Chapter 16
Exporting, Importing,
and Countertrade
The Promise And Pitfalls Of Exporting
Exporting – great way to increase market size
Large firms
Proactively seek opportunities
Many smaller firms
Reactive/wait for the world to come to them
Information Sources
Most comprehensive government source of export
information - U.S. Department of Commerce
International Trade Administration and the United
States and Foreign Commercial Service
http://www.buyusa.gov/home/export.html
“International Partner Search”
“Franchise Partner Search”
“Gold Key” service
Organizes events (trade pavilions, catalog shows) to help firms
make foreign contacts
Small Business Administration can help
Local and state governments also provide support
Use Caution When Trading
If something appears too good to be true, it often is:
Check Bureau of Industry & Security (BIS)
- Denied Persons List
http://www.bis.doc.gov/dpl/default.shtm
Direct Selling
You export the product - your partner helps
you sell it after it arrives there:
Sales representative: usually operates on
a commission basis within an exclusive
territory (next slide has details on agents)
Distributor: Merchant who purchases
goods from a manufacturer and stocks,
services, and resells them to retailers at a
profit PREFERRED because they invest in inventory
Difference between Agent and Rep
Big legal difference between Rep and Agent:
BOTH sell product for you in their market, for a
commission, but:
Representative can NOT make commitments on
behalf of your firm (unless authorized)
Agent CAN make commitments on behalf of your firm
SOLUTION: Have written agreements that define
their duties, obligations, responsibilities, limitations,
and remuneration
Negotiations - What is our style?
Handout – Negotiating Style
Rate each of the 35 items
Handout – Scoring Sheet
Your style
(strengths/weaknesses/appropriateness)
Dodger
Dreamer
Haggler
Competitor
Problem Solver
Let’s Negotiate: Groups – (6 groups) 17 camels
A man, after he died, left 17 camels to his three sons
1/2 to his oldest son, 1/3 to his middle son, 1/9 to youngest
Can you figure out how to divide these exactly as directed?
They could not figure it out either –
They went to a wise negotiator for advice
After thinking she said,
“See what happens after you take my camel”
Now they had 18 camels – oldest took 9, middle took 6 and
youngest took 2 – had one left over, so they gave it back
to the negotiator
In negotiations for long-term – Find the 18th camel
Let’s Get Started!
Let’s Negotiate: Groups –
One is Buyer, One is Seller
Buyer: $2 billion company, active in trade, wants a lower price,
on-going relationship
Seller: $1.5 million company, active in trade, wants higher
profits, expand sales, on-going relationship
The last transaction (have done business before):
5,000 units @ $200.00 per unit CIF Los Angeles – GPS device
Payment: Open Account Net 30 (after invoice – date of shipping)
Bubble pack, standard export packing, 1 year warrantee
Prepare for negotiation (5 minutes)
• Outline what your main points will be (turn in)
Negotiate for 5 minutes
Results – debrief (write results on paper)
Negotiation Strategies
Short Film (5 min)
Two Questions to ask:
1. What happens to both sides in the event that we
don’t agree? (consequences of no agreement)
- What are the consequences for both sides?
- Clarity on customer’s alternative to us if we don’t
reach agreement – know these options better than
they do.
2. What are the likely terms in the event we do agree?
- What are the likely trades from both sides?
- What are all of the factors that come into play?
- Where do we have extra wiggle room?
Bundling (adjust price and profits)
Bundle Up - Adding Value
•
•
•
•
Value becomes primary buyer motivator
Response to competitive pricing
Extends life-cycle
e.g., computers [combined with software/warranty]
Bundle Down - Take Away Value
•
•
•
•
Price becomes primary buyer motivator
“Buy” market share strategy
Creates low-cost image
e.g., Ikea [knock-down condition/low price]
Cost Analysis – Seek lower OVERALL costs
Banking Fees
Costs related to
Standards/Registrations
• Costs vs. risks (ISO 90002000)
Documentation fees
Export/Import processing
costs
Financing charges
Foreign exchange costs
(Risks)
Freight/ Intermodalism/
Insurance Costs
• INCOTERMS
Inspection/Lab testing
costs
Inventory/ carrying costs
(up to 1.5%/week)
• Fewer larger shipments VS.
