Rajagopal. Marketing Dynamics: Theory and Practice

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Marketing Dynamics: Theory and Practice

on capital may not reflect the economic return on capital. In particular, the operating income

has to be cleansed of any expenses that are really capital expenses (in the sense that they

create future value). One example would be R& D. The operating income also has to be

cleansed of any cosmetic or temporary effects. How do you estimate cost of capital?

Discounted Cash Flow (DCF) valuation assumes that cost of capital is calculated using

market values of debt and equity. If it assumed that both assets in place and future growth

are financed using the market value mix, the EVA should also be calculated using the market

value. If instead, the entire debt is assumed to be carried by assets in place, the book value

debt ratio will be used to calculate cost of capital. Implicit then is the assumption that as the

firm grows, its debt ratio will approach its book value debt ratio.

One of the key business processes of the firm is managing capital and resources, which is

obscured by accounting system on various expenses. Salaries, software development, rent, training,

and, and other ongoing costs constitute the process capability of a firm. The cost of displacing

workers towards process reengineering, downsizing and the like may appear as an “extraordinary

item” on the balance sheet of a firm. By treating processes as capital assets or liabilities, firms may

ensure that they directly contribute to the added economic value. Both EVA and DCF valuation

should provide us with the same estimate for the value of a firm. Information that is required for both

approaches is expected cash flows overtime and costs of capital over time.

Firms are often evaluated based upon year-to-year changes in EVA rather than the present

value of EVA over time. The advantage of this comparison is that it is simple and does not require the

making of forecasts about future earnings potential. Another advantage is that it can be broken down

by any unit - person, division etc., as long as one is willing to assign capital and allocate earnings

across these same units. While it is simpler than DCF valuation, using year-by-year EVA changes

comes at a cost. In particular, it is entirely possible that a firm which focuses on increasing EVA on

a year-to-year basis may end up being less valuable. Advantages of economic value additions may

be observed as:

1. EVA is related to Net Present Value (NPV). It is closest in spirit to corporate finance

theory that argues that the value of the firm will increase, if you take positive NPV projects.

2. It avoids the problems associated with approaches that focus on percentage spreads–

between Returns on Equity (ROE) in association Cost of Equity and Returns on

Change (ROC) in reference to Cost of Capital These approaches may lead firms with

high ROE and ROC to turn away good projects to avoid lowering their percentage

spreads.

3. It makes top managers responsible for a measure that they have more control over - the

return on capital and the cost of capital are affected by their decisions - rather than one

that they feel they cannot control as well - the market price per share.

4. It is influenced by all of the decisions that managers have to make within a firm - the

investment decisions and dividend decisions affect the return on capital (the dividend

decisions affect it indirectly through the cash balance) and the financing decision affects

the cost of capital.

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Relationship between EVA and Market

Value Added is more complicated than the

one between EVA and Firm Value. The

market value of a firm reflects not only the

Expected EVA of Assets in Place but also

the Expected EVA from Future Projects, To

the extent that the actual economic value

added is smaller than the expected EVA the

market value can decrease even though the

EVA is higher. This does not imply that

increasing EVA is bad from a corporate

finance standpoint. In fact, given a choice

between delivering a “below-expectation”

EVA and no EVA at all, the firm should deliver

the “below-expectation” EVA. It does suggest

that the correlation between increasing year-

to-year EVA and market value will be weaker

for firms with high anticipated growth (and

excess returns) than for firms with low or no

anticipated growth. It does suggest also that

“investment strategies” based upon EVA have

to be carefully constructed, especially for firms

where there is an expectation built into prices

of “high” surplus returns.

When focusing on year-to-year EVA changes

have least side effects:

1. Most or all of the assets of the firm

are already in place; i.e., very little

or none of the value of the firm is

expected to come from future

growth. [This minimizes the risk

that increases in current EVA come

at the expense of future EVA]

2. The leverage is stable and the cost

of capital cannot be altered easily

by the investment decisions made

by the firm. [This minimizes the

risk that the higher EVA is

accompanied by an increase in the

cost of capital]

Strategy Focus 10.1: Packaged Food:

Changing Consumer Needs in India

The consumer preferences are shifting from traditional

home-made delicacy to the packaged foods in India.

