This chapter covers:
16
•Why firms export and
problem areas
•Sources of export
counseling
•Terms of sale
Export and Import Practices
•Sources of export
financing
•Foreign freight
forwarders
•Export documents
•Materials handling
•Import sources
•HTSUSA
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
 Explain why firms export and problem areas of
exporting
 Identify the sources of export counseling
 Describe the main elements of the export sales assistance
program of the US Department of Commerce
 Discuss the meaning of the various terms of sale
 Identify some sources of export financing
 Describe the activities of a foreign freight forwarder
 Understand the kinds of export documents required
 Identify import sources
 Explain the Harmonized Tariff Schedule of the United
States (HTSUSA)
16-2
Why Export?
 Reasons to export
 To serve markets where
 the firm has no
production facilities.
 the local plant does
not produce the firm’s
complete product mix
 To satisfy a host
government’s
requirement that the local
subsidiary export
16-4
 To remain competitive in the



home market
To test foreign markets and
foreign competition
inexpensively
To meet actual or
prospective customers’
requests for the firm to
export
To offset cyclical sales of the
domestic market
Why Export?
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16-5
To achieve additional sales
To extend a product’s life
cycle
To distract foreign
competitors that are in the
firm’s home market by
entering their home markets
To partake in the kind of
success the firm’s
management has seen others
achieve by exporting
To improve equipment
utilization rates
Most Common Mistakes
for New Exporters
Failure to develop an
international marketing plan
 Insufficient commitment by top
management
 Insufficient care in selecting
overseas distributors
 Chasing orders from around the
world
 Neglecting export business
when the home market booms
 Failure to treat international
distributors on an equal basis
with domestic
16-6
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
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Assuming automatic success
Unwillingness to modify
products
Failure to print service, sale and
warranty messages in local
language
Failure to consider use of an
export management company
Failure to consider licensing or
joint venture
Failure to provide readily
available service for the product
Why not export?
 Two major reasons U.S.
firms give for not
exporting
 Preoccupation with
the vast American
market
 A reluctance to
become involved in a
new and unknown
operation
16-7
Problem Areas

Locating foreign markets


Payment and financing procedures

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Don’t know where to start
Fear the complexity
Export procedures
Don’t know that information and government support
are available
 Small Business Administration, Small Business
Development Centers, private consultants

16-8
Sources of Export Counseling
 Trade Information Center
(TIC)
 The federal government
has set this up as a first
stop for information
 about all federal
export assistance
programs as well as
country and regional
market information
 Visit web site at
www.ita.doc.gove/td/tic/.
16-9
 International Trade
Administration (ITA)
 Offers a wide range of
export promotion
activities that include
 Market Access and
Compliance (MAC)
 Trade Development
 U.S. and Foreign
Commercial Services
(US&FCS)
Sources of Export Counseling
 Small Business
Administration (SBA)
 The Office of
International Trade of the
SBA works through
 SBA district offices
 SCORE programs
 SBDC/CIBER
programs
 US Export Assistance
Centers
16-10
Department of Commerce
Export Assistance Program
 Foreign Market Research
 After learning about the company and its products,
 the international trade specialist may advise the
potential exporter to consult the National Trade Data
Bank (NTDB)
 The NTDB provides
 a comprehensive guide for new exporters
 a source of specific product and regional information
for experienced exporters searching for new markets
 The Foreign Traders Index
16-11
Department of Commerce
Export Assistance Program

NTDB



Available in University SBDCs
Can subscribe at www.stat-usa.gov
Trade specialist may suggest using the Trade
Opportunities Program (TOP)


Provides current sales leads from overseas firms
Leaders published in leading commercial newspapers
Can advertise in Commercial News at
www.cnewsusa.com
 Assistance available from Dept. of Commerce at
www.usatrade.gov/uscs

16-12
Department of Commerce
Export Assistance Program

When small number of
potential markets identified

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16-13
Research using Country
Commercial Guides
Must choose between
exporting indirectly and
exporting directly
 Indirect way to test
market
 Direct need overseas
distribution
 Can use US
Commercial Service
 Gold Key Service
Show and Sell

