Global Marketing
Chapter 8 Importing, Exporting, and Sourcing
1) The success of Chinese and Vietnamese exporters and the EU's subsequent imposition of
tariffs, serves as a reminder of the impact exporting and importing can have on national and
region economies.
Answer: TRUE
Page Ref: 236
2) The terms 'export selling' and 'export marketing' are interchangeable.
Answer: FALSE
Page Ref: 237
3) 'Export selling' involves tailoring various elements of the marketing mix to global market
requirements.
Answer: FALSE
Page Ref: 237
4) Export marketing requires an understanding of the target market environment.
Answer: TRUE
Page Ref: 237
5) After the research effort has zeroed in on potential markets, there is no substitute for a
personal visit to size up the market firsthand and begin the development of an actual export
marketing program.
Answer: TRUE
Page Ref: 237
6) One way to visit a potential market is through a trade show or a state- or federally-sponsored
trade mission.
Answer: TRUE
Page Ref: 238
7) Locating market is one of the potential export problems.
Answer: TRUE
Page Ref: 238
8) It was found by research that even the most experienced exporters express lack of confidence
in their knowledge about shipping arrangements, payment procedures, and regulations.
Answer: TRUE
Page Ref: 239
9) Officially, the EU tariffs on Chinese and Vietnamese shoe imports are known as anti-dumping
duties.
Answer: TRUE
Page Ref: 236
10) The four tigers — Singapore, South Korea, Taiwan and Hong Kong — learned from the
Japanese experience and built strong export-based economies of their own.
Answer: TRUE
Page Ref: 240
11) Tax incentives treat earnings from export activities preferentially either by applying a lower
rate to earnings from these activities or by refunding taxes already paid on income associated
with exporting.
Answer: TRUE
Page Ref: 240
12) The WTO recently ruled that America's foreign sales corporation (FSC) law was acceptable
to signatory countries.
Answer: FALSE
Page Ref: 240
13) The Common Agricultural Policy (CAP) determines the level of subsidies granted to farmers
in Latin America.
Answer: FALSE
Page Ref: 241
14) In an effort to facilitate exports, countries are designating certain areas as 'free trade zones'
(FTZ) or 'special economic zones' (SEZ).
Answer: TRUE
Page Ref: 241
15) Tariffs can be thought of as the "three R's" of global business: rules, rigor, and regulations of
individual countries.
Answer: FALSE
Page Ref: 243
16) The Harmonized Tariff System (HTS) is currently the dominant system for determining
tariffs.
Answer: TRUE
Page Ref: 243
17) Under the HTS, only U.S. exports valued at more than $2,500 are counted in export
statistics.
Answer: TRUE
Page Ref: 243
18) The Harmonized Tariff System (HTS) has eliminated virtually all problems associated with
assigning tariff classifications to new products.
Answer: FALSE
Page Ref: 243
19) According to the recent import regulations in the United States, action figures that represent
non-human creatures such as monsters or robots are categorized as toys and qualified for lower
duties than human figures that are classified as dolls.
Answer: FALSE
Page Ref: 244
20) A nontariff barrier (NTB) is a hidden trade barrier which is a deterrent or obstacle to the sale
of products in a foreign market.
Answer: TRUE
Page Ref: 244
21) The Buy American Act of 1933 which stipulates that U.S. federal agencies must buy articles
produced in the United States unless domestically produced goods are not available is an
example of discriminatory procurement policies.
Answer: TRUE
Page Ref: 244
22) The Fly American Act is an example of a nontariff barrier.
Answer: TRUE
Page Ref: 244
23) The NTR (normal trade relations) status is really a misnomer since the United States has
given that status to some 180 countries around the world.
Answer: TRUE
Page Ref: 245
24) A preferential tariff is a reduced tariff rate applied to imports from only GATT members.
Answer: FALSE
Page Ref: 246
25) When Honda's U.S. manufacturing subsidiaries purchase parts from Japan, customs
authorities in the United States have the right to scrutinize the transfer price to make sure it is a
fair reflection of market value.