Although Indian consumers are becoming more

sensitive with regard to the food they purchase,

convenience packaged food products are affordable

only to certain consumer groups. Indian consumers

are price-sensitive for the packaged food products

especially as the average Indian household does not

consider most packaged food essential. Middle and

upper-middle income segments are thus the major

targets for value-added food products, such as ready

to serve, semi-cooked and frozen foods. The majority

of households still prefer fresh foodstuffs, which are

readily available at affordable prices. Freshly prepared

food is also overwhelmingly preferred, and achieves

high sales through the huge number of eating

establishments. The unorganized segment, in the form

of cottage industries producing mostly unbranded and

often unpackaged food products, also remains

important in the Indian landscape. Euro-monitor

projects current value growth of just over 8% for the

packaged foods market in 2003. Similar to the preceding

year, a combination of price discounts and small

packaging sizes is expected to allow leading packaged

food manufacturers in India to increase product

penetration into rural areas, as well as entice repeated

purchases.

Despite the various catch-up strategies deployed by

Hindustan Lever and other regional players within

confectionery, ice cream, dairy and oils and fats, the

Gujarat Co-op. Milk Marketing Federation Ltd.

(GCMMF) further extends its market during 2001-

2003 with frequent product launches and re-launches.

Its brand presence especially at the mass level, an

excellent distribution network spanning all urban areas,

and continued expansion into rural areas added values

to the customers preferences. More importantly, while

Britannia Industries enjoyed good realization within

bakery products, Hindustan Lever suffered from the

continued poor performance of its ice cream

operations. The retailing scene in India is evolving,

and the emergence of these modern retail stores is

gradually shaping changes in the shopping habits of

the Indian population. The outlook for packaged food

in India will, however, be pale in comparison with

countries on a similar path of economic progress, such

as China, Indonesia and Vietnam.

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3. The firm is in a sector where investors anticipate little or not surplus returns; i.e., firms

in this sector are expected to earn their cost of capital. [This minimizes the risk that the

increase in EVA is less than what the market expected it to be, leading to a drop in the

market price.]

While focusing on year-to-year EVA changes can be dangerous in view of the following threats:

1. High growth firms, where the bulk of the value can be attributed to future growth.

2. Firms, where neither the leverage not the risk profile of the firm is stable, and can be

changed by actions taken by the firm.

3. Firms where the current market value has imputed in it expectations of significant surplus

value or excess return projects in the future.

These problems can be avoided if the objective is restated as maximizing the present value of

EVA over time. However, while doing so some of the perceived advantages of EVA such as its

simplicity and absorbability may disappear.

MARKET ENTRY STRATEGIES

Type of market entry strategy chosen depends upon a number of factors, including the following:

amount of available investment capital; degree of risk one is willing to assume; knowledge of foreign

markets; knowledge of working with diverse cultures; knowledge of export/Import transactions;

available distribution systems; time commitment; ability to handle stress and uncertainty; potential

profit; and a number of other factors as well. The following lists some of the more common market

entry strategies.

1 Assembly operations - An organization sends parts for a product to a foreign plant for

final assembly. The products are then sold in the foreign market or exported to other

countries. Assembly plants may allow a company to take advantage of low cost labour

in the most labour-intensive portion of production. There may also be lower duties and

other taxes, because unfinished products are imported, instead of finished products.

Assembly, plants also allow a foreign manufacturer to meet host country requests for more

domestic production, while at the same time allowing the manufacturer to maintain control

over production by using its own sub products as supplies and materials for the foreign

assembly plant. A potential problem, especially with plants located to pacify foreign

governments needs for domestic production, is that the foreign government may institute

quotas on the amount of foreign parts, which may be used in the host country.

2 Contract manufacturing - Some companies use manufacturers in foreign countries to

make (or assemble) their product, and distribute them through the foreign manufacturer’s

existing marketing channels. Thus, entry to the country is achieved with the assistance

of local companies using proven marketing channels. Although the cost of this type of

method is usually a substantial portion of the product revenues, it allows a company to

test the market for its goods and become more familiar with doing business overseas.

3 Exporting - This is one of the simplest methods of foreign market entry. The product

is exported to a buyer who then distributes it to the foreign market. Market entry of the

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product is achieved without considerable investment of either time or capital. The key to

exporting is knowing the components of the export transaction very well. If knowledge

is not present there are a number of export agents available to assist the exporter of

products.

