Import/Export Basics (Ch. 2)
Beginning Steps
1.
2.
3.
4.
5.
6.
Terminology
Homework
Choosing the product
Making contacts
Market research
What’s the bottom line?
1. Import/Export Terminology
• International trade uses distinctive vocabulary
• Terms & acronyms guide, regulate, and facilitate
trade
• Commonly used terms:
▫ Glossary: pgs. 351-385
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)
3. Choosing the Product
•
Familiarity with…
▫
▫
•
the product
the industry
Advantage in…
▫
▫
▫
knowledge
contacts
language/culture
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
4. Making Contacts
• Who are sources of information? Who can I
contact?
▫ import: consulate office, embassy, government
▫ export: industry publications, department of
commerce
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.com
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.
6. What’s the Bottom Line?
•Make a profit!
1.
2.
3.
4.
Initial quotations
Terms of sale
The market channel
Pricing
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
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
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
INCOTERMS
•
•
•
•
•
Most commonly used:
EXW
FAS
CIF
DAF
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
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
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
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
3. The Market Channel
• see p. 30
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
4. Pricing
• Which currency will they use?
▫ depends on volume of transaction
▫ buyer and seller mutually agree
▫ U.S. dollar or Euros
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
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
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
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