiosity allows winners to explore the source of opportunities as well as the source of problems. This makes it more likely that the winner will develop even more opportunities while solving the source of recurring problems. It also turns out that genuine curiosity about other people is one of the secrets to increasing sales, improving customer service and strengthening relationships.

Winners always have a plan. Losers always have an excuse: Have you noticed that successful people seem to know where they’re going and what they want? It’s no coincidence that winners have a plan. The process of thinking through the issue of what’s important, allows the winners to keep a clear vision of the future and outline a path to get there. They routinely examine their mission by asking: Where am I going with this? How will I accomplish my goals?

Winners say: There’s a better way. Losers say: It’s the way it’s always been done: Continuous  improvement is one of the hallmarks of successful people. Their motto is: If it’s worth doing, it’s worth doing better. Losers just keep on doing the same old things yet they expect different results.

Winners are always involved in the answer. Losers are always part of the problem: Winners are not whiners. Instead of complaining about a problem (or just sitting there being part of the problem), winners jump in looking for a solution. No blame, no pointing fingers, no belly-aching. Just fix it and move on.

Winners know there is still much to learn. Losers want to be considered an expert before knowing how little is known: We’ve all encountered people who want to be ‘the expert’, even though their expertise is out-of-date, incomplete, or overestimated. Winners understand that knowledge has a short shelf-life. Winners also appreciate that, to be valuable to clients, they must constantly explore the limits of their knowledge.

Winners learn from their mistakes. Losers learn only not to make mistakes by not trying anything different:
 Winners are opportunistic about learning from daily experiences. All of us have hundreds of experiences each day that could be valuable learning opportunities. Losers ignore them and surf the shallow surface of their knowledge. Winners understand that learning in today’s fast-paced and ever-changing environment can’t be left to chance. Successful people make a conscious effort to actively seek new ideas, innovation and growth.

There you have it. To me, the poem addresses the fundamental qualities of being a winner. It captures the spirit of open-mindedness, strength, and compassion that makes winners and winning attractive… Be a winner!

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