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16 Export and Import Practices International Business

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2 16 Export and Import Practices International Business
This chapter covers: Why firms export and problem areas Sources of export counseling Terms of sale Sources of export financing Foreign freight forwarders Export documents Materials handling Import sources HTSUSA Export and Import Practices International Business by Ball, McCulloch, Frantz, Geringer, and Minor McGraw-Hill/Irwin Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

3 Chapter Objectives Explain why firms export and problem areas of exporting Identify the sources of export counseling Describe the main elements of the export sales assistance program of the US Department of Commerce Discuss the meaning of the various terms of sale 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) 16-2

4 Why Export? Reasons to export To remain competitive in the home market
To serve markets where the firm has no production facilities. the local plant does not produce the firm’s complete product mix To satisfy a host government’s requirement that the local subsidiary export 16-4 To remain competitive in the home market To test foreign markets and foreign competition inexpensively To meet actual or prospective customers’ requests for the firm to export To offset cyclical sales of the domestic market

5 Why Export? To achieve additional sales
To extend a product’s life cycle To distract foreign competitors that are in the firm’s home market by entering their home markets To partake in the kind of success the firm’s management has seen others achieve by exporting To improve equipment utilization rates 16-5

6 Most Common Mistakes for New Exporters
Failure to develop an international marketing plan Insufficient commitment by top management Insufficient care in selecting overseas distributors Chasing orders from around the world Neglecting export business when the home market booms Failure to treat international distributors on an equal basis with domestic 16-6 Assuming automatic success Unwillingness to modify products Failure to print service, sale and warranty messages in local language Failure to consider use of an export management company Failure to consider licensing or joint venture Failure to provide readily available service for the product

7 Why not export? Two major reasons U.S. firms give for not exporting
Preoccupation with the vast American market A reluctance to become involved in a new and unknown operation 16-7

8 Problem Areas Locating foreign markets
Don’t know where to start Payment and financing procedures Fear the complexity Export procedures Don’t know that information and government support are available Small Business Administration, Small Business Development Centers, private consultants 16-8

9 Sources of Export Counseling
Trade Information Center (TIC) The federal government has set this up as a first stop for information about all federal export assistance programs as well as country and regional market information Visit web site at 16-9 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)

10 Sources of Export Counseling
Small Business Administration (SBA) The Office of International Trade of the SBA works through SBA district offices SCORE programs SBDC/CIBER programs US Export Assistance Centers 16-10

11 Department of Commerce Export Assistance Program
Foreign Market Research After learning about the company and its products, the international trade specialist may advise the potential exporter to consult the National Trade Data Bank (NTDB) The NTDB provides a comprehensive guide for new exporters a source of specific product and regional information for experienced exporters searching for new markets The Foreign Traders Index 16-11

12 Department of Commerce Export Assistance Program
NTDB Available in University SBDCs Can subscribe at Trade specialist may suggest using the Trade Opportunities Program (TOP) Provides current sales leads from overseas firms Leaders published in leading commercial newspapers Can advertise in Commercial News at Assistance available from Dept. of Commerce at 16-12

13 Department of Commerce Export Assistance Program
When small number of potential markets identified Research using Country Commercial Guides Must choose between exporting indirectly and exporting directly Indirect way to test market Direct need overseas distribution Can use US Commercial Service Gold Key Service 16-13

14 Show and Sell Four kinds of trade events that facilitate international trade U.S. pavilions Organized by the Dept. of Commerce Trade missions Focus on industry sector Product literature center Trade specialists distribute at trade shows Reverse trade missions Visits to U.S. by foreign governments 16-14

15 Other Sources of Assistance
World Trade Centers Association Nearly 300 worldwide Access to online trading system District Export Councils Provided by Dept. of Commerce Assist in workshops and arrange for consultants State Governments All states have export development programs 16-15

16 Export Marketing Plan Essentially the same as the domestic marketing plan The plan should be specific about The markets to be developed The marketing strategy for serving them The tactics required to make the strategy operational 16-16 Marketing Mix Foreign customers may insist on one of the following terms of sale FAS (free alongside ship, port of call) CIF (cost, insurance, freight, foreign port) CFR (cost and freight, foreign port) DAF (delivered at frontier)

17 Sales Agreement Should specify the duties of the representative and the firm Designation of responsibilities for patent and trademark registration Designation of whose laws will govern contractual dispute 16-17

18 Payment and Financing Procedures
Types of payment terms offered by exporters to foreign buyers Cash in advance Open account Consignment Letter of credit Documentary drafts 16-18

19 Export Payment Terms Cash in Advance Open Account Consignment
When credit standing of the buyer is not known or is uncertain Open Account When a sale is made on open account The seller assumes all of the risk Terms should be offered only to reliable customers in economically stable countries 16-19 Consignment Goods are shipped to the buyer and payment is not made until they have been sold All the risk is assumed by the seller Letters of Credit This document is issued by the buyer’s bank which promises to pay the seller a specified amount when the bank has received certain documents stipulated in the letter of credit

20 Export Payment Terms Letters of Credit Confirmed
Act of a correspondent bank in the seller’s country by which it agrees to honor the issuing bank’s letter of credit Irrevocable Once the seller has accepted the credit, the customer cannot alter or cancel it without the seller’s consent Air Waybill Issued by carrier to be presented as proof the shipment has been made Pro Forma Invoice exporter’s formal quotation containing a description of the merchandise, price, delivery time, proposed method of shipment, ports of exit and entry, and terms of sale

