© 2001 Prentice Hall17-1 International Business by Daniels and Radebaugh Chapter 17 Export and...

© 2001 Prentice Hall 17-1

International Businessby

Daniels and Radebaugh

Chapter 17Export and Import Strategies


ObjectivesTo identify the key elements of export and import strategiesTo compare direct and indirect selling of exportsTo discuss the role of several types of trading companies in

exportingTo show how freight forwarders help exporters with the

movement of goodsTo identify the methods of receiving payment for exports and

the financing of receivablesTo discuss the role of countertrade in international business


OPERATIONS

OBJECTIVES

STRATEGY

EXTERNAL INFLUENCES

COMPETITIVE ENVIRONMENT

PHYSICAL AND SOCIETAL FACTORS

Functions• Marketing• EXPORTING AND IMPORTING• Global manufacturing• Supply chain management• Accounting• Finance• Human resources

Modes

MEANSOverlayingAlternatives

Exporting and Importing in International Business


Export StrategyChoice of entry mode to a foreign market depends on:

• Ownership advantages—specific assets, international experience, and ability to develop differentiated products

– with few ownership advantages companies either do not enter foreign markets or use low-risk entry modes such as exporting

• Location advantages—combination of market potential and investment risk

• Internalization advantages—benefits of holding specific assets or skills within the company

Other strategic concerns include:• Global concentration—only a few major players in a

global industry• Global synergies—sharing functional expertise with

overseas operations• Strategic motivations—reasons for exporting


Characteristics of ExportersCompanies that export:

• More likely to be large (as defined by revenues)• Are more likely to have risk-taking managers• Operate in industries where the leading companies are

exportersWhy companies export

• Increased sales revenue most important motivation to export

• Alleviate excess capacity• Exporting less risky than FDI• Countercyclical investment diversification

Stage of export development—three broad phases• Stage unrelated to size of the company• Availability of Internet has increased company interest in

exporting


Preengagement• Companies selling goods and services solely in the domestic market• Those companies considering but not currently exporting

Phase 1

Initial Exporting• Companies that do sporadic, marginal exporting• Companies that see lots of potential in export markets• Companies unable to cope with exporting demands

Phase 2

Advanced• Companies become regular exporters• Companies gain extensive overseas experience• Companies may use other strategies for entering markets

Phase 3

Phases of Export Development


Designing an Export StrategyDetailed export business plan essential for effective export

strategy• Assess the company’s export potential by examining its

opportunities and resources• Obtain counseling on exporting• Select a market or markets• Formulate and implement an export strategy

Commitment precedes success in exporting• Development of an export department is one indicator of

top management commitment


Structure of an Export Business Plan

I. Executive Summary

II. Business History

III. Market Research

IV. Marketing Decisions

V. Legal Decisions

VI. Manufacturing and Operations

VII. Personal Strategies

VIII. Financial Decisions

IX. Implementation Schedule


Import StrategyImporting—bringing of goods and services into a country

• Results in the importers paying money to the exporter in the foreign country

Two basic types of imports• Industrial and consumer goods and services provided to

customers unrelated to exporter• Intermediate goods and services provided to customers

that are part of the firm’s global supply chainWhy companies import

• Goods and services can be supplied to domestic market at cheaper price and higher quality

• More efficient than attempting to manufacture every product in every market

• Provide access to products not available in local market


Import Strategy (cont.)Types of importers include those:

• Looking for any product around the world to import and sell

• Looking for foreign sourcing to get their products at the cheapest price

• Using foreign sourcing as part of their global supply chainImporting requires expertise in dealing with institutions and

documentation• Import broker—intermediary who helps an importer clear

customs


Role of Customs AgenciesCustoms—a country’s import and export procedures and

restrictions• Customs agencies—assess and collect duties and ensure

import regulations are adhered to– deal with smuggling– assign a tentative value and tariff classification to the

merchandise– determine if import restrictions apply

Broker or import consultants—help importer minimize import duties by:

• Valuing products to qualify to receive more favorable duty treatment

• Qualifying for duty refunds through drawback provisions• Deferring duties by using bonded warehouses and foreign

trade zones• Marking import’s country of origin


Role of Customs Agencies (cont.)Documentation—importers must submit to customs documents

that determine whether the shipment is released and what duties are assessed

• Must file documents to take title of shipment– taking title—receive products without purchasing

them

Third-Party IntermediariesCompanies that facilitate the trade of goods but that are not

related to either the exporter or importer• Stimulate sales, obtain orders, and do market research• Investigate credit and collect payments• Handle foreign traffic and shipping• Support company’s sales, distribution, and advertising

staffsSome act as agents on behalf of the exporter, and some take

title to goods and sell them abroad


Direct Selling Exporter sells through sales representatives to distributors, to

foreign retailers, or to final end users• Sales representative—sells products in foreign markets

on commission basis without taking title to the goods• Distributor—a merchant who purchases products and

sells them at a profit– carries a stock of the product, which it also services– usually deals with retailers

• A sales organization in foreign country required to deal directly with end users

