chapter 13 - export and import strategies (l)

8/17/2019 Chapter 13 - Export and Import Strategies (L)

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International Business

Chapter Thirteen

Export and ImportStrategies


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Introduction:

International Trade Strategy

• International trade consists of

(i) exporting (product outos)(ii) importing (product inos)

• In general! trade acti"ities:# are a natural extension of a $rm%s

strategy# entail a loer le"el of ris& than licensing or

foreign direct in"estment'continued


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• Exports: goods and ser"ices oing out of

a country• Exporting: the sale and deli"ery of goodsand ser"ices y a $rm ased in onecountry to customers residing in adi*erent country# results in receipts from the customers

• Imports: goods and ser"ices oing into acountry

• Importing: the purchase of goods and

ser"ices y a $rm ased in one countryfrom sellers that reside in a di*erentcountry# results in payments to the sellers


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Export Strategy

• The decision to export must ta&e intoaccount gloal concentration! gloalsynergies! and gloal strategic

moti"ations+• Strategic factors a*ecting the choice of

exporting as a mode of entry include:# the onership ad"antages of the $rm

• Speci$c assets! managerial competence andexperience! aility to produce lo cost ordi*erentiated products

# the location ad"antages of the mar&et• ,ar&et potential and in"estment ris&


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Strategic -d"antages of

Exports• Increase re"enues and pro$taility• -chie"e economies of scale in production• ,inimi.e ris& (as compared to licensing

and foreign direct in"estment)

• Spreading the ris& through di"ersifyingmar&ets

Exporting requires expertise in dealing with governmentinstitutions, particularly customs agencies, as well as the

documentation process.


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Characteristics of Exporters

/esearch has shon that:(i) the probability of eing an exporterincreases ith the si.e of companyre"enues

(ii) export intensity, i+e+! the percent of totalre"enues generate y exports is directlyrelated to its export intensity

• 0hile large companies are the iggest exporters!small companies expand their export capacity to:

# increase mar&et share o"erseas# fortify their domestic competiti"eness y

producing high 1uality products

• Company ill e inclined to export if all otherindustry players are exporters


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Stages of Export

2e"elopment• 3irms tend to mo"e through three phases

of export de"elopment:# pre-engagement

# initial exporting # advanced exporting

• -s they do so! $rms tend to:# export to a greater numer of countries# extend their mar&ets to more distant countries# mo"e into en"ironments that are increasingly di*erent

from those of their home countries# expect exports to gro as a percent of total sales# consider foreign direct in"estment as a possile

alternati"e to exporting


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3ig+ 45+6: 7hases of Export2e"elopment


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7itfalls of Exporting

7rolems! delays! and pitfalls associated iththe export process may include:

• the failure to otain 1uali$ed export counselingand8or mar&eting intermediaries

• the insu9cient commitment of top management inexport decision• the underestimation of total transaction costs• the poor selection of o"erseas agents or distriutors• the fa"oring of domestic mar&ets at the expense of

international distriutors and customers during oom• an unillingness to ma&e necessary modi$cations• the failure to ade1uately prepare for international

dispute resolution

• 3ailure to print info in local language


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2esigning an Export

Strategy To design an e*ecti"e export strategy!management must: • assess the company%s export potential

'examine mar&et opportunities and $rm

resources or production capacity• otain expert counseling on exporting'get oth go"ernment and speciali.ed

assistance! S,E2-# Export+go"

# Commerce department# Ban&s! layers and export management companies


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2esigning an Export

Strategy•select target mar&ets

'passi"ely or acti"ely pursue mar&etopportunities# 7assi"e: /esponding to foreign orders

occasionally# -cti"e: Exporting on a regular asis

•formulate and implement an e*ecti"estrategy 'de$ne oecti"es and tacticsand estalish schedules anddeadlines

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-n Export Business 7lan

I+ Executi"e Summary: &ey elements II+ Business ;istory: $rm and industry insights III+ ,ar&et /esearch: target countries < mar&et

conditions

I=+ ,ar&eting 2ecisions: mar&eting mix elements =+ >egal 2ecisions: legal agreements =I+ ,anufacturing and ?perations: location < capacity =II+ 7ersonnel Strategies: short@ < long@term needs

=III+ 3inancial 2ecisions: funding < ris& IA+ Implementation Schedule: timeline

A detailed export business plan is an essential element inthe implementation of a sound yet insightful export strategy.


