Import/Export Basics (Ch. 2)

Beginning Steps1. Terminology2. Homework3. Choosing the product4. Making contacts5. Market research6. What’s the bottom line?

1. Import/Export Terminology•International trade uses distinctive

vocabulary•Terms & acronyms guide, regulate, and

facilitate trade•Commonly used terms:

▫Glossary: pgs. 351-385

2. Homework•RESEARCH!•What should you research?

▫the product▫profit potential

•Research is a good investment, not a waste of time (even if you already have some experience)

3. Choosing the Product• Familiarity with…

▫ the product▫ the industry

• Advantage in…▫ knowledge▫ contacts▫ language/culture

3. Choosing the Product•Marketing decisions

▫product standards (ISO) ISO: International standards for business,

government, society▫technical specifications and codes

220V, 50Hz 120V, 60Hz▫quality and product life cycle

developed vs. less developed countries▫other uses

e.g., motorcycles

4. Making Contacts•Who are sources of information? Who can

I contact?▫import: consulate office, embassy,

government▫export: industry publications, department

of commerce

4. Making Contacts•Who can I contact to market a

product/service?▫import: trade shows, direct mailers,

Internet▫export: trade shows, retailers, United

Nations

•List of trade shows on Alibaba.com

5. Market Research•Your purpose is to make a profit. •Thus, you need to know whether or not

your product will survive in a certain market.

•You have to do market research!

•Read through the import/export checklist on p. 22-24. Which questions do you think are most important? Share with your partner.

6. What’s the Bottom Line?•Make a profit!

1. Initial quotations2. Terms of sale3. The market channel4. Pricing

1. Initial Quotations•Letter of Inquiry a.k.a. Request for

Quotation (RFQ)•This is the first step•Who sends the letter? –Importer to

exporter•What is in the letter? – Importer asks

exporter to send the importer a pro forma invoice.

•Look at sample RFQ on p. 25

1. Initial Quotations•PRO FORMA INVOICE

•exporter to importer•A temporary invoice which includes product

description and specifications, costs, price, quantity, shipping costs, delivery terms, and procedures.

•Purpose: describes details of sale in advance; obtain letter of credit

•Look at p. 27 for a sample pro forma invoice

2. Terms of Sale•Pricing terms•“Defines the geographical point where the

risks and costs of the exporter and importer begin and end.” –p.26

•INCOTERMS: International Commerce Terms

•Purpose: prevent misunderstandings of responsibilities and liabilities

INCOTERMS•Most commonly used: •EXW•FAS•CIF•DAF

EXWEX = from; W = works (factory, warehouse)the SELLER (exporter) the BUYER (importer)• is responsible for packing

and labeling merchandise and having it ready for loading (seller doesn’t load)

• is responsible for all other risks and costs from the delivery point to the final destination

FAS: Free Alongside Shipthe SELLER (exporter) the BUYER (importer)• is responsible for packing

and labeling merchandise, having it ready for loading, placing it at the side of the ship, and clearing it for export

• is responsible for all transportation costs and risk of loss of goods

FAS Long Beachsee p. 27

CIF: Cost, Marine Insurance, Freightthe SELLER (exporter) the BUYER (importer)• is responsible for

shipping, insurance and other costs up to the port of final destination

• is responsible for risks and costs from the port of destination

DAF: Delivered at Frontierthe SELLER (exporter) the BUYER (importer)• is responsible to hire

someone to take goods to a border crossing point and clear them for export

• is responsible for picking up the goods, carrying them across the border, and clearing them for importation

3. The Market Channel

•see p. 30

4. Pricing•New/unique product can be a high price•Gain a foothold Marginal Cost Pricing

▫set market price at the level just above where a loss would occur

•Dumping: If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. ILLEGAL under GATT (General Agreement on Tariffs and Trade)

•Pricing Model: p. 31

4. Pricing•Which currency will they use?

▫depends on volume of transaction▫buyer and seller mutually agree▫U.S. dollar or Euros

4. Pricing•Commissions

▫export middleman 7 – 20%▫import middleman (distributor) 5 – 20%

•Example of cost elements p. 32 (see difference between import/export cost sheet)▫key issues (commission):

price of the product the number of units

4. Pricing•www.export.gov•www.usitc.gov

•U.S. Harmonized Tariff Schedule▫international uniformity in the presentation

of customs tariffs and foreign trade statistics

4. Pricing•Export: certificate of origin, packing,

labeling, sales commission, inland freight, shipping, insurance

•Import: customs duty, customs broker, tariffs, repackaging, letter of credit, advertising, promotion, overhead, salaries

•p. 33/34

4. Pricing•Case study: Guitars p. 213•Rates of duty:

▫General: most favored nations normal trade relations (NTR)

▫Special: see Table 8.3

▫2: North Korea and Cuba