Answer: TRUE
Page Ref: 247
26) An ad valorem duty is expressed as a percentage of the value of goods.
Answer: TRUE
Page Ref: 247
27) CVDs are duties imposed on imported videodiscs.
Answer: FALSE
Page Ref: 248
28) Foreign purchasing agents are also referred to as jobbers.
Answer: FALSE
Page Ref: 248
29) "Piggyback exporter," "cooperative exporter," and "export vendor" are all terms used to
describe an export broker.
Answer: FALSE
Page Ref: 249
30) The cooperative exporters are sometimes referred to as 'mother hen.'
Answer: TRUE
Page Ref: 249
31) In an export/import transaction requiring a letter of credit (L/C), the exporter's (seller's) bank
can be known as the "advising" bank, the "confirming" bank, or both.
Answer: TRUE
Page Ref: 252
32) When a letter of credit is used in an import/export transaction, the payment obligation lies
with the importer's bank rather than the importer itself.
Answer: TRUE
Page Ref: 252
33) Goods that are sold on open account are paid for before delivery.
Answer: FALSE
Page Ref: 254
34) The Customs Trade Partnership Against Terrorism (C-TPAT) recognizes that U.S. Customs
and Border Protection (CBP) is responsible for screening import cargo transactions.
Answer: TRUE
Page Ref: 255
35) Duty drawback refers to refunds of duties paid on imports that are processed or incorporated
into other goods and then reexported.
Answer: TRUE
Page Ref: 255
36) Outsourcing means shifting undesirable jobs or work assignments to another company to cut
costs. When the outsourced work moves to another country, the terms 'global outsourcing' or
'offshoring' are used.
Answer: FALSE
Page Ref: 255
37) One of the keys to the success of The Swatch Group's Swatch watch brand has been
manufacturing in low wage Asian countries.
Answer: FALSE
Page Ref: 255-256
38) The application of advanced computer controls and other new manufacturing technologies
has reduced the proportion of labor relative to capital for many businesses.
Answer: TRUE
Page Ref: 257
AACSB: Use of IT
39) Dell Computer recently rerouted some of its call center jobs back to the United States after
complaints from key business customers that Indian tech support workers were offering scripted
responses and having difficulty answering complex problems.
Answer: TRUE
Page Ref: 257
40) In deciding where to source a product or locate a manufacturing activity, a manger must take
into account foreign exchange rate trends in various parts of the world.
Answer: TRUE
Page Ref: 260
41) Export marketing does not require:
A) an understanding of the target market environment.
B) the use of marketing research.
C) identification of market potential.
D) a selling approach.
E) any decisions concerning product design.
Answer: D
Page Ref: 237-238
42) Which of the following is not true about trade shows?
A) By attending, company representatives can find buyers outside the home country.
B) They can provide important competitor information.
C) The federal government has exclusive rights to sponsor U.S. trade shows.
D) Company representatives can establish contacts with agents and distributors..
E) find distributors and agents
Answer: C
Page Ref: 238
43) According to percent market share of top ten apparel exporting countries to the United
States, which country ranked as number one in 2008?
A) Taiwan
B) China
C) Mexico
D) India
E) Honduras
Answer: B
Page Ref: 240
44) The Ministry of International Trade and Industry (MITI) has helped devise export strategies
for companies in:
A) Singapore.
B) South Korea.
C) Taiwan.
D) Hong Kong.
E) Japan.
Answer: E
Page Ref: 240
45) Which of the following was a major U.S. tax incentive for exporters that the WTO recently
ruled was an illegal subsidy?
A) NTR
B) CVD
C) FSC
D) NTB
E) HTS
Answer: C
Page Ref: 240
46) The export and import process can entail red tape and bureaucratic delays. In an effort to
facilitate exports, countries are designating certain areas as:
A) import control zone.
B) special tariff zone.
C) global business zone.
D) free trade zone.
E) duty free zone.
Answer: D
Page Ref: 241
47) Which of the following is described as the three R's of global business: rules, rate schedules,
and regulations?