4 Joint venturing - A joint venture is an agreement between two companies to co-produce

and distribute a product. A separate entity is commonly established to handle a joint-venture

arrangement. Joint ventures normally involve a foreign company and a host country

company. Some countries require some local equity participation in all companies operating

within their borders. A joint venture is a way of meeting equity participation requirements.

One of the major problems associated with joint ventures (in addition to usually high capital

investment needs) is obtaining the right joint-venture partner. If partners are not compatible,

do not understand each other’s cultures, do not have a common language, or do not share

basic intentions regarding the outcome of the joint venture, the chances of the arrangement

succeeding are reduced.

5 Franchise agreement - This is an agreement in which a company holding the rights

to a product, trademark, process, etc. allows another company to make and distribute

the product or use the trademark under a contractual agreement. The franchise agreement

spells out the details, which usually Include the geographic area in which the franchise

is good, the fees to be paid to the franchiser, as well as any other requirements the

franchiser is able to place in the contract. A franchise agreement is a method of entering

a foreign market by having a local business, (hopefully an established and highly reputable

business) distributes and/or produces a foreign firm’s product. This builds name recognition

and provides a good foundation from which to add more foreign franchises or to begin

owned operations overseas.

6 Licensing - Licensing provides the right to, a foreign company to use trademarks, patents,

and other protected property rights in return for a licensing fee. The company holding the

property rights is able to obtain distribution through an established business in a foreign

country, and avoid the problems with high capital outlays and competing in a country in

which it is relatively unknown. Licensing may also be a way of gaining some protection

from pirating or other invasion of intellectual property rights because it sells these rights

to an existing foreign company, which is more likely to be able to protect them in the host

country. Licensing also allows a company to enter a market in which foreign entry

restrictions are high or currency convertibility problems exist. A license fee flows out of

the country as an expense of the local business, instead of a repatriation of profits to a

foreign parent company.

7 Management contracting - A firm can enter foreign markets under a contract to manage

a new or existing commercial operation in those markets. For example, a manufacturer

has a proven record of aggressive and efficient management in its home country. The

manufacturer may be approached not to provide product but instead management expertise

for a operation having problems in a foreign country. This places, the management of the

original manufacturer into a foreign ‘operation in which international experience may be

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Marketing Dynamics: Theory and Practice

gained success in one management contract may lead to additional contracts and eventually

equity ownership in foreign firms. The only real problems associated with management

contracts is that, they remove top management from the home country operation are

normally temporary, and may incur the blame, for a problem which previously existed in

a foreign company.

8 Manufacturing - This mode of entry may be considered as developing capability to produce

goods in a foreign country. This method allows the greatest control of the overseas operation

but also the greatest investment in capital, management time, and effort. Often direct

investment in facilities is achieved through the purchase of an existing company’s assets in

a foreign country but many large companies build new facilities when they expand. The

decision to purchase or build a manufacturing plant in another country may be forced upon

a company by competition or foreign government demands for local representation.

9 Piggyback exporting - Piggyback exporting describes a situation in which one company

markets its products through the distribution channels of a second company. Two major reasons

for piggyback marketing are: (1) a local company desires to enter multinational markets but

lacks the money, experience or possibly the inclination to learn what is necessary to be

successful in the international marketplace; (2) an existing multinational company is seeking

to fill out its product lines to stay competitive overseas. Piggy backing involves products which

compliment one another instead of competing. This method of exporting is one of the least

problematic of all of the methods of entering foreign markets. Of course, success is dependent

upon who the partners are and the commitment to making the partnership function effectively.

10 Wholly owned subsidiaries - This form of market entry provides a company full control

over its foreign operations. This method of market entry requires large capital investment,

commitment of time and effort, and normally a willingness of some employees/ management

to travel to and live in a foreign country. Fully owned subsidiaries are commonly existing

businesses acquired by the company. If this is so, the investment in management and

expatriate time and effort may not be as significant as with a start-up operation.

DEVELOPING ENTRY PLAN

An international marketing plan is prepared considering various factors that determine marketing

functions across various countries. However, the marketing plan primarily needs to be designed

considering the principal business components as stated below:

• Commitment on decisions taken by the marketing firm

• Selection of country or cluster of countries (trade region)

• Mode of entry in the market

• Appropriate marketing strategy in tune to the marketing environment of the identified

country or region.