Four kinds of trade events that facilitate
international trade
 U.S. pavilions


Trade missions

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Trade specialists distribute at trade shows
Reverse trade missions

16-14
Focus on industry sector
Product literature center

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Organized by the Dept. of Commerce
Visits to U.S. by foreign governments
Other Sources of Assistance
World Trade Centers Association
 Nearly 300 worldwide
 Access to online trading system
 District Export Councils
 Provided by Dept. of Commerce
 Assist in workshops and arrange for consultants
 State Governments
 All states have export development programs

16-15
Export Marketing Plan


Essentially the same as the
domestic marketing plan
The plan should be specific
about
 The markets to be
developed
 The marketing strategy
for serving them
 The tactics required to
make the strategy
operational
16-16
 Marketing Mix
 Foreign customers may
insist on one of the
following terms of sale
 FAS (free alongside
ship, port of call)
 CIF (cost, insurance,
freight, foreign port)
 CFR (cost and freight,
foreign port)
 DAF (delivered at
frontier)
Sales Agreement

16-17
Should specify the duties of
the representative and the
firm
 Designation of
responsibilities for patent
and trademark
registration
 Designation of whose
laws will govern
contractual dispute
Payment and Financing Procedures
 Types of payment terms offered by exporters to
foreign buyers
 Cash in advance
 Open account
 Consignment
 Letter of credit
 Documentary drafts
16-18
Export Payment Terms
 Cash in Advance
 When credit standing of the
 Consignment
 Goods are shipped to the
buyer is not known or is
uncertain
 Open Account
 When a sale is made on open
account
 The seller assumes all of
the risk
 Terms should be offered
only to reliable
customers in
economically stable
countries
16-19

buyer and payment is not
made until they have been
sold
All the risk is assumed by
the seller
 Letters of Credit
 This document is issued by
the buyer’s bank
 which promises to pay
the seller a specified
amount when the bank
has received certain
documents stipulated in
the letter of credit
Export Payment Terms
 Letters of Credit
 Confirmed
 Act of a correspondent
bank in the seller’s
country by which it
agrees to honor the
issuing bank’s letter of
credit
 Irrevocable
 Once the seller has
accepted the credit, the
customer cannot alter
or cancel it without the
seller’s consent


Air Waybill
 Issued by carrier to be
presented as proof the
shipment has been made
Pro Forma Invoice
 exporter’s formal
quotation containing a
description of the
merchandise, price,
delivery time, proposed
method of shipment,
ports of exit and entry,
and terms of sale
Export Payment Terms
 Documentary Drafts
 An export draft
 is an unconditional
order drawn by the
seller on the buyer
instructing the buyer
to pay the amount of
the order on
presentation (sight
draft) or at an agreed
future date (time draft)
16-21
Export Financing

Private Source – Commercial Banks
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16-22
Banker’s acceptance
Factoring
 Provides working capital to manufacturers short of cash.
 Is essentially discounting without recourse.
Forfaiting
 Denotes the purchase of obligations that arise from the
sale of goods and services and fall due at some date
beyond the 90 to 180 days that is customary of factoring
Export Financing

Export-Import Bank
 The U.S. Export Import
Bank (Eximbank)
 Government agency
responsible for aiding
the export of American
goods and services
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16-23
Variety of loan,
guarantee, and
insurance programs
Available to any
American export firm
regardless of size

Two types of loans available
from the Eximbank
 Direct loans to foreign
buyers of American
exports
 Intermediary loans to
responsible parties

Foreign government
lending agency that
relends to foreign buyers
of capital goods and
related services
Other Government Incentives
 Overseas Private Investment Corporation
 Offers investors insurance against
 expropriation, currency inconvertibility, and damages from


wars or revolutions
Also offers specialized insurance for
 American service contractors and exporters operating in
foreign countries
Foreign Sales Corporation
 Special corporate form authorized by the federal government that
provides tax advantages for exporting firms
 Free Trade Zones
 An area designated by the government of a country for duty-free
entry of any nonprohibited good
16-24
Export Procedures

