1. International Businessby
Daniels and Radebaugh
Chapter 17
Export and
Import Strategies
© 2001 Prentice Hall

2. Objectives
To identify the key elements of export and import strategies
To compare direct and indirect selling of exports
To discuss the role of several types of trading companies in exporting
To show how freight forwarders help exporters with the movement of goods
To identify the methods of receiving payment for exports and the financing of receivables
To discuss the role of countertrade in international business
© 2001 Prentice Hall

3. Exporting and Importing in International Business
EXTERNAL INFLUENCES
COMPETITIVE
ENVIRONMENT
PHYSICAL AND
SOCIETAL FACTORS
OPERATIONS
OBJECTIVES
STRATEGY
MEANS
Overlaying
Alternatives
Modes
Functions
Marketing
EXPORTING AND
IMPORTING
Global manufacturing
Supply chain
management
Accounting
Finance
Human resources
© 2001 Prentice Hall

4. Export Strategy Choice of entry mode to a foreign market depends on:
Ownership advantages—specific assets, international experience, and ability to develop differentiated products
with few ownership advantages companies either do not enter foreign markets or use low-risk entry modes such as exporting
Location advantages—combination of market potential and investment risk
Internalization advantages—benefits of holding specific assets or skills within the company
Other strategic concerns include:
Global concentration—only a few major players in a global industry
Global synergies—sharing functional expertise with overseas operations
Strategic motivations—reasons for exporting
© 2001 Prentice Hall

5. Characteristics of Exporters
Companies that export:
More likely to be large (as defined by revenues)
Are more likely to have risk-taking managers
Operate in industries where the leading companies are exporters
Why companies export
Increased sales revenue most important motivation to export
Alleviate excess capacity
Exporting less risky than FDI
Countercyclical investment diversification
Stage of export development—three broad phases
Stage unrelated to size of the company
Availability of Internet has increased company interest in exporting
© 2001 Prentice Hall

6. Phases of Export Development
Preengagement
Companies selling goods and services solely in the
domestic market
Those companies considering but not currently exporting
Phase 1
Initial Exporting
Companies that do sporadic, marginal exporting
Companies that see lots of potential in export markets
Companies unable to cope with exporting demands
Phase 2
Advanced
Companies become regular exporters
Companies gain extensive overseas experience
Companies may use other strategies for entering markets
Phase 3
© 2001 Prentice Hall

7. Designing an Export Strategy
Detailed export business plan essential for effective export strategy
Assess the company’s export potential by examining its opportunities and resources
Obtain counseling on exporting
Select a market or markets
Formulate and implement an export strategy
Commitment precedes success in exporting
Development of an export department is one indicator of top management commitment
© 2001 Prentice Hall

8. Structure of an Export Business Plan
I Executive Summary
II Business History
III Market Research
IV Marketing Decisions
V Legal Decisions
VI Manufacturing and Operations
VII Personal Strategies
VIII. Financial Decisions
IX Implementation Schedule
© 2001 Prentice Hall

9. Import Strategy
Importing—bringing of goods and services into a country
Results in the importers paying money to the exporter in the foreign country
Two basic types of imports
Industrial and consumer goods and services provided to customers unrelated to exporter
Intermediate goods and services provided to customers that are part of the firm’s global supply chain
Why companies import
Goods and services can be supplied to domestic market at cheaper price and higher quality
More efficient than attempting to manufacture every product in every market
Provide access to products not available in local market
© 2001 Prentice Hall

10. Import Strategy (cont.)
Types of importers include those:
Looking for any product around the world to import and sell
Looking for foreign sourcing to get their products at the cheapest price
Using foreign sourcing as part of their global supply chain
Importing requires expertise in dealing with institutions and documentation
Import broker—intermediary who helps an importer clear customs
© 2001 Prentice Hall

11. Role of Customs Agencies
Customs—a country’s import and export procedures and restrictions
Customs agencies—assess and collect duties and ensure import regulations are adhered to
deal with smuggling
assign a tentative value and tariff classification to the merchandise
determine if import restrictions apply
Broker or import consultants—help importer minimize import duties by:
Valuing products to qualify to receive more favorable duty treatment
Qualifying for duty refunds through drawback provisions
Deferring duties by using bonded warehouses and foreign trade zones
Marking import’s country of origin
© 2001 Prentice Hall

12. Role of Customs Agencies (cont.)
Documentation—importers must submit to customs documents that determine whether the shipment is released and what duties are assessed
Must file documents to take title of shipment
taking title—receive products without purchasing them
Third-Party Intermediaries
Companies that facilitate the trade of goods but that are not related to either the exporter or importer
Stimulate sales, obtain orders, and do market research
Investigate credit and collect payments
Handle foreign traffic and shipping
Support company’s sales, distribution, and advertising staffs
Some act as agents on behalf of the exporter, and some take title to goods and sell them abroad
© 2001 Prentice Hall

13. Direct Exporting through the Internet
Direct Selling
Exporter sells through sales representatives to distributors, to foreign retailers, or to final end users
Sales representative—sells products in foreign markets on commission basis without taking title to the goods
Distributor—a merchant who purchases products and sells them at a profit
carries a stock of the product, which it also services
usually deals with retailers
A sales organization in foreign country required to deal directly with end users
Direct Exporting through the Internet
Allows all companies to engage in direct marketing
Export products to end users
Establish home pages in different languages
© 2001 Prentice Hall