A) quotas
B) tariffs
C) NTBs
D) NTR
E) Duties
Answer: B
Page Ref: 243
48) Which of the following refers to a system of farm subsidies in Europe?
A) CVD
B) FSC
C) CAP
D) HTS
E) NTR
Answer: C
Page Ref: 241
49) Which of the following establishes classification numbers that must be used by importers and
exporters?
A) NTR
B) CVD
C) FSC
D) NTB
E) HTS
Answer: E
Page Ref: 243
50) In the mid-1990s, officials at South Korea's Shinsegi Telecomm were reportedly under
pressure to restrict purchases of foreign-made equipment. Such pressure from the Ministry of
Information and Communications would be consistent with plans to foster development of a
domestic high-tech telecommunications industry. If allegations about such pressure were true,
they would be evidence of ________ by the South Korean government.
A) discriminatory procurement policies
B) the use of piggyback marketing
C) countervailing duties
D) countertrade deals
E) non-tariff barrier
Answer: A
Page Ref: 244-245
51) In an effort to attract assembly operations, Brazil allows certain product components to be
imported at reduced tariff rates. This is an example of:
A) offsets.
B) preferential tariffs.
C) the effect of the Customs Valuation Code.
D) an EMC.
E) discriminatory procurement.
Answer: B
Page Ref: 246-247
52) A duty that represents a certain percentage of the value of a particular product is a(n):
A) specific duty.
B) ad valorem duty.
C) BTN duty.
D) "schedule B" duty.
E) antidumping duties.
Answer: B
Page Ref: 247
53) The "specific" duty is expressed as follows except:
A) US$0.50 per pound.
B) US$1.00 per pair.
C) US$0.25 per square yard.
D) US$0.50per cubic feet.
E) none of the above
Answer: E
Page Ref: 247
54) Which of the following types of duties would be imposed on a company whose home
country government provided export subsidies?
A) ad valorem duty
B) countervailing duty
C) antidumping duty
D) specific duty
E) customs duty
Answer: B
Page Ref: 248
55) Sweden applies a system to certain categories of imported agricultural products which is
referred to as:
A) temporary surcharges.
B) ad valorem duty.
C) variable import levies.
D) specific duty.
E) countervailing duty.
Answer: C
Page Ref: 248
56) Which of the following is sometimes referred to as a 'buyer for export' or an 'export
commission house' and operates on behalf of a buyer from a foreign country?
A) foreign purchasing agent
B) export broker
C) export merchant
D) export management company
E) freight forwarder
Answer: A
Page Ref: 248
57) Which of the following receives a fee for bringing together an exporter and a buyer in
another country?
A) foreign purchasing agent
B) export broker
C) export merchant
D) export management company
E) freight forwarder
Answer: B
Page Ref: 248
58) Which of the following, sometimes known as a 'jobber,' buys staples or unbranded products
that are in demand in various parts of the world?
A) foreign purchasing agent
B) export broker
C) export merchant
D) export management company
E) freight forwarder
Answer: D
Page Ref: 248-249
59) Which of the following acts as the export arm of one or more U.S. manufacturers and helps
establish an overseas market for a company's products?
A) foreign purchasing agent
B) export broker
C) export merchant
D) export management company
E) freight forwarder
Answer: D
Page Ref: 248-249
60) Which of the following specializes in traffic operations, customs clearance, and tariff rates
and schedules?
A) foreign purchasing agent
B) export broker
C) export merchant
D) export management company
E) freight forwarder
Answer: E
Page Ref: 249
61) The possible arrangements of the responsibilities for handling exports include all of the
following except:
A) as a part-time activity performed by domestic employees.
B) through an export partner affiliated with the domestic marketing structure.
C) through an export department within an international division.
D) through an export department that is independent of the domestic marketing structure.
E) through an export department of an embassy in foreign country.
Answer: E
Page Ref: 249-250
62) Direct representation, as opposed to representation by independent intermediaries for
exporting in the market country, has several advantages which does not include:
A) facilitates control and communications.