Foreign freight forwarders
act as agents for exporters
 Prepare documents
 Book space
 Offer advice about
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16-25
Markets
Regulations
Transportation
Packing
Supply cargo insurance
After shipment, forward
documents
Shipping Documents
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Shipper’s Export Declaration
 This document is
required by the
Department of Commerce
to control exports and
supply export statistics
Export License
 General for most
products
 Validated for scarce
materials, strategic goods,
technology, or war
materials
16-26
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Export bill of Lading
 Serves three purposes
 a contract for carriage
between the shopper
and the carrier.
 a receipt from the
carrier for the goods
shipped.
 a certificate of
ownership
Insurance Certificate
 Evidence shipment is
insured
Collection Documents

The most common documents for collection
 Commercial invoices
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Consular invoices
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Issued by local Chamber of Commerce
Inspection certificates
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16-27
Purchased from the consul and prepared in local
language
Certificates of origin

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Add origin of goods, export packing marks, and a clause
stating good will not be diverted
Frequently required for grain, food, live animals
Export Shipments
 Containers
 Reduce theft and
handling costs
 LASH (lighter aboard
ship)
 Barges for shallow inland
waterways
 RO-RO (roll on-roll off)
 Can drive onto vessel
 Air Freight
 Can arrive in one day
16-28
Air Freight

Total cost components
that may be lower for
air freight include
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16-29
Insurance rates
Packing
Custom duties
Replacement costs for
damaged goods
Inventory costs

When the total cost are high
for air freight, it may still be
advantageous to ship by air
when other factors are
considered
 Production and
opportunity costs
 The firm may be airdependent
 The products may be airdependent
 Spare parts and technical
personnel available
within a few hours
Importing
 Ways to identify import sources
 If similar imported products are already in the
market, visit a retailer and examine the product
label
 If the product is not being imported, call the
nearest consul or embassy of that country
 Use the electronic bulletin boards of the World
Trade Centers
 Accidental importing also takes place
16-30
Customhouse Brokers
Independent businesses that handle import
shipments for compensation
 Acting as the agent for the importer
 Customhouse brokers bring the imported goods
through customs
 They can arrange transportation for goods after
they leave Customs
 They also need to know when imports are subject
to import quotas and how much of the quota has
been already filled
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16-31
Importing

If the Quota fills the
importer must
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Put goods in a bonded
warehouse or a foreign trade
zone
Abandon the goods
Send the goods to another
country
Automated Commercial
System (ACS)
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16-32
Used to track, control, and
process all commercial
goods imported into the U.S.

Import Duties
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Importer must know
 How U.S. calculates
import duties
 The importance of
product classification
The Harmonized System
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Used by all developed
nations
Determines how goods will
be classified
Each product has its own
HTSUSA number
Import Rules
Disclose fully to the US
Customs Service all
foreign and financial
arrangements
 Ask advice of a
customhouse broker
before making the
transaction
 Calculate carefully the
landed price in advance

16-33
EXPORTS, IMPORTS,
and TRADE BALANCE
KEY ECONOMIC EVENTS

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Economic activity improved for the United States and many of
its trading partners, contributing to increased U.S. exports and
imports in 2003.
U.S. exports grew for most manufacturing industry sectors,
recording an overall $21.8 billion increase during 2003, to
$651.4 billion.
U.S. imports grew for all manufacturing industry sectors,
recording an overall increase of $95.3 billion to reach $1.3
trillion in 2003.
The U.S. trade deficit expanded for most industry sectors, for
an overall increase of $73.5 billion in 2003 to $598.7 billion.
Agriculture was the exception, recording an increased trade
surplus of $1.1 billion to reach $3.8 billion in 2003.
KEY TRENDS
in U.S. Trade with Japan
The narrowing of the U.S. bilateral trade deficit
with Japan was augmented by a 9.8-percent
appreciation of the yen against the dollar.
 Japan has been experiencing an economic upturn
since March 2003, after more than a decade of
deflation. This upturn appears to be more broadly
based than previous ones, with increased consumer
and corporate spending.
 U.S. beef exports rebounded after incidences of
“mad cow disease” in Japanese herds and
mislabeling of imported beef in late 2001 and early
2002.

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