14. Indirect Selling
Exporter sells goods directly to or through an independent domestic intermediary in the exporter’s home country that exports the products to foreign markets
Export Management Companies (EMCs)—act as export arm of manufacturer
operate on contractual basis
provide exclusive representation in a well-defined foreign territory
manufacturer loses some control over foreign sales to EMC
Export Trading Company (ETCs)—identify suppliers to fill orders in overseas markets
determine what foreign customers want
identify different domestic suppliers for the products
look for as many suppliers as possible
© 2001 Prentice Hall

15. Non–U.S. Trading Companies
Largest trading companies in the world are from Japan, South Korea, Germany, and China
U.S. has a large number of small trading companies
Sogo Shosha—Japanese trading companies
The trading arm of the large kieretsus
kieretsus—Japanese business groups that are networks of manufacturing, service, and financial companies
Korean trading companies—part of Chaebols
Chaebols—large Korean business groups that contain a trading company
Piggyback Exports
Products exported by a company through another manufacturer’s channels of distribution
© 2001 Prentice Hall

16. Foreign Freight Forwarders
Freight forwarder—an import or export specialist dealing in the movement of goods from producer to consumer
Largest intermediary in terms of value and weight of products managed
Services more limited than those of EMC
Obtains best routing and means of transportation
Moves products to air or ocean terminal
Secures space on planes or ships and necessary storage prior to shipment
Does not take title to goods or act as sales representative
Charges based on the shipment value
Intermodal transportation—movement of goods across different modes from origin to destination
Increasing reliance on airfreight
more frequent and lighter-weight shipments
© 2001 Prentice Hall

17. Documentation
Export license—allows products to be shipped to specific countries
Pro forma invoice—invoice from exporter to importer outlining the selling terms, price, and delivery if the goods are actually shipped
Commercial invoice—bill for the goods from the buyer to the seller
Bill of lading—receipt for goods delivered to the common carrier for transportation, a contract for services rendered, and a document of title
Consular invoice—means of monitoring price of imports and to generate revenue for the embassy that issues it
Certificate of origin—indicates where goods originated
Shipper’s export declaration—used to monitor exports and compile trade statistics
Export packing list—itemizes materials in each package
© 2001 Prentice Hall

18. Export Financing
Product price—export prices tend to escalate due to transportation costs, duties, multiple wholesale channels, insurance costs, and banking costs
May depend on dumping laws in importing country
Method of payment—flow of money across borders requires the use of special documents
Draft (bill of exchange)—the drawer directs the drawee to make a payment
documentary drafts—protect both parties by requiring that payment be made based on the presentation of documents conveying the title
sight drafts—payments must be made immediately
time drafts—payment may be made at a later time
© 2001 Prentice Hall

19. Export Financing (cont.)
Method of payment (cont.)
Letter of credit—obligates the buyer’s bank to pay the exporter
forms—sight versus time
revocable—terms may be changed by parties at any time
irrevocable—letter that cannot be changed or canceled without consent of all of the parties
confirmed letter of credit—exporter has the guarantee of an additional bank
open account—necessary shipping documents are mailed to the importer before any payment from or definite obligation on the buyer’s part
usually for members of the same corporation
© 2001 Prentice Hall

20. Letter-of-Credit Relationships
Importer
Exporter
The relationship between
importer and opening bank is
governed by the terms of the
application and agreement
for the letter of credit
opening bank and exporter is
governed by the terms of
credit issued by that bank
Importer’s Bank
(opening bank)
© 2001 Prentice Hall

21. Export Financing (cont.)
Financing receivables—increased time and distance of exporting can create cash flow problems for exporter
Banks unwilling to fund exporting due to risks
Exporters can get access to funds by:
factoring—discounting of a foreign account receivable
forfaiting—purchase an exporter’s debt due from customer, usually as promissory note or bill of exchange
bank in importer’s country guarantees these instruments
some government agencies provide direct loans to exporters or guarantee foreign receivables so that exporters can get bank financing of receivables
Export-Import Bank of the United States
© 2001 Prentice Hall

22. Export Financing (cont.)
Insurance—covers:
Transportation risks
Political, commercial, and foreign-exchange risks
Countertrade
Barter—goods are exchanged for goods of equal value without any flow of cash
Barter firms act as intermediaries
Buybacks—products the exporter receives as payment that are related to or originate from the original export
Offset trade—exporter sells products for cash and then helps to promote exports from the importing country in order to help it earn foreign exchange
Direct offsets—any business directly related to the export
Indirect offsets—all business unrelated to the export
© 2001 Prentice Hall

23. An Offset Transaction Monitoring bank that credits and debits payments
McDonnell-Douglas
Canadian military
F-18s
Exporter’s
product
division
Importer in
Canada
Payments
Goods
Importer in
U.S.
Payments
Exporter in
Canada
Goods
Payments
Exporter in
Canada
Importer in
third country
Goods
© 2001 Prentice Hall