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Export and Import Practices McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter.

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Presentation on theme: "Export and Import Practices McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter."— Presentation transcript:


2 Export and Import Practices McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. chapter seventeen

3 17-3 Learning Objectives Explain why firms export and problem areas of exporting Identify the sources of export counseling and support Discuss the meaning of the various terms of sale

4 17-4 Learning Objectives Identify some sources of export financing Describe the activities of a foreign freight forwarder Understand the kinds of export documents required Identify import sources Explain the Harmonized Tariff Schedule of the United States (HTSUSA)

5 17-5 Why Export? The main reasons why companies decide to involve in exporting instead of staying in their home country are: Desire to either increase profit and sales Protect them from being eroded

6 17-6 Why Export? (detail) Reasons to export –To serve markets where the firm has no or limited production facilities Many large multinational company like Du Pont supplies numerous foreign markets by exports because no firmno matter how largecan afford to manufacture in every country where its goods are sold

7 17-7 Why Export? (detail) Reasons to export –To satisfy a host governments requirement that the local subsidiary have exports Developing governments often require the local affiliate to export, and some require that it earns sufficient forex to cover the cost of its import

8 17-8 Why Export? (detail) Reasons to export –To remain price-competitive in the home market Many firms import labor-intensive components produce in their foreign affiliates or export components for assembly in a country where labor is less expensive and import the finished products

9 17-9 Why Export? (detail) Reasons to export –To test foreign markets and foreign competition inexpensively A common strategy used by firms that want to test a products acceptance before investing in local production facilities. Exports also enable firm to test marketing strategies and make adjustments with less risk in a smaller market

10 17-10 Reasons to export? (detail) contd. –To offset domestic markets cyclical sales –To achieve additional sales Allow firm to use its excess capacity to lower unit fixed costs –To extend a products life cycle by exporting to less advance countries –To respond strategically to foreign competitors By distracting the foreign competitor with entering theirs home market

11 17-11 Reasons to export? (detail) contd. –To meet actual or prospective customers requests for the firm to export (accidental exporting) –To achieve the success the firms management has seen others achieve –To improve the efficiency of manufacturing equipment

12 17-12 Reasons not to Export (US Firms) Two major reasons –Preoccupation with the vast American market –Reluctance to become involved in a new, unknown and therefore risky operation Not active in international markets due to –Lack of knowledge Locating foreign markets Payment and financing procedures Export procedures

13 17-13 Sources of Export Counseling Trade Information Center (TIC) –The federal government has to set this up as a first stop for information –Visit International Trade Administration (ITA) –Offers a wide range of export promotion activities that include Market Access and Compliance (MAC) Trade Development U.S. and Foreign Commercial Services (US&FCS)

14 17-14 Sources of Export Counseling Small Business Administration (SBA) –The office of International Trade of the SBA works through Small Business Administration offices Score Program Small Business Development Centers Centers for International Business Education and Research (CIBERs)

15 17-15 Show and Sell Trade events to facilitate international trade –U.S. pavilions (trade fairs) –Trade missions –Product literature center –Reverse trade missions

16 17-16 Export Marketing Plan Essentially same as domestic marketing plan, it should be specific about: –Markets to be developed –Marketing strategy for serving them –Tactics to make the strategy operational The export marketing plan will spell out what must be done and when, who should do it, and how much money will be spent

17 17-17 Pricing Policies: Terms of Sale INCOTERMS Universal trade terminology developed by the International Chamber of Commerce –Ex-Works Risk passes at factory door US equivalent: FOB (free on board) all costs and risks from that point on are borne by the buyer

18 17-18 Pricing Policies: Terms of Sale, contd. –FAS Free alongside ship, port of call The seller pays all of the transportation and delivery expense up to the ships side. The buyer is responsible for any loss or damage to the shipment from that point on

19 17-19 Pricing Policies: Terms of Sale, contd. –CIF Cost, insurance, freight, foreign port The seller quotes a price that includes the cost of the goods, insurance, and all transportation and miscellaneous charges to the named foreign port in the country of final destination

20 17-20 Pricing Policies: Terms of Sale, contd. –CFR cost and freight, foreign port Similar to CIF except the buyer purchases the insurance, either it can obtain it at a lower cost or because its governmentto save forexinsists that it uses a local insurance company

21 17-21 Pricing Policies: Terms of Sale, contd. –DAF Delivered at frontier This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

22 17-22 Payment (Financing) Procedures Payment terms offered by exporters to foreign buyers –Cash in advance When credit standing of the buyer unknown or uncertain Very few buyers will accept because: 1)Their working capital is partly tied up until the merchandise has been received and sold 2)There is no guarantee the buyer will receive what they ordered

23 17-23 Payment (Financing) Procedures –Open account When sale is made on open account –Seller assumes payment risk –Offered to reliable customers in economically stable countries –Exporters capital is tied up until payment has been received –Consignment Goods shipped to buyer; payment made when sold Payment risk assumed by seller Multinational uses this for their subsidiaries

24 17-24 Payment (Financing) Procedures, contd. –Letter of credit (L/C) Document issued by buyers bank –Promise to pay seller specified amount when bank has received documents stipulated in letter of credit