• Building effective marketing organization

Selection of a country is a critical exercise that involves the examination of all the above variables

besides undertaking the demand analysis and financial estimates. The commitment of the firm to its

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trading decisions in the selected country, cost-benefit ratio study, and market operational methods largely

determine the mode of entry of the firm into the international marketing avenue. The marketing strategy

needs to be evolved assessing the objectives of the firm in the local markets in order to acquire differential

advantage. Once the marketing-mix is critically analyzed, an implementation strategy can be formulated

by the marketing firm. However, to ensure effective implementation of marketing policies, the marketing

organization needs to be strengthened first. The decentralized organizational structure at regional levels

would be appropriate for a marketing firm, when planning for international marketing in more than one

country. Such an organizational set-up would facilitate monitoring of demand, supply, price trend and

political interventions more comprehensively. The centralized set-up would be of greater cost, but less

effective in exercising the marketing implementation and control measures.

A two stage selection process is required for the firm in identifying the product, market and

services for international marketing. In this process, first, potential international markets need to be

explored. Secondly, comparison of the domestic market of the firm with those abroad needs to be

carried out in order to ensure that marketing at the international level has co-operative advantages

over the domestic market.

Identifying a marketing region is always better than restricting to an

individual country for the purpose of cost effective distribution networking. In addition, the tariff

walls at the border countries need to be studied carefully. The firm involved in the international

marketing should also make efforts to develop export markets in the initial stage. This would help in

product specialization. International business firms have found that exporting is cheaper than

manufacturing in overseas markets. There still remain some basic issues to be examined by the firm

engaged in international marketing. These are:

• Size and growth

• Marketing potential of a country or region

• Similarities in host countries

• Free trade area, customs, common market

• Economic and political unions

• Appropriate economies of scale in managing business

• Accessibility, infrastructure and its cost

• Possibilities of decentralizing business activities

• Geographical boundaries of the markets

• Long run market segmentation

Exporting firms should understand that the export operations are subordinate to the domestic

market policies and that the policy of the business firm to market the surplus home produce in the

international market, would largely be determined by the opportunities offered by the host country or

regional markets. However, the considerations on —(i) the firm’s extent of awareness on varying

requirements of consumers (ii) market response to the design and packaging of the product (iii) the

impact of the pre-launch promotion among the focus groups and (iv) the size of the market which

influences the adaptation process of goods and services at the international markets level.

2 Rajagopal (2004), Conceptual Analysis of Brand Architecture and Relationships within Product Category,

Journal of Brand Management, 11(3), 233-247

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Roche is a pharmaceutical research, technology and market-driven company, whose unique

portfolio of products and services creates superior value for the customers. The products of

the company are delivered through its affiliates located all over the world. Affiliates or

regional representations are direct link to the customers and local markets of the company.

Roche Diagnostics integrates its own know-how with that of selected partners from a wide

range of specialized areas. With this objective in mind, Roche Diagnostic’s strategic alliances

and collaborative partnerships are aimed at combining potential with an innovative and

ambitious approach. Best known examples of successful and long lasting partnerships are

the global alliances with Hitachi (since 1978) for clinical chemistry and immunoassay systems,

with Sysmex (since 1998) for hematology systems and with Stago (since 1973) in selected

countries for coagulation systems. Roche Centralized Diagnostics (formerly Roche Laboratory

Systems) directs its products and services at private labs, laboratory associations and central

hospital laboratories, offering high-performance analysis systems to measure hundreds of

different parameters in clinical specimens as well as programs to optimize lab processes, from

sample down to result management. In co-operation with its partners Hitachi, Sysmex and

Stago, Roche Centralized Diagnostics offers a full line of solutions for laboratories of all

workloads. Roche Centralized Diagnostics’ ultimate goal is to improve patients’ health through

the application of modern laboratory diagnostics as an integrated part of health management

systems. In another alliance, Roche-Syntex Mexico is engaged in selling the diagnostic

reagents and equipments to the government and private clinics. The company also provides

the diagnostic equipments to these health institutions and hospitals on lease. The business

environment of the diagnostic market in Mexico is highly competitive and distributor oriented.

The laboratory diagnostics supplier base in Mexico is confined to the selected suppliers

dominating 80% of the total market.

