Voyevodins' Library _ "International Business: Competing in the Global Marketplace" / Charles W.L. Hill ... Chapter 15 ... legal risk, legal system, Leontief paradox, letter of credit, licensing, local content requirement, location economies, location-specific advantages, logistics, Maastricht Treaty, maker, managed-float system, management networks, market economy, market imperfections, market makers, market power, market segmentation, marketing mix, masculinity versus femininity, mass customization, materials management, mercantilism, MERCOSUR, minimum efficient scale, MITI, mixed economy, money management, Moore's Law, moral hazard, mores, multidomestic strategy, Multilateral Agreement on Investment (MAI), multilateral netting, multinational enterprise (MNE), multipoint competition, multipoint pricing, new trade theory, nonconvertible currency, norms, North American Free Trade Agreement (NAFTA), oligopoly, Organization for Economic Cooperation and Development (OECD), outflows of FDI, output controls, Paris Convention for the Protection of Industrial Property

Voyevodins' Library _ "International Business: Competing in the Global Marketplace" / Charles W.L. Hill ... Chapter 15 ... legal risk, legal system, Leontief paradox, letter of credit, licensing, local content requirement, location economies, location-specific advantages, logistics, Maastricht Treaty, maker, managed-float system, management networks, market economy, market imperfections, market makers, market power, market segmentation, marketing mix, masculinity versus femininity, mass customization, materials management, mercantilism, MERCOSUR, minimum efficient scale, MITI, mixed economy, money management, Moore's Law, moral hazard, mores, multidomestic strategy, Multilateral Agreement on Investment (MAI), multilateral netting, multinational enterprise (MNE), multipoint competition, multipoint pricing, new trade theory, nonconvertible currency, norms, North American Free Trade Agreement (NAFTA), oligopoly, Organization for Economic Cooperation and Development (OECD), outflows of FDI, output controls, Paris Convention for the Protection of Industrial Property Voevodin's Library: legal risk, legal system, Leontief paradox, letter of credit, licensing, local content requirement, location economies, location-specific advantages, logistics, Maastricht Treaty, maker, managed-float system, management networks, market economy, market imperfections, market makers, market power, market segmentation, marketing mix, masculinity versus femininity, mass customization, materials management, mercantilism, MERCOSUR, minimum efficient scale, MITI, mixed economy, money management, Moore's Law, moral hazard, mores, multidomestic strategy, Multilateral Agreement on Investment (MAI), multilateral netting, multinational enterprise (MNE), multipoint competition, multipoint pricing, new trade theory, nonconvertible currency, norms, North American Free Trade Agreement (NAFTA), oligopoly, Organization for Economic Cooperation and Development (OECD), outflows of FDI, output controls, Paris Convention for the Protection of Industrial Property

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Chapter 15 Outline

Artais Weather Check

Artais Weather Check, Inc., is a small Ohio-based company that manufactures an automated weather observation system, or AWOS, for small airports. Artais's AWOS system records runway conditions such as wind speed, direction, and temperature and converts the data into a voice message for pilots. Only three other companies besides Artais have been certified by the US Federal Aviation Administration (FAA) to produce the equipment, and Artais dominates the market in the United States with a share of over 80 percent.

Despite its dominant market share in the United States, Artais gets the majority of its $8 million in annual revenues from foreign markets. Within the United States, the market for automated weather observation systems is small. Although there are 18,000 public and private airports in the country, the largest have round-the-clock human weather watchers, while most of the smaller airports cannot afford the $45,000 to $60,000 required to install an AWOS. Thus, the prospects for growth in the United States seem to be limited to sales of about 75 systems per year nationwide.

To continue to grow the company's revenues, Artais has increasingly looked toward export sales. From slow beginnings in the late 1980s, exports have surged to account for close to two-thirds of the company's total revenues. However, to get foreign orders, Artais has had to deal with frustrations it never encountered at home. The first problem it came up against was one of name recognition. Although Artais is well known within the United States, the company found that its name recognition was close to zero overseas. Another problem involves subsidized competition; according to Artais, its main competitors in some foreign markets are subsidized by their governments to protect jobs. Artais has also found that it needs to customize its products for foreign markets. To sell in Egypt, for example, its system had to be reprogrammed to relay weather information in Arabic as well as English. International customers also require that spare parts be located close by and that Artais employees install the equipment and provide on-site training, all of which raises the costs of doing business.

Political factors have also had a major impact on the outcome of some deals. For example, after working hard to secure a deal in Romania, Artais unexpectedly saw the deal fall through at the last moment. Instead, the deal went to a German competitor. According to some locals, the Romanian government, eager to improve trading relations with the European Union, gave the job to Artais's German competitor in an attempt to curry favor with the trading bloc's most powerful member.

Despite problems such as these, Artais has sold systems to airports in Taiwan, China, Ecuador, Saudi Arabia, and Egypt. Artais has found that such overseas contracts can be more lucrative than its domestic sales because of all the extras, such as spare parts, installation fees, and training. For the basic AWOS, the value of the foreign contracts has ranged from $200,000 to $2 million, compared with $45,000 to $60,000 in the United States. Building on this success, Artais in 1995 introduced a new system designed to detect low-level wind shears. The new system, which costs $350,000 per unit, was designed for the market outside the United States. According to company representatives, Artais is disregarding the US market because of the cost and time involved in meeting specifications established by the FAA. Systems built to FAA specifications can cost $1 million a unit, which is beyond the reach of many foreign buyers. The first two sales of the new system were to Saudi Arabia in 1995. The company believes that in time 20 percent of its annual sales will come from the wind-shear system, all of which will be generated overseas. In addition, the company believes that the bulk of revenues for its basic AWOS will continue to be generated overseas.

http://www.faa.gov

Source: S. N. Mehta, "Enterprise: Artais Find That Smallness Isn't a Handicap in Global Market," The Wall Street Journal, June 23, 1994, p. B2, and R. Carter, "Artais' New System to Help Airlines Harness the Wind," Columbus Dispatch, August 28, 1995, p. 8.

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