B) allows decisions concerning program development and resource allocation.
C) benefits when a product is not yet established in a market.
D) ensures marketer's interest and special efforts.
E) helps selling products directly to the consumer in the market country.
Answer: E
Page Ref: 251
63) Which of the following offers a company the best assurance of being paid for exported
goods?
A) a letter of credit
B) a "piggyback" arrangement
C) a swap
D) an in-house export organization
E) a certified check
Answer: A
Page Ref: 252-253
64) An irrevocable letter of credit transfers the payment obligation for an export deal from the
buyer to the buyer's _______:
A) in-house export organization
B) bank
C) freight forwarder
D) credit union
E) checking account
Answer: B
Page Ref: 252-253
65) The international standard by which letters of credit (L/Cs) are interpreted is known as the
________ 500.
A) UCP
B) NTR
C) FSC
D) NTB
E) HTS
Answer: A
Page Ref: 252-253
66) Which set of documents generally represents the minimum documentation required to clear a
shipment through customs?
A) packing list, commercial invoice
B) bill of exchange, commercial invoice
C) certificate of origin, bill of exchange
D) packing list, insurance certificate
E) letter of credit, commercial invoice
Answer: B
Page Ref: 252-253
67) Which of the following correctly states the role of banks in import/export transactions
involving a letter of credit (L/C)?
A) The importer's bank is the advising and/or confirming bank; the exporter's bank is the issuing
bank.
B) The exporter's bank is the advising and/or confirming bank; the importer's bank is the issuing
bank.
C) The exporter's bank is the advising, confirming, and issuing bank.
D) The importer's bank is the advising, confirming, and issuing bank.
E) none of the above
Answer: B
Page Ref: 252-253
68) In which of the following forms of export financing does a bank assume a financial
obligation?
A) with an L/C but not a documentary collection.
B) with a documentary collection but not an L/C.
C) neither an L/C nor a documentary collection requires a bank to assume financial obligation.
D) with either an L/C or a collection letter
E) with both an L/C and a documentary collection.
Answer: B
Page Ref: 252-253
69) Which of the following correctly states the role of banks in import/export transactions
involving a letter of credit (L/C)?
A) The importer's bank is the advising and/or confirming bank; the exporter's bank is the issuing
bank.
B) The exporter's bank is the advising and/or confirming bank; the importer's bank is the issuing
bank.
C) The exporter's bank is the advising, confirming, and issuing bank.
D) The importer's bank is the advising, confirming, and issuing bank.
E) The exporter's bank is neither advising nor confirming bank.
Answer: B
Page Ref: 252-253
70) Which of the following documents represents title to goods in an export transaction?
A) bill of lading
B) invoice
C) packing list
D) certificate of origin
E) insurance certificates
Answer: A
Page Ref: 254
71) Which of the following financing methods would be used by an exporter that enjoys good
relations with a buyer in a well-established market?
A) letter of credit
B) cash in advance
C) sales on open account
D) barter
E) arrival draft
Answer: C
Page Ref: 254
72) Which of the following arranges export financing payment methods in descending order
starting with the most secure/reliable and ending with the least secure/reliable:
A) sales on open account→cash in advance→documentary credit (L/C) →documentary
collection (draft)
B) documentary credit (L/C)→sales on open account→documentary collection (draft)→cash in
advance
C) documentary collection (draft)→documentary credit (L/C)→cash in advance→sales on open
account
D) cash in advance→documentary credit (L/C)→documentary collection (draft)→sales on open
account
E) none of the above
Answer: D
Page Ref: 252-254
73) Which of the following methods of payment is also known as a "draft"?
A) letter of credit
B) documentary collection
C) cash in advance
D) sales on open account
E) L/C
Answer: B
Page Ref: 254
74) Which of the following completely eliminates the risk of nonpayment by an importer or a
bank in an international transaction?
A) documentary credit (letter of credit)
B) documentary collection
C) cash in advance
D) sales on open account
E) draft
Answer: C
Page Ref: 254
75) Which of the following methods of financing would be used if the exporting and importing
parties had a strong, long-standing relationship?