25 17-25 Payment (Financing) Procedures, contd. Letter of credit Confirmed L/C –Correspondent bank in sellers country agrees to honor issuing banks L/C Irrevocable L/C –Once the seller has accepted L/C, buyer cannot alter or cancel it without sellers consent

26 17-26 Sample Letter of Credit

27 17-27 Letter of Credit Transaction

28 17-28 Documents Air Waybill –A bill of lading issued by an air carrier (a proof that shipment has been made) Pro Forma Invoice –Exporters formal quotation: description of the merchandise, price, delivery time, method of shipment, ports of exit and entry, and terms of sale

29 17-29 Export Payment Documents Export draft –Unconditional order drawn by the seller that instructs buyer to pay the drafts amount on presentation (sight draft) or at an agreed future date (time draft) and that must be paid before buyer receives shipping documents

30 17-30 L/C vs. Export Draft When the political and commercial risks are not an issue, documentary draft (i.e. export draft) is more preferable Export draft is less expensive than L/C for the buyer A confirmed L/C guarantees payment to the seller if seller conforms to its requirements, but there is no such guarantee with documentary drafts

31 17-31 Export Financing Private Source – Commercial Banks –Bankers acceptance Time draft with maturity of less than 270 days that has been accepted by the bank on which the draft was drawn, thus becoming the accepting banks obligation; may be bought and sold at a discount in the financial markets like other commercial paper –Factoring Discounting an account receivable without recourse

32 17-32 Export Financing, contd –Forfeiting Purchasing without recourse an account receivable whose credit terms are longer than the 90 to 180 days usual in factoring; unlike factoring, political and transfer risks are borne by the forfeiter

33 17-33 Export Financing contd. Public Sources –Export-Import Bank (Exim Bank) Principal government agency that aids American exporters by means of loans, guarantees, and insurance programs –Overseas Private Investment Corporation (OPIC) U.S. government corporation that offers American investors in developing countries insurance against expropriation, currency inconvertibility, and damages from wars and revolutions

34 17-34 Other Public Incentives Foreign Trade Zone –Duty-free area designed to facilitate trade by reducing the effect of customs restrictions Free Trade Zone –An area designated by the government as outside its customs territory Customs drawback –Rebate on customs duties

35 17-35 Export Procedures Foreign freight forwarders act as agents for exporters –Independent business that handle export shipments for compensation –Prepare documents –Book space –Offer advice about Markets Regulations Transportation Packing –Supply cargo insurance

36 17-36 Official Procedures for Importing and Exporting

37 17-37 Shipping Documents Shippers Export Declaration –U.S. Department of Commerce form to control export shipments and record export statistics Validated export license –Document issued by the U.S. government authorizing export of strategic commodity or shipment to unfriendly country General Export License –Covers export commodities for which validated license not required; no formal application required

38 17-38 Shipping Documents, contd. Export Bill of Lading 1)Contract of carriage between shipper and carrier 2)A receipt from the carrier for the goods shipped 3)A certificate of ownership –Straight bill of lading is nonnegotiable; endorsed to order bill gives holder claim on merchandise –An order bill of landing is negotiable Insurance Certificate

39 17-39 Collection Documents Commercial invoice Include origin of goods, export packing marks, and clause stating goods will not be transshipped –Consular invoice Purchased from the consul and prepared in local language –Certificate of origin Issued by local Chamber of Commerce –Inspection certificate Frequently required for grain, food, live animals

40 17-40 Export Shipments (cargo handling) Containers Reduce theft and handling costs LASH (lighter aboard ship) Barges for shallow inland waterways RO-RO (roll on-roll off) Can drive onto vessel Air Freight Can arrive in one day

41 17-41 Sea-freight vs. Air-Freight Total cost of using air-freight is often less costly than the apparently least-cost sea-freight because: Insurance ratesless chance of damage Packingair-freight packing can go with domestic packaging instead of the heavier, more costly export packing Custom dutieswhen calculated in gross weights Replacement costs for damage goodsless chance of damaging shipment Inventory costsrapid delivery with air freight often obviates the need for expensive warehouse

42 17-42 Sea-Air Total Cost Comparison, Shipment and Spare Parts

43 17-43 Benefit of Air Freight contd Total cost may decrease Either the firm or the product may be air- dependentex: seller of live animals, fresh flowers, etcwithout air freight they would out of business The market may be perishableex producer of short-life cycle product such as high-fashion and fad items, etc. Competitive position may be strengthened

44 17-44 Importing Ways to identify import sources –If similar imported products are already in the market, visit a retailer and examine the product label –If the product is not being imported, call the nearest consul or embassy of that country –Use the electronic bulletin boards of the World Trade Centers

45 17-45 Customhouse Broker Independent business that handles import shipments Acts as agent for importer –Customhouse broker brings goods through customs –May arrange transportation for goods after they leave customs –Need to know when imports are subject to import quotas and how much of the quota has been filled

46 17-46 Importing Bonded warehouse –Area authorized by customs for storage of goods on which payment of import duties is deferred until goods are removed Automated Commercial System (ACS) –Used to track, control, and process all commercial goods imported into U.S. Import Duties –Importer must know how U.S. calculates import duties The Harmonized Tariff Schedule of U.S. (HTSUSA) –American version of the Harmonized System used worldwide to classify imported products

47 17-47 Page from the HTSUSA

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