MMIT
Modes of International Business
Exporting/Importing
International vs. Domestic
OPPORTUNITIES
1.
2.
3.
4.
Seek opportunities for growth through market
diversification
Gain new ideas about products, services, and
business methods
Better serve key customers that have relocated
abroad
Be closer to supply sources, benefit from global
sourcing advantages, or gain
flexibility in the
sourcing of products
International vs. Domestic
OPPORTUNITIES
5. Gain access to lower-cost or better-value
factors of production
6. Develop economies of scale in sourcing,
production, marketing, and R&D
7. Confront international competitors more
effectively or thwart the growth of
competition in the home market
FDI Based Explanations:
Dunning’s Eclectic Paradigm
Three conditions determine whether or not a company will
internalize via FDI:
1.
Ownership-specific advantages – knowledge, skills,
capabilities, relationships, or physical assets that form the basis for
the firm’s competitive advantage
2.
Location-specific advantages – advantages associated
with the country in which the MNE is invested, including natural
resources, skilled or low cost labor, and inexpensive capital
3.
Internalization advantages – control derived from
internalizing foreign-based manufacturing, distribution, or other
value chain activities
Factors Relevant to Choice of
Foreign Market Entry Strategy
1.
2.
3.
4.
5.
6.
The goals and objectives of the firm, such as desired
profitability, market share, or competitive positioning;
The particular financial, organizational, and technological
resources and capabilities available to the firm;
Unique conditions in the target country, such as legal, cultural,
and economic circumstances, as well as distribution and
transportation systems;
Risks inherent in each proposed foreign venture in relation to
the firm’s goals and objectives in pursuing
internationalization;
The nature and extent of competition from existing rivals,
and from firms that may enter the market later;
The characteristics of the product or service to be offered to
customers in the market.
Participants in International Business
1.
2.
3.
The focal firm – initiator of IB transaction, including
MNEs and SMEs
Distribution channel intermediary – specialist firm
providing logistics and marketing services in the
international supply chain
Facilitator – a firm providing special expertise in
legal advice, banking, customs clearance, market
research, and similar areas
Types of Focal Firms





Multi-National Enterprise
Joint-Venture
SME
Born Global Firm
NGOs
Foreign Market Entry Strategies of Focal Firms
Cross-border business transactions can be grouped into
three categories:
1.
2.
3.
Trade: buying and selling of products
Contractual exchange of services or intangibles:
buying and selling of services
Equity ownership in foreign operations:
establishing foreign presence through direct
investment
MODES of International Business Activities







Exporting (importing)
Global sourcing (out-s, in-s, offshore)
Contract manufacturing
Licensing and Franchising (mgmt. contract)
Foreign Direct Investment (FDI)
Strategic Alliances (Joint Venture)
Portfolio Investment
Exporting
Advantages
Disadvantages

Relatively low financial exposure


Permit gradual market entry

Acquire knowledge about local
market



Avoid restrictions on foreign
investment
Vulnerability to tariffs and NTBs
Logistical complexities
Potential conflicts with distributors
Export Documentation







quotation or pro forma invoice
commercial invoice is the actual demand for payment issued by
the exporter. It includes a description of the goods, the
exporter’s address, delivery address, and payment terms.
A packing list, indicates the exact contents of the shipment.
The bill of lading is the basic contract between exporter and
shipper.
The shipper's export declaration ("ex-dec”) lists the contact
information of the exporter and the buyer (or importer), as
well as a full description, declared value, and destination of
the products being shipped.
The certificate of origin indicates the country where the product
originates.
insurance certificate
Incoterms
Who pays for what?
EXW
Load to
truck
Unload
Unload
Landing
Landing onto
Transport from truck charges at Transport charges at trucks
Transport
Exportto
at the
origin's
to
importer's from the to
Entry duty
exporter's origin's
port,
import's port,
importers' destinatio
Customs Entry payment port
port
Loading port
Unloading port
n
Insurance clearance Taxation
No
No
No
No
No
No
No
No
No
No
No
No
Main Carriage NOT Paid By Seller (Free… Carrier/Alongside Ship/On Board)
FCA
Yes
Yes
Yes
No
No
No
No
No
No
No
No
No
FAS*
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No
FOB*
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
Main Carriage Paid By Seller (Cost and Freight … and Insurance… / Carriage Paid to … and Insurance… )
CFR*
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
CIF*
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Yes
No
No
CPT
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
CIP
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
Yes
No
No
Arrival (Delivery Duty….. Unpaid/Paid)
DEQ*
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
No
DDU
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
DDP
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
* for ship only (+ named Port), others for all carriers (+ named Place)
Methods of Payment -- Export




Cash in Advance
Letter of Credit
Draft
Open Account
Global Sourcing



Importing
Outsourcing
Contract Manufacturing
Contract Manufacturing





Hiring firm approaches Contract Manufacturer with
Design or Formula
Type of outsourcing
Bidding Process
$ 233 billion business
Wistron, HTC
Countertrade
20




Payments are made in kind rather than cash.
The focal firm is engaged simultaneously in exporting
and importing.
Also known as “two-way” or “reciprocal” trade
Used when conventional means of payment are
difficult, costly, or nonexistent.
Hard currency unavailable
 Developing country doesn’t have expertise to sell in foreign
markets

Examples of Countertrade Transactions
22





Caterpillar received caskets from Columbian customers and
wine from Algerian customers in return for selling them
earthmoving equipment.
Goodyear traded tires for minerals, textiles, and agricultural
products.
Coca-Cola sourced tomato paste from Turkey, oranges from
Egypt, and beer from Poland in order to contribute to national
exports in the countries it conducts business,.
Control Data Corporation accepted Christmas cards from the
Russians in a countertrade deal.
Pepsi-Cola acquired the rights to distribute Hungarian motion
pictures in the West in a countertrade transaction.
Types of Countertrade
23



Barter refers to the direct exchange of goods without
any money. Or a mixture of goods and cash is a
compensation deal.
Back-to-back transaction, offset agreements, or
counterpurchase involves two distinct contracts,
contingent on each other.
Buy-back agreement, the seller agrees to supply
technology or equipment to construct a facility and
receives payment in the form of goods produced by
the facility.