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CHAPTER CHAPTER XXVI XXVI EXPORT ENTRY STRATEGIES & EXPORT ENTRY STRATEGIES &

EXPORT INTERMEDIARIESEXPORT INTERMEDIARIES Export Entry Strategies

Indirect Exporting Direct Exporting Direct Foreign Investment

Export Intermediaries Buying agents Export Management Companies Export Trading Companies

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Export Entry StrategiesExport Entry Strategies

How to enter foreign markets? Indirect Exporting Direct Exporting Foreign Direct Investment

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Indirect ExportingIndirect Exporting

Lets another company handle exports as an intermediary

Immediate access to foreign markets Minimizes cash outlays and risks of

exporting Minimizes staff efforts May lose control over foreign sales

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Direct Exporting Takes charge of all exporting activities Requires more time, personnel, and

corporate resources Maintains more control over overseas

distribution Gets higher profit & closer ties with

foreign buyers

a. Manufacturer's Agents Take no title to the goods Carry catalogs and samples Usually paid commission on sales

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Direct ExportingDirect Exporting

b. Distributors Merchants who buy the goods from U.S.

exporters and resell them in a foreign market at a profit

Carry inventory of products & spare parts & Provide after-sale service

Advertising and promotion activities with allowance from the exporter

Extend credits to local buyers

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Direct ExportingDirect Exporting

c. Exporting to foreign retailers Foreign department or chain stores

• Traveling salesmen • Catalogs, brochures or samples

d. Exporting to end-users Foreign governments Institutions: Hospitals, Schools Foreign manufacturers who use U.S.

products as components

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Foreign Direct Investment Foreign Direct Investment (FDI)(FDI)

Foreign branch, sales office, distribution hub, assembly operation or manufacturing facility in the foreign country

Requires extensive personnel and financial commitment

Exposed to political and economical risksA long wait for a return of investmentDirect control over manufacturing and

distribution

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Export IntermediariesExport Intermediaries

Buying Agents

Finders of U.S. products for foreign buyers: Foreign government’s buying mission, Chain stores, Dept stores.

Register products with them

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Export IntermediariesExport Intermediaries Export Management Companies (EMCs) Act as the export department of one or several

manufacturers of noncompetitive products: Supply-driven

Provide domestic manufacturers with immediate access to foreign markets

Do not take title to the goods Compensation:

• Sales commission• Salary• Basic salary plus commission

Small firms: 60% 6 or fewer employees When exports reach 15 to 20% of manufacturer's

total sales or export sales grow over $1 million, manufacturers tend to have their own export department for direct export.

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Export IntermediariesExport Intermediaries

Export Trading Companies (ETCs) Provide the same export facilitation services

as an EMC Focus on procurement of products for foreign

buyers. No loyalty to manufacturers: Demand-driven

Conduct business in their own name Take title to the goods and pay the

manufacturers directly

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Export Trading Company Act of Export Trading Company Act of 1982 of the U.S.1982 of the U.S.

To promote and encourage the formation of ETC's

To utilize economies of scale and diversification of risks in penetrating foreign markets

Provides exemption from U.S. antitrust law for joint export activities: Export Trade Certificate of Review from USDC

with concurrence of USDJ Available at Office of Export Trading

Companies Affairs (OETCA)

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Export Trading Company Act of Export Trading Company Act of 1982 of the U.S.1982 of the U.S.

Permits bank's participation: Bank Trading Companies

Permits cooperatives to form ETC Cooperatives: Agricultural industry like Sunkist

ETCA has not been successful in establishing U.S. Trading Companies similar to Foreign Trading Companies such as Japanese trading companies (Sogo-shosha) Korean trading companies (Jonghap Sangsa)