frequent smaller shipments
Legal/contract costs
(Risks)
Marketing costs
Minimum order quantities
Production costs
• Sample costs
• Spare parts allocations
(defective goods contact)
Special packaging/ private
label costs
Opportunities to Reduce Costs
Adapt Logistics
• Product shipping form (KD, SKD)
• Adjust frequency of departures
• Optimize route sequencing
Subassembly in FTZ (Foreign Trade
Zones)
• Classification (Changes duty rate)
• Move labor intensive tasks
Alternative Financing Methods
Countertrade
A range of barter-like agreements that facilitate the
trade of goods and services for other goods and
services when they cannot be traded for money
Used when conventional means of payment are
difficult, costly, or nonexistent
Example: Computers for “Fertilizer” (Russia)
No money – only had . . .
Used trading company to facilitate
Sold before received as payment
Negotiation – Tips (not for the one-time sale)
Communicate, communicate, communicate, but focus
1. What happens to both sides in the event that we don’t agree?
(consequences of no agreement)
2. What are the likely terms in the event we do agree?
Develop solutions BEFORE you meet
Offer multiple alternatives
Develop them before you begin negotiations
Know more about their options than they do
Offer if they don’t accept standard terms (if you want long-term)
Also attempt to lower overall costs for everyone
Look at the details - who can do what most efficiently?
Remember who has the power (volume strength)
Typical Wish Lists (for the non-professional)
Typical Seller Wish List Estimation
Rank
Item
Weight
Range (High to Low)
1.
Length of contract
40%
1-3 years (longer)
2.
Volume
25%
3–1,000 units (more)
3.
Price
15%
$20–$16
4.
Payment terms
10%
30–45 days (shorter)
5.
Service
10%
8/5 – 24/7 (less)
Typical Buyer Wish List Estimation
Rank
Item
Weight
Range (High to Low)
1.
Price
40%
$14–$18
2.
Payment terms
20%
45 - 90 days (longer)
3.
Service
20%
12/7 - 24/7 (more)
4.
Length of contract
10%
0–2 years (shorter)
5.
Volume
10%
1–2,000 units (less)
Professional Supplier Selection
Professional Buyers’ Needs (in order):
1. Financial stability
2. People
3. Supplier performance
4. Supplier cost reduction ideas
5. Supplier development projects
6. Delivery
7. Quality
8. Product cost (price)
9. Order accuracy
10. Customer support
11. Business relations
Let’s Negotiate: Revisited
Buyer: $2 billion company, active in trade, wants a lower price,
on-going relationship
Seller: $1.5 million company, active in trade, wants higher
profits, expand sales, on-going relationship
The last transaction (have done business before):
5,000 units @ $200.00 per unit CIF Los Angeles – GPS device
Payment: Open Account Net 30 (after invoice – date of shipping)
Bubble pack, standard export packing, 1 year warrantee
Prepare for negotiation (5 minutes)
Outline what your main points will be (same paper)
Negotiate for 5 minutes
Results – debrief (write results on paper)
International Sales & Quotation Process
1. Send Initial Correspondence
Product Literature
Image Brochures/ Corporate
background
Cover Letter
General Price Quotation/
Payment terms
2. Receive Feedback for
Additional Information
Special Requests
Clarifications/ Bargaining
3. Send Out An Individualized
Quotation
Tie to Purchase Order (P.O.)
Establish payment method/
requirements
Consider Using Blanket P.O.
For Repetitive Purchases (12Month Period)
Price and Delivery Schedule
Release Schedules Cut Ordering Lead
Time
Can Obtain Quicker Orders (Not Having
to Go Through Purchasing Departments
Each Time)
Attach Special Sales Agreements (sales
contract)
4. Receive P.O.
Check sales agreements (contract)
Acknowledge/ accept P.O.
5. Send Proforma Invoice
Itemize costs/ include validity date
Partial shipment/ transshipment allowances
Specify documentation/ payment terms
6. Receive Payment/ Payment
Arrangement
7. Proceed With Transaction
What type of help is available? Video
What type of help is available? Video (9 min)
Think Globally – Export USA
While watching the film please think about
this question:
How can the U.S. Foreign Commercial
Service help a company to enter foreign
markets?