A strong economic information system would help the firms in preparing international marketing

plans more effectively. The synthesis of these inputs for planning is essential in pursuing global

strategies. Thus integration of information of competing companies is a pre-requisite for developing

sound plans. The selection of a market place at international level is a critical process and is required

to be filtered at many intermediate levels to select the core business country.

Franchise Planning

Franchising is not a business itself, but a way of doing business. It is essentially a marketing

concept introducing an innovative method of manufacturing and distributing goods and services.

Franchising is a business relationship in which the franchisor (the owner of the business providing the

product or service) assigns to independent entrepreneur (the franchisee) the legal right to manufacture,

market and distribute the franchisor’s goods or service using the brand name for an agreed period of

time. The International Franchise Association defines franchising as a continuing relationship in which

the franchisor provides a licensed privilege to do business, plus assistance in organizing training,

merchandising and management in return for a consideration from the franchisee. Franchising has

become popular because it allows a much greater degree of control over the marketing efforts in the

foreign country. In franchising, product lines and customer service are standardized, two important

3 Rajagopal (2003), Sales Force Re-organization for Maintaining Profitable Growth: A Case of Roche

Diagnostics Mexico (A), Discussion case, ITESM, Mexico City Campus, 1-19

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features from a marketing perspective though cultural differences might require adaptation. Franchising

can offer people looking at self-employment a greater chance of success than starting their own businesses,

but, it is a path that many people are not aware is open to them. A franchisor’s main ongoing commitment

to his franchisees is to provide support. A support program should be well defined prior to joining a given

franchise group and is likely to cover areas such as staff issues, marketing and system compliance.

There are four possible models of franchising as discussed below :

• Manufacturer-Retailer: Where the retailer as franchisee sells the franchisor’s product

directly to the public. (e.g. Automobile dealerships).

• Manufacturer-Wholesaler: Where the franchisee under license manufactures and distributes

the franchisor’s product (e.g. Soft drink bottling arrangements).

• Wholesaler-Retailer: Where the retailer as franchisee purchases products for retail sale

from a franchisor wholesaler. (e.g. Hardware equipments and automotive product stores)

• Retailer-Retailer: Where the franchisor markets a service, or a product, under a common

name and standardized system, through a network of franchisees.

First two categories cited above are often referred to as product and trade name franchises.

These include arrangements in which franchisees are granted the right to distribute a manufacturer’s

product within a specified territory or at a specific location, generally with the use of the manufacturer’s

identifying name or trademark, in exchange for fees or royalties. The business format franchise,

however, differs from product and trade name franchises through the use of a format, or a

comprehensive system for the conduct of the business, including such elements as business planning,

management system, location, appearance and image, and quality of goods.

Papa John’s has recently expanded its business in Edinburgh and Glasgow (UK). Its new-

look stores compete with more established names like Pizza Hut and Domino’s Pizza. The

competition in the fast food market is fierce and challenging for potential franchisees. Papa

John’s operates a comprehensive marketing and public relation campaign for all stores.

Launch events typically include a ‘grand opening’ day with entertainment, free pizzas and

visits from local dignitaries. It also runs national marketing campaigns and special offers,

backed up by a marketing team to help franchisees promote their stores at a local level.

Franchisees can expect to pay extra for those services. The prospective franchisees need to

undergo three stages, interview process which include an initial telephone, interview to

ascertain suitability and solvency of applicants, an informal meeting and presentation of

factual details including an outline of potential working hours and staffing requirements and

a more formal gathering to discuss site positioning and to release paperwork, including a

legal/franchise agreement and a business plan template to present to the bank. The company

has proposed a 5 percent royalty fee on the store’s weekly net sales figures, and a 4 percent

marketing fee is also charged on its weekly net sales.

4 For details on the case study please see Case Study :Papa John’s, New Business.Com http://

www.newbusiness.co.uk/cgi-bin/showArticle.pl?id=3562

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Marketing Dynamics: Theory and Practice

There are many benefits of becoming a franchisee of which major ones are listed as under:

• Franchisor provides detailed consultation and training in operating the business as well as

choosing locations for the business.

• Franchisee benefits from operating under the established brand image and reputation of

the franchisor .

• Franchisees usually need less capital than they would, if they were setting up a business

independently because the franchisors, through their pilot operations and buying power, will

have eliminated unnecessary expenses.

