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)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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34. EXPORTS, IMPORTS, and TRADE BALANCE

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.

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