A) documentary credit (letter of credit)
B) documentary collection
C) cash in advance
D) sales on open account
E) bank draft
Answer: D
Page Ref: 254
76) In the post-September 11 business environment in the United States, imports have come
under increased security. One of the initiatives taken in the interest of national security is:
A) NAFTA.
B) C-TPAT.
C) WTO.
D) NTB.
E) FSC.
Answer: B
Page Ref: 255
77) The organizational decision to purchase production inputs, components, or finished goods
from domestic or foreign producers is known as the ________ decision:
A) import/export
B) NTB
C) preferential
D) sourcing
E) security
Answer: D
Page Ref: 255-256
78) The chief executives of Swiss Swatch Group and Japanese Canon would like to:
A) outsource all of the manufacturing units overseas in order to save money.
B) outsource a majority of the manufacturing functions overseas.
C) retain a majority, if not all, of the manufacturing in home country.
D) establish "call centers" in developing countries in order to save labor costs.
E) outsource a full line of new products only.
Answer: C
Page Ref: 256-257
79) The furniture industry has become one of the fastest-growing sectors of China's economy.
Furniture imports are flooding into the United States from China. This can be attributed to:
A) the quality of furniture is better than those made in Europe.
B) American tastes in décor have changed.
C) China's low labor rates translate into reasonable prices for consumers.
D) China can survive tough competition.
E) replacement parts are readily available from China.
Answer: C
Page Ref: 258
80) If the dollar, the yen, or the euro becomes seriously overvalued, a company with a
production capacity in other locations can achieve competitive advantage by:
A) buying different currencies before major fluctuations take place.
B) conducting transactions in different currencies of the world.
C) shifting production among different sites.
D) cutting down production and waiting until the currency rate is reasonable.
E) reducing production and labor force simultaneously.
Answer: C
Page Ref: 260
81) The success of Chinese and Vietnamese exporters and the EU's subsequent imposition of
tariffs serve as a reminder of the impact exporting and importing can have on national and
regional economies. Discuss the importance of export marketing and show how it differs from
export selling. What are the requirements that have to be met in order for a company to be
successful in export marketing?
Answer: Export marketing is the integrated marketing of goods and services that are destined for
customers in international markets. Export selling does not involve tailoring the product, the
price, or the promotional material to suit the requirements of global markets. The only marketing
mix that gets impacted is location or place. As companies mature in the global marketplace or as
new competitors enter the market, export marketing becomes important. Export marketing
targets the customer in the context of the total market environment. The export marketer does not
simply take the domestic product "as is" and sells it to the international customers. The product
offered in the home market is just the starting point. Based on the preferences of the international
target markets, many modifications and adaptations are necessary. Also, the export marketer sets
prices to fit the market and does not merely sell at the home-country price. There are several
charges in export such as packaging, transportation, and financing that have to be taken into
account, which in turn will have an impact on the prices charged in other markets. The price
charged in one market may be completely different than the one that is charged in another
country, for the same product. The export marketing requires: (a) a thorough understanding of
the target market environment; (b) the use of marketing research; (c) the identification of market
potential; and (c) decision concerning product design, pricing, distribution and channels,
advertising, and communication.
Page Ref: 236-237
82) Governments in Japan, Singapore, South Korea and China have supported exports for years
which have tremendously helped their economies. Since exporting is a very important
component of a countries' business strategy many government programs are offered that support
exports. Describe ways by which governments can support exports.
Answer: Countries benefit a lot based on their facilitating of export and import business. For
example, China has attracted increased foreign investment from DaimlerChrysler, HewlettPackard, GM, and other similar corporations by accommodating them to set up production
facilities that will support local sales, as well as exports to world markets. Governments
commonly use four activities to support and encourage firms that engage in exporting. These are
tax incentives, subsidies, export assistance, and free trade zones. Tax incentives treat earnings
from export activities preferentially either by applying a lower rate to earnings or by refunding
taxes already paid on income associated with exporting. Also, tax benefits are offered by
governments which may include tax exemption or tax deferral on export income, accelerated
depreciation of export-related assets, and generous tax treatment of overseas market development
activities. Governments also support export performance by providing outright subsidies.