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The Import 7rocess

• Basic types of imports include:# industrial and consumer goods and

ser"ices# intermediate goods and

ser"ices that are part of thegloal supply chain


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Strategic -d"antages of

Imports• 2ecrease costs and increase competiti"enessand pro$taility# E9ciency through using speciali.ed e1uipment or

ser"ices from aroad

• Secure essential inputs and products for

production or consumption• Secure higher 1uality products! supplies!

materials! and8or components

• ,inimi.e ris& of producing foreign goods athome

• 2i"ersify suppliers# Companies choose di*erent suppliers of input

through importing! hilst &eeping the costsminimum and ac1uiring maximum 1uality ene$ts


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The /ole of Import8Custom

Bro&ers• -n import broer is a certi$ed specialist ho

otains re1uired go"ernment permissions and otherclearances efore forarding the necessary

documents to the carrier (transporter) of the goods+• an independent agent ho executes customs

transactions on ehalf of clients for a fee

• -ssists in functions li&e price negotiation!

transportation! insurance! logistics support! dealingith damaged or reected goods etc+

• Also nown as !ustoms broer

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The /ole of Import8Customs

Bro&ers• - customs broer can help minimi.e duties y:

# "aluing products in such a ay that they 1ualify formore fa"orale treatment

# ,inimi.ing duties y using foreign free trade "ones

# limiting liaility y properly mar&ing the country oforigin of an imported product

# ualifying for duty refunds through draac& pro"isions

#rawbac provisions allow $.%. exporters to apply for a&&' refund of the duty paid on importedcomponents, provided they are incorporated

into goods to be exported.


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The /ole of Customs

-gencies!ustoms agencies: go"ernment ureauscharged ith collecting duties andensuring that trade restrictions areenforced and procedures adhered to

• The primary duties of a customs agency are:# the assessment and collection of all duties!

taxes! and fees on imported products# the enforcement of customs and related las!

and the administration of certain na"igationlas and treaties• 0hom to trade ithD

(ational customs agencies are increasingly involved indealing with smuggling operations and preventing foreign

terrorist attacs.


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-n Import Business 7lan

I+ Executi"e Summary: &ey elements II+ Business ;istory: $rm details and industry insights III+ ,ar&et /esearch: target country < mar&et conditions

I=+ ,ar&eting 2ecisions:mar&eting mix strategy

=+ >egal 2ecisions: legal agreements =I+ ,anufacturing and ?perations: location <

regulations

=II+ 7ersonnel Strategies: expertise < hiring needs

=III+ 3inancial 2ecisions: funding! $nancial! < tax issues IA+ Implementation Schedule: timeline

A detailed import business plan is an essential element inthe implementation of a sound yet insightful import strategy.


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The Export 7rocess

#irect exports: goods andser"ices sold directly toan independent party

(foreign customer)outside of the exporter%shome country

Indirect exports: goodsand ser"ices sold to or"ia an intermediary inthe domestic mar&et!ho in turn sells them toa foreign customer


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Indirect Selling8Exporting

Indirect selling)exporting: selling productsto or through an independent (third@party) intermediary

• Export intermediaries may perform any or all

of the folloing functions:# stimulate sales! otain orders! and conduct mar&et

research# perform credit in"estigations and payment@

collection acti"ities

# handle foreign tra9c arrangements and shippingdetails

# /esponsile for sales! promotion and distriution


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Indirect Selling:Export ,anagementCompaniesExport management company *E+!: a $rm that either acts

as a manufacturer%s agent or uys merchandise frommanufacturers for inter@national distriution

• E+!s generally operate on a contractual asis! pro"ideexclusi"e representation in a ell@de$ned foreign territory!and act as the export arm of a manufacturer+

• -lthough many E,Cs are small! they often speciali.eaccording to product! function! and8or mar&et area+

• 0or&s ith one producer or manufacturer at a time• uality and price concerns

E+!s may not be the perfect solution if they have too fewresources, give too little attention, and)or tae too much

control.


