© 2001 Prentice Hall 17-1 International Business by Daniels and Radebaugh Chapter 17 Export and Import Strategies
Dec 24, 2015
© 2001 Prentice Hall 17-1
International Businessby
Daniels and Radebaugh
Chapter 17Export and Import Strategies
© 2001 Prentice Hall 17-2
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
© 2001 Prentice Hall 17-3
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
© 2001 Prentice Hall 17-4
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
© 2001 Prentice Hall 17-5
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
© 2001 Prentice Hall 17-6
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
© 2001 Prentice Hall 17-7
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
© 2001 Prentice Hall 17-8
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
© 2001 Prentice Hall 17-9
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
© 2001 Prentice Hall 17-10
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
© 2001 Prentice Hall 17-11
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
© 2001 Prentice Hall 17-12
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
© 2001 Prentice Hall 17-13
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
© 2001 Prentice Hall 17-14
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
© 2001 Prentice Hall 17-15
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
© 2001 Prentice Hall 17-16
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
© 2001 Prentice Hall 17-17
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
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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
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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
© 2001 Prentice Hall 17-20
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
© 2001 Prentice Hall 17-21
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
© 2001 Prentice Hall 17-22
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
© 2001 Prentice Hall 17-23
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