Global Marketing Management

Export and Import Management Chapter 17 Export and Import Management

Chapter Overview 1. Organizing for Exports 2. Indirect Exporting 3. Direct Exporting 4. Mechanics of Exporting 5. Role of the Government in Promoting Exports 6. Managing Imports—the Other Side of the Coin 7. Mechanics of Importing 8. Gray Markets

Introduction Exporting is the most popular way for many companies to become international. Exporting is usually the first mode of foreign entry used by companies. Selling to foreign markets involves numerous high risks, arising from a lack of knowledge about and unfamiliarity with foreign environments, which can be heterogeneous, sophisticated, and turbulent. Manufactured goods accounted for almost 60 percent of the exports of developing countries (see Exhibit 17-1).

Introduction (contd.) Because of every export transaction, there is, by definition, an import transaction as well. Aside from differences between the procedure and rationale for exports and imports, both are largely the same the world over. For successful development of export activities, systematic collection of information is critical.

1. Organizing for Exports Research for Exports: The first step is to use available secondary data to research potential markets. The identification of an appropriate overseas market involves the following criteria: 1. Socioeconomic characteristics 2. Political and legal characteristics 3. Consumer variables (lifestyle, preferences, culture, taste, purchase behavior) 4. Financial conditions

1. Organizing for Exports (contd.) Export Market Segments Homogeneous market segments and clusters Geographical and psychographic segments Issues of standardization vs. adaptation

2. Indirect Exporting Indirect exporting involves the use of independent middlemen to market the firm’s products overseas. Combination Export Manager (CEM) Export Merchants Export Broker Export Commission House Trading Companies (sogoshosha; see Exhibit 17-1) Piggyback Exporting

3. Direct Exporting Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market (see Exhibit 17-2). Export Department Export Sales Subsidiary Foreign Sales Branch

4. Mechanics of Exporting The Automated Export System (AES) on the Internet In the U.S., the AES which was launched in October 1999, enables exporters to file export information at no cost over the Internet. AES is a nationwide system operational at all ports. Legality of Exports Export license (general or validated license) Export Transactions The terms of sale

4. Mechanics of Exporting (contd.) Monitoring the transportation and delivery of the goods to the assigned party Shipping and obtaining the bill of lading Bill of lading A straight bill of lading A shipper’s order bill of lading Commercial invoice Freight forwarders Terms of Shipment and Sale INCOTERMS 2000 (International Commercial Terms)

4. Mechanics of Exporting (contd.) Terms of Shipment (see Exhibit 17-5): Ex-Works (EXW) at the point of origin Free Alongside Ship (FAS) Free on Board (FOB) Cost and Freight (CFR) Carriage Paid To (CPT) Cost, Insurance and Freight (CIF) Payment Terms (see Exhibit 17-6) Advanced Payment

4. Mechanics of Exporting (contd.) Confirmed irrevocable letter of credit Unconfirmed irrevocable letter of credit Documents Against Payment (D/P) Documents Against Acceptance (D/A) Open account Consignment Currency Hedging It is done through a banker or the firm’s treasury in case there is a foreign risk in the export transaction.

5. Role of the Government in Promoting Exports Export promotion activities generally comprise: 1. Export service programs 2. Market development programs Export Enhancement Act of 1992 Export - Import Bank (Ex-Im Bank; see Exhibit 17-7) Tariff Concessions Foreign Trade Zones Foreign Sales Corporation (FSC)

5. Role of the Government in Promoting Exports (contd.) American Export Trading Company The Export Trading Company Act of 1982 Export Regulations: The Trade Act of 1974 The Foreign Corrupt Practices Act (FCPA) of 1977 COCOM (Coordinating Committee for Multilateral Exports) U.S. Antitrust Laws

5. Role of the Government in Promoting Exports (contd.) Tariffs and local laws of foreign governments which may include: tariffs, local laws relating to product standards and classification, and taxes.

6. Managing Imports – the Other Side of the Coin For organizations in the United States, importing is considerably easier than for most firms in the rest of the world. About 60 percent of the world’s trade is still denominated in U.S. dollars. Most of the time, a U.S. importer does not have to bother with hedging foreign exchange transactions or with trying to accumulate foreign currency to pay for imports.

6. Managing Imports – the Other Side of the Coin (contd.) Model of Importer Buyer Behavior (see Exhibit 17-8): Stage 1. Need recognition and problem formulation (triggered by competition and unavailability) Stage 2. Search (guided by country characteristics, vendor characteristics, and information sources) Stage 3. Choice (vendors evaluation and selection)

7. Mechanics of Importing Steps in Importing: Finding a bank that either has a branch in the exporter’s country or has a correspondent bank Establishing a letter of credit with the bank Deciding on the mode of transfer of goods from exporter to importer Checking compliance with national laws of the importing country Making allowances for foreign exchange fluctuations

7. Mechanics of Importing (contd.) Fixing liability of payment of import transactions and warehousing Import Documents and Delivery Entry documents filed by the consignee: The bill of lading Customs form 7533 Customs form 3461 Packing list Commercial invoice

7. Mechanics of Importing (contd.) Also accompanied by evidence that a bond is posted with customs to cover any potential duties, penalties, and taxes For Special Permit for Immediate Delivery, use Customs form 3461 for fast release after arrival. Import Duties in the United States: Ad valorem duty Specific duty Compound duty

7. Mechanics of Importing (contd.) Antidumping import duty Countervailing duty Duty drawback: Direct identification drawback Substitution drawback

8. Gray Markets Gray market channel refers to the legal export/import transaction involving genuine products into a country by intermediaries other than the authorized distributors. From the importer side, it is also known as “parallel imports.” Three conditions are necessary for gray markets to develop: 1. Products must be available in other markets. 2. Trade barriers must be low enough for parallel importers.

8. Gray Markets (contd.) 3. Price differentials among various markets must be great enough to provide the basic motivation for gray marketers. Such price differences arise for various reasons: Currency fluctuations Differences in market demand Legal differences Opportunistic behavior Segmentation strategy

8. Gray Markets (contd.) How to Combat Gray Market Activity (see Exhibit 17-9): Reactive Strategies: Strategic Confrontation Participation Price cutting Supply interference Promotion of gray market product limitations Collaboration

8. Gray Markets (contd.) Acquisitions Proactive Strategies: Product/service differentiation and availability Strategic pricing Dealer development Marketing information systems Long-term image reinforcement

8. Gray Markets (contd.) Establishing legal precedence Lobbying