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

2. Readings
Daniels, Radebaugh, Sallivan, International Business, Chapter 17

3. Objectives Identify the 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.

4. Introduction Characteristics of Exporters
The probability of a company’s 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 Exports

6. Why companies export Exporting Expands 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
As companies 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.
The following figure summarizes the various phases of exporting.

8. Phases of Export Development

9. Export Strategy
Entry 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
In designing an export strategy, a company must
Assess export potential
Get expert counseling
Select market or markets
Set goals and get the product to market

13. The Import Strategy
Importers need to be concerned with procedural and strategic issues
An import broker is an intermediary that helps an importer clear customs

14. The Import Strategy The Role of Customs Agencies Documentation
Customs 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
Importers must submit to customs documents that determine whether the shipment is released and what duties are assessed.

15. Export Intermediaries
Companies use external specialists for exporting before developing internal capabilities
Companies may market their products either directly or indirectly through external specialists or intermediary organizations

16. Export Intermediaries
Direct Selling
Direct 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
Indirect Selling
Commission agents work for the buyer
Export Management Companies (EMCs) provide export services for a specific exporter or group of exporters
Export Management Companies
EMCs in the United States are mostly small, entrepreneurial ventures that tend to specialize by product, function, or market area

18. Export Trading Companies (ETCs)
ETCs tend to operate on the basis of demand rather than supply
ETCs can be formed by
Competitors can be exempt from antitrust laws
State and local governments
Money-center banks
Major corporations

19. Foreign Freight Forwarders
A foreign 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 and Ocean Freight
Ocean 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
pro forma invoice
commercial invoice
bill of lading
shipper’s export declaration
and export packing list

21. Export Financing Financial issues relating to exporting: Product price
Method of payment
Financing of receivables
Insurance

22. Product Price Export pricing is influenced by: Exchange rates
Transportation costs
Duties
Multiple distribution channels
Insurance costs
Banking costs

23. Methods of payment Methods of payments are Cash in advance
Letter of credit
Documentary collection or draft
Open account
Countertrade

24. Export Financing Financing receivables for US exporters
Ex-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 Relationships

26. An Irrevocable Export Letter of Credit

27. Export Financing
A letter of credit obligates the buyer’s 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 exporter’s bank

28. Countertrade
Countertrade refers to any one of a number of different arrangements by which goods and services are traded for each other
Countertrade often takes place because of a foreign-exchange shortage
Barter occurs when goods are traded for goods
In offset trade, the exporter sells goods for cash but then undertakes to promote exports from the importing country in order to help it earn foreign exchange

29. An Offset Transaction

30. Summary
The likelihood 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.

31. Summary
As a 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.

32. Summary Exporters may engage in direct or in indirect exporting.
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.

33. Summary
There are 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.