Parallel Import & Impacts of Parallel Import In International Business Submitted To, A.S.M. Saifur Rahman Lecturer Faculty of Business Administration Cox’s Bazar International University Submitted By, MD Rifat Zahir Bachelor of Business Administration 2nd Batch ID: 2014201004 Cox’s Bazar International University TH Date of Submission 18 fEBRUARY, 2016 18TH February 2016 A.S.M. Saifur Rahman Lecturer Faculty of Business Administration Cox’s Bazar International University Subject: To submit an assignment report on “Parallel Importing & It’s Impact on International Business”. Dear Sir, This is to inform you that I have completed my study on “Parallel Importing & It’s Impact on International Business”. This study was assigned to me as a partial requirement of the “International Business” course in 5th semester. I have tried sincerely to comprehend and translate my knowledge in writing this assignment. I enjoyed this study and gladly attend any of your calls to clarify points, if necessary. In preparing this assignment, I have followed the instructions of yours. I will be glad to clarify any discrepancy that may arise. Thank you for your cooperation. Sincerely, MD Rifat Zahir BBA 2ND Batch ID: 2014201004 Faculty of Business Administration Cox’s Bazar International University MD Rifat Zahir At the beginning, I would like to convey my sincere appreciation to the almighty Allah for giving me the strength & the ability to finish the task within the planned time. This assignment report is an accumulation of many people’s endeavors. So I would like to expressly sincere gratitude to everyone who contributed towards preparing & making this successfully. First of all, I would like to express my Sincere & Immense gratitude to my course teacher A. S. M. Saifur Rahman, Lecturer of Faculty of Business Administration, Cox’s Bazar International University. I am deeply indebted to him whole hearted supervision to me during the thesis period. His valuable suggestion & guideline helped me a lot to prepare the report in a well-organized manner. MD Rifat Zahir BBA 2ND Batch ID: 2014201004 Faculty of Business Administration Cox’s Bazar International University The theoretical aspects recognize the short-term benefits of parallel trade to importing countries in terms of lower products expenditures, provided that lower costs are transferred to the consumers of products. There are likely to be direct impact through lower product expenditures due to parallel imports entering the market at prices lower than the manufacturer's price. The level of such savings is a realistic question. Important factors in the level and distribution of any savings and resulting welfare effects are the regulatory conditions of the market and the payment mechanisms in place. To the extent that parallel trade puts competitive pressure on the originator price, thus producing price decreases or a deceleration of price increases, there will be indirect savings in products expenditures. From a theoretical point of view, however, the response to parallel importing in the international market may not necessarily be to enter into the competition. To what extent that happens is a realistic issue. In the longer term, it has been argued that research and development could suffer from reduced profits in the International Business sector, but it has also been shown that this is not necessarily the case under all circumstances. I NAME Page no EXECUTIVE SUMMARY I What are parallel imports? 1 The process of parallel imports 1 What is Exhaustion of Intellectual Property (IP) rights? 3 Debate on parallel imports 3 Impacts of Parallel Importing in International Business 4 Concluding Remarks 8 Bibliography 9 Parallel Importing & It’s Impact on International Business What are parallel imports? According to Wikipedia "A parallel import is a noncounterfeit product imported from another country without the permission of the intellectual property owner." According to World Trade Organization " When a product made legally (i.e. not pirated) abroad is imported without the permission of the intellectual property right-holder (e.g. the trademark or patent owner). Some countries allow this, others do not.” According to World Health Organization " Parallel imports are imports of a patented or trademarked product from a a country where it is already marketed.” Parallel imports (sometimes referred to as gray market goods) refer to branded goods that are imported into a market and sold there without the consent of the owner of the trademark in that market. Parallel imports often take place when there is the differential pricing of the same product either brand name or generic products in different markets (usually owing to local manufacturing costs or market conditions). Read The graph given below may help you understand the scenario clearly- So finally, we can say that When an importer finds a cheaper price of a good or equivalent good on the world market and imports the good instead of paying higher local prices. These imports tend to be outside authorized importer channels, and are often carried by ordinary tourists. Goods that do not incur heavy transportation costs are most at risk from parallel imports. Authorized retailers, who are not allowed to source goods from parallel importers, generally oppose this practice since it makes them non-competitive against unauthorized retailers who can source these relatively cheap goods. The process of parallel imports Case 1 Parallel importing is spreading from traditional to luxury and brand-name consumer products (wines, cameras, and watches) to industrial products. Industry sources estimate that parallel imports account for 10% of IBM‟s PC sales, 20% of Sharp‟s copier sales, and 20% to 30% of the world cosmetics and fragrances sales. 