Subsidies are direct or indirect financial contributions or incentives that benefit producers.
Governments also provide assistance to exporters. Companies can avail themselves of a great
deal of governmental information concerning the location of markets and credit risks. Assistance
may also be oriented toward export promotion. Various agencies at different levels hold trade
fairs and trade missions designed to promote sales to foreign customers. In an effort to facilitate
exports, countries are designating certain areas as "free trade zones" and particular "special
economic zones." These zones are geographic entities that offer manufacturers simplified
customs procedures, operational flexibility, and a general environment of relaxed regulations.
Thus, these ways are very helpful and have helped several companies.
Page Ref: 240-242
83) Governmental actions at times are designed to discourage imports and block market access.
Why do governments want to curtail imports? Explain some of the barriers that are placed to
discourage imports.
Answer: In order to promote domestic industries and agriculture, and restrict the inflow of
materials from un-favored nations, some governments impose certain barriers. The tariffs which
can be regarded as the three R's of global business: rules, rate schedules, and regulations are
imposed by countries. Duties can be imposed on goods and services, thereby making it difficult
for importers to import as well as for consumers to buy. A Harmonized Tariff System (HTS) bas
been adopted by the majority of trading nations, under which importers and exporters have to
determine the correct classification number for a given product or service that will cross borders.
This classification helps in the identifying of the product and applicable tariff. A nontariff (NTB)
can also be imposed which is any measure other than a tariff that is a deterrent or obstacle to the
sale of products in a foreign market. This includes quotas, discriminatory procurement policies,
restrictive customs procedures, arbitrary monetary policies, and restrictive regulations. A quota is
a government-imposed limit or restriction on the number of units or the total value of a particular
product or product category that can be imported. In addition, discriminatory procurement
policies can take the form of government rules and administrative regulations specifying that
local vendors or suppliers receive priority consideration. Customs procedures are also considered
restrictive if they are administered in a way that makes compliance difficult and expensive.
Discriminatory exchange rate policies are imposed to distort trade in much the same way as
selective import duties and export subsidies. Finally, restrictive administrative and technical
regulations can create barriers to trade. These may take the form of antidumping regulations,
product size regulations, and safety and health regulations. Some of these regulations are
intended to keep out foreign goods; others are directed toward legitimate domestic objectives.
Page Ref: 243-245
84) Why does the tariff system vary from country to country? Explain, giving examples of tariffs
imposed by the United States with particular emphasis on preferential tariffs. What are the
conditions under which GATT allows the use of preferential tariffs?
Answer: Tariff systems provide either a single rate of duty for each item applicable to all
countries or two or more rates, applicable to different countries or groups of countries. The
single-column tariff is the simplest type of tariff. It includes a schedule of duties in which the
rate applies to imports from all countries on the same basis. Under the two-column tariff the first
column includes "general" duties plus "special" duties indicating reduced rates determined by
tariff negotiations with other countries. Rates agreed upon by "convention" are extended to all
countries that qualify for normal trade relation (NTR). The United States have given NTR status
to some 180 countries around the world. A preferential tariff is a reduced tariff rate applied to
imports from certain countries. GATT prohibits the use of preferential tariffs, with three major
exceptions. First are historical preference arrangements such as the British Commonwealth
preferences and similar arrangements that existed before GATT. Second, preference schemes
that are part of a formal economic integration treaty, such as free trade areas or common markets,
are excluded. Third, industrial countries are permitted to grant preferential market access to
companies based in less-developed countries.
Page Ref: 245-247
85) What are customs duties? How do they work in controlling imported goods? Discuss in light
of the different categories of customs duties.
