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International Business Environments & Operations

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1 International Business Environments & Operations
Daniels ● Radebaugh ● Sullivan International Business Environments and Operations 15e by Daniels, Radebaugh, and Sullivan Copyright © 2015 Pearson Education, Inc.

2 Copyright © 2015 Pearson Education, Inc.
Chapter 14 Export and Import Chapter 14: Export and Import Copyright © 2015 Pearson Education, Inc.

3 Copyright © 2015 Pearson Education, Inc.
Learning Objectives Understand the role of export/import in the strategy of the multinationals Learn about export/import process and the documentation involved Explain the idea of exporting/importing and evaluate their relative benefits/drawbacks Describe the intermediaries in export/import-resources and assistance for international traders Identify and discuss the platforms that support expanding international trade The Learning Objectives for this chapter are To explain the idea of exporting and profile its elements To explain the idea of importing and profile its elements To describe the problems and pitfalls that challenge international traders To describe the resources and assistance that helps international traders To discuss the idea of an export plan To discuss the practice of countertrade Copyright © 2015 Pearson Education, Inc.

4 Competitive Advantage and the Strategy of the Multinationals
Price Competitive Advantage Quality

5 Export Strategy of the Firm-1
Exporting and importing are the most common modes of international business; and, one of the fastest growing activities in the world Why Export…. Profitability-increase revenues Productivity-achieve economies of scale, alleviate excess capacity Diversification-minimize risk and diversify markets

6 Export Strategy of the Firm-2
Firms’ “entry strategy/mode” is influenced by Ownership advantages the firm’s core competencies Location advantages the combination of sales opportunity and investment risk that creates favorable locations in foreign markets Internalization advantages reflect companies’ response to market imperfections that often create uncertainties Ownership, location, and internalization advantages all influence the choice of entry mode. For example, companies that have few ownership advantages are less likely to engage in exporting. Location advantages can attract companies to favorable business environments. Internalization advantages can encourage companies to export rather than engage in licensing. Copyright © 2015 Pearson Education, Inc.

7 Exporters: Initiation and Development
Two approaches Incremental internationalization exporting is a learning process Born global instant internationalization global focus Some firms approach exporting in a deliberate sequential way targeting markets that are similar and closer first before moving on to more dissimilar and geographically distant markets. So, a U.S. company might target Canada first, followed by Mexico before moving on to Europe and Asia. In contrast, some companies engage in exports right from the start. These companies assume the domestic market is just one of many opportunities in the global market. The born global approach has been facilitated by advances in technology and lower barriers to trade. Copyright © 2015 Pearson Education, Inc.

8 Exporters: Initiation and Development
Top Trade Partners of the United States: Exports and Imports This Table shows the top ten trade partners of the United States. Notice that it illustrates the interaction of the two perspectives on the export process. In the future, this interaction is likely to accelerate thanks to the opportunities that ecommerce provides and the easy access to information on dissimilar markets provided by the Internet. Keep in mind that serendipity can also explain a company’s export activity. responding to unsolicited orders can be the start of successful export activity. Copyright © 2015 Pearson Education, Inc.

9 Approaches to Exporting
Export approaches include Direct exporting involves independent representatives, distributors, or retailers outside of the exporter’s home country Indirect exporting products are sold to an intermediary in the domestic market, which then exports them Passively filling orders from domestic buyers who then export the product Selling to domestic buyers who represent foreign end users or customers In theory, exporting involves making a product, packing it, and then shipping it. In reality though, it’s a bit more involved. Some companies are direct exporters. They sell their product to independent intermediaries in foreign countries who then sell it to the end consumer. Companies that sell their product to independent intermediaries in the home country are indirect exporters. The intermediary resells the product to foreign agents who then sell it to the end consumer. Some companies simply passively fill orders from domestic buyers who then export the product, while others sell to domestic buyers who represent foreign end users or customers. In either of these cases, the company may not know that its product has been resold. Some companies use more than one approach depending on their particular ownership, location, and internalization advantages. Copyright © 2015 Pearson Education, Inc.

