Presentation on theme: "ECP 6701 Competitive Strategies in Expanding Markets"— Presentation transcript:
1 ECP 6701 Competitive Strategies in Expanding Markets Export and Import Strategies
2 ReadingsDaniels, Radebaugh, Sallivan, International Business, Chapter 17
3 Objectives Identify the key elements of export and import strategies Compare direct and indirect selling of exportsDiscuss the role of trade intermediariesIdentify 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 companyExport intensity is not positively correlated with company sizeThe largest exporters in the United States also are among the largest industrial corporationsSmaller 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 countriesthey tend to export to more dissimilar countries which are located further awaythey tend to export a larger percentage of their sales.The following figure summarizes the various phases of exporting.
9 Export StrategyEntry mode depends on ownership advantages of the company, location advantages of the market, and internalization advantages of integrating transactions within the companyCompanies that have lower levels of ownership advantages either do not enter foreign markets or use low-risk strategies such as exportingStrategic considerations affect the choice of exporting as an entry mode
10 Designing an Export Strategy In designing an export strategy, a company mustAssess export potentialGet expert counselingSelect market or marketsSet goals and get the product to market
13 The Import StrategyImporters need to be concerned with procedural and strategic issuesAn 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.DocumentationImporters 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 capabilitiesCompanies may market their products either directly or indirectly through external specialists or intermediary organizations
16 Export Intermediaries Direct SellingDirect selling involves sales representatives, agents, distributors, or retailersA sales representative usually operates on a commission basisA distributor is a merchant who purchases the products from the manufacturer and sells them at a profit
17 Export Intermediaries Indirect SellingCommission agents work for the buyerExport Management Companies (EMCs) provide export services for a specific exporter or group of exportersExport Management CompaniesEMCs 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 supplyETCs can be formed byCompetitors can be exempt from antitrust lawsState and local governmentsMoney-center banksMajor corporations
19 Foreign Freight Forwarders A foreign freight forwarder is an export or import specialist dealing in the movement of goods from producer to consumerThe typical freight forwarder is the largest export intermediary in terms of value and weight handledAir and Ocean FreightOcean 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 countriesKey export documents includepro forma invoicecommercial invoicebill of ladingshipper’s export declarationand export packing list
21 Export Financing Financial issues relating to exporting: Product price Method of paymentFinancing of receivablesInsurance
22 Product Price Export pricing is influenced by: Exchange rates Transportation costsDutiesMultiple distribution channelsInsurance costsBanking costs
23 Methods of payment Methods of payments are Cash in advance Letter of creditDocumentary collection or draftOpen accountCountertrade
24 Export Financing Financing receivables for US exporters Ex-Im Bank provides direct loans to importers or guarantees to financial institutionsThe Small Business Administration (SBA) guarantees long-term financing to small exporters
27 Export FinancingA letter of credit obligates the buyer’s bank to pay the exporterA revocable letter of credit may be changed by any of the parties to the agreementAn irrevocable letter of credit requires all parties to agree to a change in the documentsA confirmed irrevocable letter of credit adds an obligation to pay for the exporter’s bank
28 CountertradeCountertrade refers to any one of a number of different arrangements by which goods and services are traded for each otherCountertrade often takes place because of a foreign-exchange shortageBarter occurs when goods are traded for goodsIn 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
30 SummaryThe 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 SummaryAs 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 SummaryThere 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.