Direct Exporting through the InternetAllows all companies to engage in direct marketing

• Export products to end usersEstablish home pages in different languages


Indirect SellingExporter sells goods directly to or through an independent

domestic intermediary in the exporter’s home country that exports the products to foreign markets

Export Management Companies (EMCs)—act as export arm of manufacturer

– operate on contractual basis– provide exclusive representation in a well-defined

foreign territory– manufacturer loses some control over foreign sales to

EMC• Export Trading Company (ETCs)—identify suppliers to fill

orders in overseas markets– determine what foreign customers want – identify different domestic suppliers for the products– look for as many suppliers as possible


Non–U.S. Trading CompaniesLargest trading companies in the world are from Japan, South

Korea, Germany, and China• U.S. has a large number of small trading companies

Sogo Shosha—Japanese trading companies• The trading arm of the large kieretsus

– kieretsus—Japanese business groups that are networks of manufacturing, service, and financial companies

Korean trading companies—part of Chaebols• Chaebols—large Korean business groups that contain a

trading company

Piggyback ExportsProducts exported by a company through another

manufacturer’s channels of distribution


Foreign Freight ForwardersFreight forwarder—an import or export specialist dealing in the

movement of goods from producer to consumer• Largest intermediary in terms of value and weight of

products managed• Services more limited than those of EMC• Obtains best routing and means of transportation• Moves products to air or ocean terminal• Secures space on planes or ships and necessary storage

prior to shipment• Does not take title to goods or act as sales representative• Charges based on the shipment value

Intermodal transportation—movement of goods across different modes from origin to destination

• Increasing reliance on airfreight– more frequent and lighter-weight shipments


DocumentationExport license—allows products to be shipped to specific

countriesPro forma invoice—invoice from exporter to importer outlining

the selling terms, price, and delivery if the goods are actually shipped

Commercial invoice—bill for the goods from the buyer to the seller

Bill of lading—receipt for goods delivered to the common carrier for transportation, a contract for services rendered, and a document of title

Consular invoice—means of monitoring price of imports and to generate revenue for the embassy that issues it

Certificate of origin—indicates where goods originatedShipper’s export declaration—used to monitor exports and

compile trade statisticsExport packing list—itemizes materials in each package


Export FinancingProduct price—export prices tend to escalate due to

transportation costs, duties, multiple wholesale channels, insurance costs, and banking costs

May depend on dumping laws in importing countryMethod of payment—flow of money across borders requires the

use of special documents• Draft (bill of exchange)—the drawer directs the drawee to

make a payment– documentary drafts—protect both parties by

requiring that payment be made based on the presentation of documents conveying the title

» sight drafts—payments must be made immediately

» time drafts—payment may be made at a later time


Export Financing (cont.)Method of payment (cont.)

• Letter of credit—obligates the buyer’s bank to pay the exporter

– forms—sight versus time» revocable—terms may be changed by parties at

any time » irrevocable—letter that cannot be changed or

canceled without consent of all of the parties– confirmed letter of credit—exporter has the

guarantee of an additional bank– open account—necessary shipping documents are

mailed to the importer before any payment from or definite obligation on the buyer’s part

» usually for members of the same corporation


ImporterExporter

The relationship between

The relationship betweenimporter and opening bank isgoverned by the terms of theapplication and agreementfor the letter of credit

The relationship betweenopening bank and exporter isgoverned by the terms ofcredit issued by that bank

Importer’s Bank(opening bank)

Letter-of-Credit Relationships


Export Financing (cont.)Financing receivables—increased time and distance of

exporting can create cash flow problems for exporter• Banks unwilling to fund exporting due to risks• Exporters can get access to funds by:

– factoring—discounting of a foreign account receivable– forfaiting—purchase an exporter’s debt due from

customer, usually as promissory note or bill of exchange

» bank in importer’s country guarantees these instruments

– some government agencies provide direct loans to exporters or guarantee foreign receivables so that exporters can get bank financing of receivables

– Export-Import Bank of the United States


Export Financing (cont.)Insurance—covers:

• Transportation risks• Political, commercial, and foreign-exchange risks

CountertradeBarter—goods are exchanged for goods of equal value without

any flow of cash• Barter firms act as intermediaries• Buybacks—products the exporter receives as payment

that are related to or originate from the original exportOffset trade—exporter sells products for cash and then helps to

promote exports from the importing country in order to help it earn foreign exchange

Direct offsets—any business directly related to the export• Indirect offsets—all business unrelated to the export


Exporter’sproductdivision

Importer inCanada

Importer inU.S.

Exporter inCanada

F-18sMcDonnell-Douglas Canadian military

Monitoringbank that

credits anddebits payments

Monitoringbank that

credits anddebits payments

Importer inthird country

Exporter inCanada

PaymentsGoods

PaymentsGoods

PaymentsGoods

An Offset Transaction

© 2001 Prentice Hall17-1 International Business by Daniels and Radebaugh Chapter 17 Export and...

Documents

Transcript of © 2001 Prentice Hall17-1 International Business by Daniels and Radebaugh Chapter 17 Export and...