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Indirect Selling:Export Trading Companies

Export trading company *E!: a large! independentro&er hose primary purpose is to match suppliersto foreign customers for a fee

• E!s operate primarily on large scale le"el+

• Exporters from reat Britain! the Fetherlands! and Gapan long ago reali.ed that ide@reaching tradingcompanies could mar&et and distriute productsmore e9ciently than any single producer could+

• ETCs mar&et products of multiple producers ointlyased on demand+

• ETCs or& ith se"eral manufacturers at a time E!s ased in the H+S+ allo them to etter penetrate

foreign mar&ets y collaorating ith other H+S+ $rms+E.g. %outhern $nited %tates rade Association


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2irect Selling

#irect selling: exporting through company%s onsales representati"es to distriutors! foreign

retailers! or $nal end users

• #irect selling:

# gi"es exporters greater control o"er themar&eting function# o*ers exporters the potential to earn higher

pro$ts

• a sales representative: a company

representati"e! ho usually operates on acommission asis ithin an exclusi"e territory• a distributor: a merchant ho purchases goods

from a manufacturer and stoc&s! ser"ices! andresells them to retailers at a pro$t

'continued


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• 2irect selling through distriutors demands aseparate international sales force ecauseforeign mar&ets demand di*erent types ofexpertise+

# 0hile choosing a distriutor! e"aluate the folloing• The si.e and capailities of its salesforce• Its sales record• -nalysis of its territory• Its customer pro$le

• Its mar&eting promotional strategies• Internet mar&eting allos $rms oth large and

small to 1uic&ly! easily! and inexpensi"elyengage in direct mar&eting+

2irect Selling


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Export 2ocumentationey export documents include:

• a pro forma in"oice # an outline of the terms of sale! price! and deli"ery details• a commercial in"oice

# a detailed in"oice including uyer8seller addresses and description ofgoods+ It is used y go"ernments to assess duties

• a ill of lading

# a contract for the ser"ices rendered y the carrier (transporter)detailed receipt from the carrier transporting the cargo

• a consular in"oice# Sumitted to a consulate or an emassy of importing country# sometimes re1uired y importing go"t as a means to monitor imports

• a certi$cate of origin# used to determine the tari* schedule y determining the country of

product%s origin

• a shipper%s export declaration# used to monitor exports and compile trade statistics y

exporter%s go"t

• an export pac&ing list# used to determine the nature of the cargo


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3oreign 3reight 3orarders

/oreign freight forwarder: an international tradespecialist ho assists in the deli"ery of goods fromproducer to customer# 3inds the optimal path ased on a"ailaility! speed and cost

# 7repares shipping documentationIntermodal transportation: the mo"ement of goods

across a "ariety of modes from origin to destination• 3reight forarders may speciali.e in the type of

mode used+

• /ecent trends leading to a preferencefor air freight o"er ocean freight include:# the need for more fre1uent shipments# lighter@eight shipments# high@"alue shipments


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Sources of 3oreign Trade-ssistance• 3irms typically ha"e many sources of

assistance for identifying their est foreigntrade opportunities+

• o"ernment agencies acti"ely aid the e*orts

of potential and acti"e exporters and! to alesser extent! potential and acti"e importers+# In Gapan! the ,inistry of International Trade and

Industry (,ITI) plays a "ital role in de"elopingstrategic trade policy and pro"iding operationalassistance+

# In the H+S+! a numer of institutions! mostnotaly the 2epartment of Commerce! the Ex@Im Ban&! and the Small Business -dministration(SB-) help $rms identify and reali.e exportopportunities+


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Types of 3oreign TradeInformation y Source

H+S+ o"ernment -gencies• ,ar&et demographics! channels and oint "enture partners!

customs regulations < tax issues! credit < insurance! trade

e"ents < leads! documentation re1uirements

Trade -ssociations and Trade roups• ,ar&et demographics! promotion alternati"es! customs

regulations < tax issues

Export Intermediaries• Trade channels! host@country re1uirements! $nancing!

credit < insurance! logistics


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Implications8Conclusions

• Exporting and importing are necessaryfunctions for the implementation of$rms% international usiness strategies+

• JBorn gloalK companies tend to ma&eex@porting a primary goal from the timeof their inception+

chapter 13 - export and import strategies (l)

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