1. Import/Export Basics (Ch. 2)

2. Beginning Steps 1.Terminology 2.Homework 3.Choosing the product 4.Making contacts 5.Market research 6.What’s the bottom line?

3. 1. Import/Export Terminology International trade uses distinctive vocabulary Terms & acronyms guide, regulate, and facilitate trade Commonly used terms: ▫Glossary: pgs. 351-385

4. 2. Homework RESEARCH! What should you research? ▫the product ▫profit potential Research is a good investment, not a waste of time (even if you already have some experience)

5. 3. Choosing the Product Familiarity with… ▫the product ▫the industry Advantage in… ▫knowledge ▫contacts ▫language/culture

6. 3. Choosing the Product Marketing decisions ▫product standards (ISO)  ISO: International standards for business, government, society ▫technical specifications and codes  220V, 50Hz  120V, 60Hz ▫quality and product life cycle  developed vs. less developed countries ▫other uses  e.g., motorcycles

7. 4. Making Contacts Who are sources of information? Who can I contact? ▫import: consulate office, embassy, government ▫export: industry publications, department of commerce

8. 4. Making Contacts Who can I contact to market a product/service? ▫import: trade shows, direct mailers, Internet ▫export: trade shows, retailers, United Nations List of trade shows on Alibaba.comAlibaba.com

9. 5. Market Research Your purpose is to make a profit. Thus, you need to know whether or not your product will survive in a certain market. You have to do market research! Read through the import/export checklist on p. 22-24. Which questions do you think are most important? Share with your partner.

10. 6. What’s the Bottom Line? Make a profit! 1.Initial quotations 2.Terms of sale 3.The market channel 4.Pricing

11. 1. Initial Quotations Letter of Inquiry a.k.a. Request for Quotation (RFQ) This is the first step Who sends the letter? –Importer to exporter What is in the letter? – Importer asks exporter to send the importer a pro forma invoice. Look at sample RFQ on p. 25

12. 1. Initial Quotations PRO FORMA INVOICE exporter to importer A temporary invoice which includes product description and specifications, costs, price, quantity, shipping costs, delivery terms, and procedures. Purpose: describes details of sale in advance; obtain letter of credit Look at p. 27 for a sample pro forma invoice

13. 2. Terms of Sale Pricing terms “Defines the geographical point where the risks and costs of the exporter and importer begin and end.” –p.26 INCOTERMS: International Commerce Terms Purpose: prevent misunderstandings of responsibilities and liabilities

14. INCOTERMS Most commonly used: EXW FAS CIF DAF

15. EXW EX = from; W = works (factory, warehouse) the SELLER (exporter)the BUYER (importer) is responsible for packing and labeling merchandise and having it ready for loading (seller doesn’t load) is responsible for all other risks and costs from the delivery point to the final destination

16. FAS: Free Alongside Ship the SELLER (exporter)the BUYER (importer) is responsible for packing and labeling merchandise, having it ready for loading, placing it at the side of the ship, and clearing it for export is responsible for all transportation costs and risk of loss of goods FAS Long Beach see p. 27

17. CIF: Cost, Marine Insurance, Freight the SELLER (exporter)the BUYER (importer) is responsible for shipping, insurance and other costs up to the port of final destination is responsible for risks and costs from the port of destination

18. DAF: Delivered at Frontier the SELLER (exporter)the BUYER (importer) is responsible to hire someone to take goods to a border crossing point and clear them for export is responsible for picking up the goods, carrying them across the border, and clearing them for importation

19. 3. The Market Channel see p. 30

20. 4. Pricing New/unique product  can be a high price Gain a foothold  Marginal Cost Pricing ▫set market price at the level just above where a loss would occur Dumping: If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product.  ILLEGAL under GATT (General Agreement on Tariffs and Trade) Pricing Model: p. 31

21. 4. Pricing Which currency will they use? ▫depends on volume of transaction ▫buyer and seller mutually agree ▫U.S. dollar or Euros

22. 4. Pricing Commissions ▫export middleman  7 – 20% ▫import middleman (distributor)  5 – 20% Example of cost elements  p. 32 (see difference between import/export cost sheet) ▫key issues (commission):  price of the product  the number of units

23. 4. Pricing www.export.gov www.usitc.gov U.S. Harmonized Tariff Schedule ▫international uniformity in the presentation of customs tariffs and foreign trade statistics

24. 4. Pricing Export: certificate of origin, packing, labeling, sales commission, inland freight, shipping, insurance Import: customs duty, customs broker, tariffs, repackaging, letter of credit, advertising, promotion, overhead, salaries p. 33/34

25. 4. Pricing Case study: Guitars p. 213 Rates of duty: ▫General:  most favored nations  normal trade relations (NTR) ▫Special:  see Table 8.3 ▫2:  North Korea and Cuba