chapter 4 managing export operations key points steps to managing export operations pricing in...
TRANSCRIPT
Chapter 4Managing Export Operations
Key PointsSteps to Managing Export OperationsPricing in Export Markets Stages of Export Market InvolvementTrade IntermediariesVital Questions to be askedPresent day export trade
Steps to Managing Export Operations Step 1 -Segment world markets
Product quality and product feature segmentation
Factors influencing segmentation Purchasing power Consumer tastes Weather conditions Level and dispersion of wages and
technical skills
Steps to Managing Export Operations Step 1 -Segment world markets
Important factors in analysis Emerging demand met by innovations in
product technology in one country that are mirrored in other countries
Deregulation and restructuring of markets Government policies and programs
Steps to Managing Export Operations (contd..) Step 2 - Select an Entry Strategy to Promote
Sustainable Competitive Advantage Standardized product to all markets Product- Life cycle strategy Localized market strategy A combination of strategies can also be
followed
Steps to Managing Export Operations (contd..) Step 3 - Take a long-run Perspective
Initial costs must be viewed as investments Returns on investments will not be
immediate in export markets
Channels of Distribution in Export Markets International channels will be more complex
and have more layers. Distribution costs will be higher May have to use different or many types of
distribution with which there is no experience Distribution channels may provide
information that can be used as market research and aid in further expansion
Pricing in Export Markets
Strategy 1 - Requiring prices in export markets that yield higher returns than are available in domestic markets
Based on the belief that export operations are more risky relative to domestic sales - can result in uncompetitive prices.
Pricing in Export Markets
Strategy 2- Pricing to yield similar returns in domestic and export markets
Based on the viewpoint that export markets do not necessarily differ from domestic markets
Pricing in Export Markets
Strategy 3 - Pricing to yield lower returns, or even losses, in export markets—at least in the short run
Reflects an approach that views export markets as the potential growth markets of the future - firm vulnerable to antidumping action
Pricing in Export Markets
Strategy 4 - Pricing to sell production in excess of the needs of the domestic market so long as these sales make a contribution to fixed overhead and profit
View of export markets as a dumping ground for production in times of excess capacity - firms very vulnerable to anti-dumping actions
Stages of Export Market Involvement Stage 1 – Unplanned entry
Unsolicited order from abroad, overproduction, declining domestic sales, pressures, “follow the leader” behavior, government-sponsored trade fairs, and funded export missions
Stage 2 – Systematic evaluation of the impact of exports
Stage 3 - Exports become a major factor in the firm’s strategy and operations.
Trade Intermediaries Import Traders
For every export, there is an import Pure importers are market connectors; they
create value through linking producers abroad to buyers in the domestic market
Pure importers usually have an advantage such as knowledge of the domestic market and practices
Trade Intermediaries Export Traders
They are also market connectors Their advantages lie in knowledge of markets
in particular countries or in knowledge of worldwide markets for particular products.
Trading Houses Pure import operations and pure export
operations are joined together in the trading houses
Vital Questions to be asked
Does our product and firm have a sustainable competitive advantage in export markets and, if so, why?
What are the export markets and the segments of those markets that will value our product sufficiently (relative to other competing products) to offset our costs of production and distribution?
Vital Questions to be asked
Should the firm export a standard product with a standard marketing mix worldwide or should it tailor its products and marketing mix to individual export markets?
What natural and government-imposed trade barriers impede linking production in one country to purchase in another, and what factors might facilitate this linkage?
Vital Questions to be asked
What are the most appropriate channels of distribution for our product to achieve our goals in export markets?
Present day export trade
Tariff and non-tariff barriers to trade have fallen globally and free trade areas have developed.
Firms often now analyze trade opportunities on a regional, and sometimes even broader basis
Present day export trade
Products are often not sent directly from one home production site to an export market abroad. Inputs are sourced in a number of countries and assembled in other countries, and the final product is sold in yet other countries
Trade intricately linked with foreign investment, joint ventures, licensing, franchising, contract production, and component sourcing
Countertrade
A special form of exporting is countertrade, the linked exchange of goods for goods in international trade
Countertrade covers - Barter ,Counterpurchase, Compensation or buyback, Production sharing, Industrial offsets, Switches, Unblocking funds and Debt for equity swaps
Countertrade
Can be complicated and costly to negotiate and execute
Important characteristics of countertrade contracts need to be attended to carefully by an exporter
Generally countertrade is an inefficient form of trade. It creates costs and risks for both importers and exporters
Major Project Development
Importance and investment increased during the 1990s –likely to continue to increase in the future.
Generally for infrastructure development - electricity generation, telecommunications, water and sewage treatment facilities, and even roads and ports.
Major Project Development
Types of Major projects Turnkey projects
Firm undertakes to construct a major project, then turns it over to its owners when it is in full operation
Major Project Development
Types of Major projects Build, operate, and transfer projects (BOT)
Firms bid for the right to construct the project, the winning firm also operates the facility after it is completed.
Ownership is limited to a certain time period, after which the project is transferred to another organization
Major Project Development
Types of Major projects Build, operate, and own projects (BOO)
Firms bid for the right to construct the project.
The winning firm also operates the facility after it is completed. .
Exports, Imports, and International Finance Important aspects for exporters/importers
Effect of the real exchange rate on competitive advantage,
Effect of variations in the nominal exchange rate on export and import profitability Pricing of the goods in the importers
currency Countered by setting up currency hedge Use of forward contracts
Exports, Imports, and International Finance Important aspects for exporters/importers
Effect of trade on financing needs and sources Irrevocable letter of credit (LoC) used to
overcome uncertainty