Answer: There are two main categories of customs duties. Their calculation method is the
differentiating factor. They may be calculated either as a percentage of the value of the goods (ad
valorem duty), as a specific amount per unit (specific duty), or as a combination of both of these
methods. An ad valorem duty is expressed as a percentage of the value of goods. The definition
of customs value varies from country to country. An exporter has to determine the duty
applicable and the method used for calculations. For countries under GATT conventions the
customs value is landed cost, insurance, and freight amount at the port of importation. On the
other hand a specific duty is expressed as a specific amount of currency per unit of weight,
volume, length, or other units of measurement. Specific duties are usually expressed in the
currency of the importing country, but there are exceptions, particularly in countries that have
experienced sustained inflation. Both ad valorem and specific duties are occasionally set out in
the custom tariff for a given product. Compound or mixed duties provide for specific, plus ad
valorem, rates to be levied on the same articles.
Page Ref: 247
86) What are the differences between antidumping and countervailing duties? Under what
conditions are these duties imposed?
Answer: Dumping essentially refers to the sale of merchandise in export markets at unfair
prices. In order to offset the impact of dumping and to penalize guilty companies, most countries
have introduced legislation providing for the imposition of antidumping duties. These duties are
levied if injury is caused to domestic producers. Such duties are normally imposed as special
additional import charges equal to the dumping margin. They are almost invariably applied to
products that are also manufactured or grown in the importing country. In the United States,
antidumping duties are assessed after the commerce department finds a foreign company guilty
of dumping and the International Trade Commission rules if the dumped products injured
American companies. Countervailing duties, on the other hand, are additional duties levied to
offset subsidies granted in the exporting country. In the United States, countervailing duty
legislation and procedures are very similar to those pertaining to dumping. The U.S. Commerce
Department and the International Trade Commission jointly administer both the countervailing
duty and antidumping laws.
Page Ref: 247-248
87) What are some of the entities that an exporter should be familiar with? Describe and explain
the role played by each of these entities, separating those that have responsibilities from
exporters from those that have no responsibilities from the exporters.
Answer: Key export entities include purchasing agents, export brokers, and export merchants.
They have no responsibility from the client. Others are export management companies,
manufacturer's export representatives, export distributors, and freight forwarders. They are
assigned responsibilities by the exporter. Foreign purchasing agents operate on behalf of, and are
compensated by, an overseas customer known as a "principal." They generally seek out the
manufacturer whose price and quality match the specifications of their principal. They often
represent governments, utilities, railroads, and other large users of materials. Purchases may be
completed as domestic transactions with the purchasing agent handling all export packing and
shipping details or the agent may rely on the manufacturers to handle the shipping arrangements.
The export broker receives a fee for bringing together the seller and the overseas buyer. This fee
is usually paid by the seller. The broker takes no title to the goods and assumes no financial
responsibility. A broker usually specializes in a specific commodity, such as grain or cotton, and
is less frequently involved in the export of manufactured goods. Export merchants are sometimes
referred to as "jobbers" and they identify market opportunities in one country or region and make
purchases in other countries to fill these needs. They typically buy unbranded products directly
from the producer or manufacturer. The export merchant then brands the goods and performs all
other marketing activities, including distribution. Export Management Company is the term used
to designate an independent marketing intermediary that acts as the export department for two or
more manufacturers whose product lines do not compete with each other. It may act as an
independent distributor, purchasing and reselling goods at an established price or profit margin.
It may also act as a commission representative taking no title or financial risk. Manufacturer's
export agent act as an export distributor or as an export commission representative. On the other
hand, an export distributor assumes financial risk; whereas the export commission representative
assumes no financial risk. The cooperative exporter is an export organization of a manufacturing
company retained by other independent manufacturers to sell their products to foreign markets.
Freight forwarders are licensed specialists in traffic operations, customs clearance, and shipping
tariffs and schedules. A licensed forwarder receives brokerage fees or rebates from shipping
companies for booked space.
Page Ref: 248-249
88) An executive is undecided whether to rely on in-house or external export specialists/
intermediaries in home country. He is leaning towards direct representation in a market. What
are the benefits of going forth with direct representation?