1 Parallel Importing & It’s Impact on International Business The following graph may help you to understand the scenario properly- Case 2 The second method of parallel importing is when a foreign manufacturer (e.g. German) licenses a company to be the exclusive importer of a product bearing a foreign name or trademark. supply chains in different countries, creating tension between the manufacturer and different distributors, which affects the manufacturer‟s overall profitability. The following graph may help you to understand the scenario properly- Case 3 Another way of parallel imports is the use of mail orders. This type of unauthorized channel is emerging with Internet development and is a very important source of parallel trade. Retailers and consumers can currently purchase products either from catalogs from large, local retailers or going directly to mail order houses in the different market. Anyone with a credit card and access to an Internet-linked computer can order CDs, software, books and whatever from overseas suppliers. E-commerce can be a good example of that. As we can download music, books, movies from the sites and the manufacturer of that product is being deprived of fair prices. 2 Parallel Importing & It’s Impact on International Business What is Exhaustion of Intellectual Property (IP) rights? Again, According to World Trade Organization " When a product made legally (i.e. not pirated) abroad is imported without the permission of the intellectual property right-holder (e.g. the trademark or patent owner). Some countries allow this, others do not.” In this definition, “intellectual property” word used by the WTO, which brings up the matter of “Exhaustion of IP rights”. Besides, they also mentioned that “Some countries allow this, others do not.” So I‟d like to clear the air a bit. Exhaustion of IP rights refers to the extent to which IP rights holders can control the distribution of their branded goods. According to the concept of exhaustion, once IP right holders sell in a particular jurisdiction a product to which their IP rights are attached, they must allow the resale of that product in that jurisdiction. The IP rights covering the product have been “exhausted” by the first sale. There are two types of exhaustion regimes: national (or regional) and international. National (or Regional) Exhaustion These regimes are followed by countries and regions that only allow trademarked goods that have been exhausted to be resold in the national or, in the case of the European Union (EU), a regional area that the goods are from. It does not allow for goods to be sold outside of those areas. International Exhaustion This regime is followed by countries and regions that allow trademarked goods that have been exhausted to be resold in regions other than the country or region of origin. Some countries use a hybrid approach that modifies one of the two basic types of exhaustion. For example, a country nominally applies the principle of international exhaustion but does place some limits on the goods that may be imported. The Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement explicitly states that this practice cannot be challenged under the World Trade Organization (WTO) dispute settlement system and so neither effectively a matter of national discretion. Debate on parallel imports Once Again, According to World Trade Organization “When a product made legally (i.e. not pirated) abroad is imported without the permission of the intellectual property right-holder (e.g. the trademark or patent owner). Some countries allow this, others do not.” Once again I‟d like to denote the definition provided by the WTO, as we are going to discuss the impacts of Parallel Importing in International Trade. In their definition, the last part, they mentioned that “Some countries allow this, others do not.” So I‟d like to focus on this burning issue & provide a realistic judgment on the topic. Of course, the judgment will be from my own point of view. It has been argued that parallel import restrictions (PIRs) strengthen IP holders‟ control over distribution channels, thereby permitting market segmentation and leading to price discrimination. The third party (unauthorized) has an incentive to operate parallel imports due to the feasibility of price arbitrage.