• Franchisor helps the franchisee obtain occupation rights to the trading location, comply

with planning (zoning) laws, prepare plans for layouts, plans ergonomics and refurbishment,

and provide general assistance in calculating the correct level and mix of stock for the

opening launch of the business.

• Franchisee taps into the bulk purchasing power and negotiating capacity made available

by the franchisor by reason of the size of the franchised network.

• Franchisee has access to use of the franchisor’s patents, trade marks, copyrights, trade

secrets, and any secret processes or formulae.

• Franchisee has the benefit of the franchisor’s continuous research and development

programs, which are designed to improve the business and keep it up-to-date and competitive.

One of the drawbacks of franchising is the need for careful and continuous quality control. Such

close supervision of the various aspects of distant operations requires well-developed global management

systems and labor-intensive monitoring. Inevitably, the relationship between the franchisor and franchisee

must involve the imposition of controls. These controls will regulate the quality of the service or products

to be provided or sold by the franchisee to the consumer. As the effective managerial skills are required,

international franchising has become successful largely among those enterprises which have long

experience with franchising at home, before venturing out in international markets.

Planning for Strategic Alliance

A strategic alliance for international marketing is developed by pooling resources directly in

collaboration. This strategy is more advantageous than joint venture. In this process, the business

partners bring together the specific skills of production, marketing and control in order to maximize

their profit and have a major stake in the international business scenario. Many organizations have

come to rely on alliances with key players in the marketplace as strategic ventures for maintaining a

competitive advantage. These key relationships can help foster organizational learning, thus giving an

edge over the competition. This serves as a primary motivation for alliance formation. A new trend of

collaborative strategy in international business has gained popularity based on strategic alliance through

which leading firms, particularly in high-tech industries gain mutual benefit. Strategic alliances are

partial merger, but have comprehensive impact on the performance of the firm. They involve mutual

dependence and shared decision making between two or more separate firms. Strategic alliances

differ from joint ventures as they encompass selected activities within time limits. Strategic goals

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pursued through strategic alliances are product exchange or supply alliances, learning alliances in

research and development and market positioning alliances.

There are some important types of

alliance that can be set-up for optimizing the business. They are:

• Technology based alliances

• Production based alliances

• Distribution based alliances

• Resource based alliances

One way for a firm to enter into a foreign market is to create a strategic alliance. A global

strategic alliance is an agreement among two or more independent firms to co-operate for the purpose

of achieving common goals such as a competitive advantage or customer value creation. Strategic

partnerships may emerge in many forms including research and development consortium, co-production

alliance, co-marketing partnerships, cross-licensing and cross-equity arrangements. Such alliances

do not result in formation of a separate corporate entity but equity joint ventures form new strategic

allies as legal entities to do specified business. The emergence of strategic alliances in Canada and

other industrialized countries are related to economies of scale or scope, resource pooling, and risk

and cost sharing among alliance partners. They include globalization of the world economy, systemic

technological change, and the growing acceptance of the view that competition, by itself, does not

necessarily ensure optimum, innovation-led growth. While international alliances provide firms with

strategic flexibility, enabling them to respond to changing market conditions, they can also be effective

paths for achieving global scale in enterprise operations along with mergers and acquisitions and

green field investment. The driving forces behind international strategic alliances include cost

economizing in production, research and development, strengthening market presence, and accessing

intangible assets.

In the recent trends of globalization, the practice of entering the international

market through such alliances seems to be gearing up along with political support from developing

countries. However, the companies having a larger share in the international market still reserve the

right to entertain or not, any such alliances. Strategic alliances offer many advantages in business, of

which some significant ones are as indicated below:

• Organizational efficiency will be improved with the flexibility and informality in strategic

alliances.

• Alliances developed strategically offer access to new markets and technologies.

• Risk and expenses are shared among the allies reducing the impact of risk on the

participating members.

• Alliance would help the partners build their independent brand and manage retailing of

goods and services.

• Alliances can take various forms, from simple research and development deals to heavy

budget projects.

5 Schoenmakers, Wilfred and Duysters, Geert (2006), Learning in Strategic Technological Alliances,

Technology Analysis and Strategic Management, 18 (2), 245-264

6 Nam-Hoon Kang and Kentaro Sakai (2005), International Strategic Alliances: Their Role in Industrial

Globalisation; OECD, STI Working Paper # 2000/5