Answer: It is a common problem faced by many executives planning on exporting goods and
services to foreign countries. There are two specific advantages to direct representation in a
market. It allows decisions concerning program development, resource allocation, or price
changes to be implemented unilaterally. Thus, control and communication aspects are major
benefits. This is very significant when a product is not yet established in a market. It will require
special marketing efforts for which direct efforts will be necessary rather than relying on
intermediaries. Also, the marketer's investment ensures special efforts that are undertaken to
achieve sales. With indirect or independent representation, such efforts and investment may not
be that effective due to lack of incentives. It is also advantageous to get feedback and first-hand
information related to the market. This information can greatly improve export marketing
decisions concerning product, price, communications, and distribution. In essence, all
operational parameters are under control. However, it should be noted that direct representation
will depend on the size of the market. It may not be possible to have it when market size is small.
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89) What do you understand by "documentary credit?" How does "documentary collection"
differ from "cash in advance" and "sales on open account?"
Answer: Documentary credits, also referred to as letters of credit (L/C), relates to a document
stating that a bank has substituted its creditworthiness for that of the importer-buyer. Next to
cash in advance, an L/C offers the exporter the best assurance of being paid. Since the payment
obligation under an L/C lies with the buyer's bank and not with the buyer, it is an assured form of
payment. After an exporter and an importer have established a good working relationship, it may
be possible to have a documentary collection or open-account method of payment. In this
method of payment a bill of exchange, also known as a draft, is used. A bill of exchange is a
negotiable instrument that is easily transferable from one party to another. With a documentary
draft, the exporter delivers documents such as the bill of lading, the commercial invoice, a
certificate of origin, and an insurance certificate to a bank in the exporter's country. The shipper
or bank prepares a collection letter (draft) and sends it via courier to a correspondent bank in the
importer-buyer's country. The draft is presented to the importer and payment takes place in
accordance with the terms specified in the draft. Cash in advance refers to whole or partial
payment in advance of shipment. When the exporter/importer is in the beginning stages of
business, cash in advance is usually the method of financial transactions. It is also used when
exchange restrictions are present in a country or an unusually long period of time for financial
transactions is involved. A company that manufactures a unique product for which there are no
substitutes available can also use cash in advance method. On the other hand, goods that are sold
on open account are paid for after delivery. Open-account terms generally prevail in areas where
exchange controls are minimal and exporters have had long-standing relations with good buyers
in nearby or long-established markets.
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90) Recently "Call Centers" have mushroomed in countries like India, China, and Philippines
due to the outsourcing by many Western countries. What are the benefits and disadvantages to
this method of sourcing? What factors should be taken into account when deciding to outsource?
Answer: Outsourcing refers to shifting production jobs or work assignments to another company
in order to cut costs. When the outsourced work moves to another country it becomes "global
outsourcing" or "offshoring." Due to intense competition in the marketplace, more and more
companies are under pressure to lower costs. One way to do this is to locate manufacturing or
consumer relation activities in China, India, Philippines, or other low-wage countries. In theory,
this situation bestows great flexibility on companies and in reality, the consumer is unaware of
the country where a product is manufactured or service is delivered. However, in the case of call
centers, consumers get in direct contact with the service provider or its representative. Call
centers also perform outbound services such as telemarketing. A variety of tasks such as airline
reservation, completing tax returns, reading medical charts, and drawing up manufacturing
blueprints are done by persons who do the job at a fraction of the cost compared to what it will
cost in the home country. The decision to use outsourcing requires careful analysis since saving
cost may not be the only factor for success of many products or services. This requires careful
consideration of management's vision, costs and conditions, customer needs, logistics, country
infrastructure, political factors, and foreign exchange rates. In formulating a sourcing strategy,
company managers and executives should also recognize the declining importance of direct
manufacturing labor as a percentage of total product cost. For example, Compaq found that the
human labor portion in manufacturing a PC is only about 15 minutes. Thus, the cost involved in
saving human labor is not as high as one would imagine and outsourcing may not be the best
choice for all products or services. Also, the company image and customer loyalty can be
adversely affected if outsourced services are not quality conscious.
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