21 Export Payment Terms Documentary Drafts An export draft
is an unconditional order drawn by the seller on the buyer instructing the buyer to pay the amount of the order on presentation (sight draft) or at an agreed future date (time draft) 16-21

22 Export Financing Private Source – Commercial Banks Banker’s acceptance
Factoring Provides working capital to manufacturers short of cash. Is essentially discounting without recourse. Forfaiting Denotes the purchase of obligations that arise from the sale of goods and services and fall due at some date beyond the 90 to 180 days that is customary of factoring 16-22

23 Export Financing Export-Import Bank
The U.S. Export Import Bank (Eximbank) Government agency responsible for aiding the export of American goods and services Variety of loan, guarantee, and insurance programs Available to any American export firm regardless of size 16-23 Two types of loans available from the Eximbank Direct loans to foreign buyers of American exports Intermediary loans to responsible parties Foreign government lending agency that relends to foreign buyers of capital goods and related services

24 Other Government Incentives
Overseas Private Investment Corporation Offers investors insurance against expropriation, currency inconvertibility, and damages from wars or revolutions Also offers specialized insurance for American service contractors and exporters operating in foreign countries Foreign Sales Corporation Special corporate form authorized by the federal government that provides tax advantages for exporting firms Free Trade Zones An area designated by the government of a country for duty-free entry of any nonprohibited good 16-24

25 Export Procedures Foreign freight forwarders act as agents for exporters Prepare documents Book space Offer advice about Markets Regulations Transportation Packing Supply cargo insurance After shipment, forward documents 16-25

26 Shipping Documents Shipper’s Export Declaration
This document is required by the Department of Commerce to control exports and supply export statistics Export License General for most products Validated for scarce materials, strategic goods, technology, or war materials 16-26 Export bill of Lading Serves three purposes a contract for carriage between the shopper and the carrier. a receipt from the carrier for the goods shipped. a certificate of ownership Insurance Certificate Evidence shipment is insured

27 Collection Documents The most common documents for collection
Commercial invoices Add origin of goods, export packing marks, and a clause stating good will not be diverted Consular invoices Purchased from the consul and prepared in local language Certificates of origin Issued by local Chamber of Commerce Inspection certificates Frequently required for grain, food, live animals 16-27

28 Export Shipments Containers LASH (lighter aboard ship)
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 16-28

29 Air Freight Total cost components that may be lower for air freight include Insurance rates Packing Custom duties Replacement costs for damaged goods Inventory costs 16-29 When the total cost are high for air freight, it may still be advantageous to ship by air when other factors are considered Production and opportunity costs The firm may be air-dependent The products may be air-dependent Spare parts and technical personnel available within a few hours

30 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 Accidental importing also takes place 16-30

31 Customhouse Brokers Independent businesses that handle import shipments for compensation Acting as the agent for the importer Customhouse brokers bring the imported goods through customs They can arrange transportation for goods after they leave Customs They also need to know when imports are subject to import quotas and how much of the quota has been already filled 16-31

32 Importing If the Quota fills the importer must
Put goods in a bonded warehouse or a foreign trade zone Abandon the goods Send the goods to another country Automated Commercial System (ACS) Used to track, control, and process all commercial goods imported into the U.S. 16-32 Import Duties Importer must know How U.S. calculates import duties The importance of product classification The Harmonized System Used by all developed nations Determines how goods will be classified Each product has its own HTSUSA number

33 Import Rules Disclose fully to the US Customs Service all foreign and financial arrangements Ask advice of a customhouse broker before making the transaction Calculate carefully the landed price in advance 16-33


35 KEY ECONOMIC EVENTS Economic activity improved for the United States and many of its trading partners, contributing to increased U.S. exports and imports in 2003. U.S. exports grew for most manufacturing industry sectors, recording an overall $21.8 billion increase during 2003, to $651.4 billion. U.S. imports grew for all manufacturing industry sectors, recording an overall increase of $95.3 billion to reach $1.3 trillion in 2003. The U.S. trade deficit expanded for most industry sectors, for an overall increase of $73.5 billion in 2003 to $598.7 billion. Agriculture was the exception, recording an increased trade surplus of $1.1 billion to reach $3.8 billion in 2003.

36 KEY TRENDS in U.S. Trade with Japan
The narrowing of the U.S. bilateral trade deficit with Japan was augmented by a 9.8-percent appreciation of the yen against the dollar. Japan has been experiencing an economic upturn since March 2003, after more than a decade of deflation. This upturn appears to be more broadly based than previous ones, with increased consumer and corporate spending. U.S. beef exports rebounded after incidences of “mad cow disease” in Japanese herds and mislabeling of imported beef in late 2001 and early 2002.

37 ExIm Bank Ex-Im Bank Highlights:
Russia Portal: Ex-Im Bank Opportunities in Russia Mexico: web portals for U.S. exporters y los compradores de Mexico Protecting the environment Business Opportunities in Southeast & Central Europe Recent Newsletter     Video - Product Overview News & Information by Iraq Ex-Im Bank Support for U.S. Exports to Iraq

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