10 Export Import Process Ships Exporter Importer Bill of lading
Receives payment Informs Payment Opens Letter of Credit Reimbursement Exporter’s Bank Importer’s Bank Informs

11 Types of Exports Documents
Pro Forma Invoice: outlines the terms of sale, price, and delivery details, it is the basis for Commercial Invoice Shipper’s Export Declaration: used to monitor exports and compile trade statistics Bill of Lading: a detailed receipt from the carrier transporting the cargo Consular Invoice: required to monitor imports Certificate of Origin: determines the tariff Export Packing List: lists the cargo details Commercial Invoice: details of sale according to Pro Forma Invoice, it is legal document

12 Types of Exports Documents

13 Import Strategy of the Firm
Why import? Strategic advantages of import…. Specialization of labor Global rivalry Local unavailability Diversification of operation risks

14 Issues in Exporting/Importing
Financial risks Customer management Lack of international business experience Marketing challenges Top management commitment Government regulation Trade documentation Regular and occasional exporters face a host of problems and pitfalls that make international trade challenging. Some of the more common ones involve financial risks, especially a shortage of working capital to finance an export strategy. In fact, financial constraints are one of the biggest challenges for SMEs. In addition, exporters are hampered by their lack of international expertise, marketing barriers, and the challenges of meeting customer expectations in foreign markets. These demands can put significant pressure on managers. Finally, trade regulations and documentation requirements also make exporting a complex process. Copyright © 2015 Pearson Education, Inc.

15 Support, Resources and Assistance
Companies can get support, resources and assistance from Government agencies The U.S. Department of Commerce International Trade Administration The Small Business Administration Exporters can get a lot of assistance from both public agencies and private intermediaries to facilitate the export process. The U.S. Department of Commerce’s International Trade Administration offers assistance in more than 100 cities in the United States and also in 75 foreign countries. In addition, it offers online assistance. The Small Business Administration is another source of information for importers and exporters. Copyright © 2015 Pearson Education, Inc.

16 Support, Resources and Assistance
Trade Assistance by Type and Source This Table shows information and assistance available to exporters from a variety of sources. Copyright © 2015 Pearson Education, Inc.

17 Export/Import Intermediaries
Export intermediaries: third party firms that market products and services abroad on behalf of manufacturers, farm groups, and distributors Export management company (EMC) Export trade companies (ETC) Customs agents: enforce the rules of trade for a particular country Customs brokers: help importers navigate the regulations imposed by customs agencies Freight forwarders: the largest export/import intermediary in terms of value and weight of products shipped internationally Export intermediaries work on behalf of exporters to manage the intricacies of international trade. Firms using export intermediaries must balance their cost along with the implied loss of control against the cost and challenges of managing the process in-house. Copyright © 2015 Pearson Education, Inc.

18 Copyright © 2015 Pearson Education, Inc.
An Export Plan An Export Plan This Table shows a sample export plan. Copyright © 2015 Pearson Education, Inc.

19 Copyright © 2015 Pearson Education, Inc.
Countertrade Countertrade different arrangements that parties use to trade products via transactions that use limited or no currency or credit Examples of countertrade transactions…. barter [based on clearing arrangements used to avoid money-based exchange] buybacks, offsets, and counter purchase [all of which are used to impose reciprocal commitments] Costs and Benefits of Countertrade Costs: inefficient, risky, cumbersome Benefits: build mutually beneficial relationships In situations where the home country currency is inconvertible or a lack of cash prevents a traditional transaction firms may turn to countertrade. According to the WTO, countertrade accounts for about 5 percent of world trade. Countertrade can be inefficient way to do business. It can also be risky especially if the products received are difficult to resell or are of poor quality. However, because it can allow for mutually beneficial relationships, it’s still used today. Copyright © 2015 Pearson Education, Inc.

20 Types of Countertrade Common Types of Countertrade
This Table shows the common types of countertrade. Copyright © 2015 Pearson Education, Inc.

21 Chapter 14: Discussion Questions
Explain why firms export or import. What are their competitive advantages for export or import? Describe the export-import process and explain the role of various “export documentation” involved in the process. Who are the export/import intermediaries? Explain their role and functions in the export-import process. What are the common issues in exporting/importing? Explain. What is countertrade? What are the different types of countertrade? Why firms or governments engage in countertrade? Explain.

22 Copyright © 2015 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc.

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