1. ECP 6701 Competitive Strategies in Expanding Markets Export and Import Strategies1

2. Readings Daniels,Radebaugh, Sallivan, International Business, Chapter 172 3. Objectives Identifythe key elements of export and import strategies Compare direct and indirect selling of exports Discuss the role of trade intermediaries Identify methods of export payments and the financing of receivables. Readings. 3 4. Introduction Characteristics 4of ExportersThe probability of a companys being an exporter increases with the size of the company Export intensity is not positively correlated with company size The largest exporters in the United States also are among the largest industrial corporations Smaller exporters make smaller shipments; larger exporters make larger shipments 5. Export Shipments of Various Sizes as Percentages of Total Dollar Value of Exports5 6. Why companies export Exporting 6Expands sales and profits Achieves economies of scale and reduces the unit costs of production. Is less risky than DFI because it does not require the same degree of capital. Allows companies to diversify sales location. 7. Phases of export development Ascompanies learn more about the process of exporting, they tend to export to more countries they tend to export to more dissimilar countries which are located further away they tend to export a larger percentage of their sales. The7following figure summarizes the various phases of exporting. 8. Phases of Export Development8 9. Export Strategy 9Entry mode depends on ownership advantages of the company, location advantages of the market, and internalization advantages of integrating transactions within the company Companies that have lower levels of ownership advantages either do not enter foreign markets or use low-risk strategies such as exporting Strategic considerations affect the choice of exporting as an entry mode 10. Designing an Export Strategy Indesigning an export strategy, a company must 10Assess export potential Get expert counseling Select market or markets Set goals and get the product to market 11. 11 12. 12 13. The Import Strategy Importersneed to be concerned with procedural and strategic issues Animport broker is an intermediary that helps an importer clear customs13 14. The Import Strategy The Role of Customs AgenciesCustoms agencies assess and collect duties and ensure import regulations are adhered to. Drawback provisions allow U.S. exporters to apply for a refund of 99 percent of the duty paid on imported components. Documentation 14Importers must submit to customs documents that determine whether the shipment is released and what duties are assessed. 15. Export Intermediaries Companiesuse external specialists for exporting before developing internal capabilities Companiesmay market their products either directly or indirectly through external specialists or intermediary organizations15 16. Export Intermediaries Direct 16SellingDirect selling involves sales representatives, agents, distributors, or retailers A sales representative usually operates on a commission basis A distributor is a merchant who purchases the products from the manufacturer and sells them at a profit 17. Export Intermediaries IndirectSellingCommission agents work for the buyerExport Management Companies (EMCs) provide export services for a specific exporter or group of exportersExport Management Companies EMCsin the United States are mostly small, entrepreneurial ventures that tend to specialize by product, function, or market area17 18. Export Trading Companies (ETCs) ETCstend to operate on the basis of demand rather than supply ETCs 18can be formed byCompetitors can be exempt from antitrust laws State and local governments Money-center banks Major corporations 19. Foreign Freight Forwarders Aforeign freight forwarder is an export or import specialist dealing in the movement of goods from producer to consumer The typical freight forwarder is the largest export intermediary in terms of value and weight handled Air 19and Ocean FreightOcean freight is dominant in terms of total weight of products traded, but air freight is significant in terms of value of products shipped 20. Foreign Freight Forwarders Documentation:An export license is used to determine whether products can be shipped to specific countries Key export documents include proforma invoice commercial invoice bill of lading shippers export declaration and export packing list20 21. Export Financing Financial 21issues relating to exporting:Product price Method of payment Financing of receivables Insurance 22. Product Price Export 22pricing is influenced by:Exchange rates Transportation costs Duties Multiple distribution channels Insurance costs Banking costs 23. Methods of payment Methods 23of payments areCash in advance Letter of credit Documentary collection or draft Open account Countertrade 24. Export Financing Financingreceivables for US exporters24Ex-Im Bank provides direct loans to importers or guarantees to financial institutions The Small Business Administration (SBA) guarantees long-term financing to small exporters 25. Letter-of-Credit Relationships25 26. An Irrevocable Export Letter of Credit26 27. Export Financing Aletter of credit obligates the buyers bank to pay the exporter A revocable letter of credit may be changed by any of the parties to the agreement An irrevocable letter of credit requires all parties to agree to a change in the documents A confirmed irrevocable letter of credit adds an obligation to pay for the exporters bank 27 28. Countertrade Countertraderefers to any one of a number of different arrangements by which goods and services are traded for each other Countertradeoften takes place because of a foreignexchange shortage Barter28occurs when goods are traded for goods In offset trade, the exporter sells goods for cash trade but then undertakes to promote exports from the importing country in order to help it earn foreign exchange 29. An Offset Transaction29 30. Summary Thelikelihood that a company is becoming an exporter increases with company size, but the percentage of sales exported is not correlated with size. Companies export to increase sales revenues, use excess capacity, and diversify sales. 30 31. Summary Asa company establishes its export business plan, it must assess export potential, do the appropriate research, and determine how to get its goods abroad. Importers need to be concerned with procedural and strategic issues.31 32. Summary Exportersmay engage in direct or in indirectexporting. Trading companies and export management companies can be used to engage in indirect exporting. Freight forwarders specialize in moving goods from one country to another. 32 33. Summary Thereare four major financial issues related to exporting: the price of the product, the method of payment, financing of receivables, and insurance. Countertrade and offset trade are special cases of exporting and importing used when countries face foreign exchange problems.33