International Business
by
Daniels and Radebaugh
Chapter 17
Export and
Import Strategies
© 2001 Prentice Hall
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Objectives
To identify the key elements of export and import strategies
To compare direct and indirect selling of exports
To discuss the role of several types of trading companies in exporting
To show how freight forwarders help exporters with the movement of
goods
To identify the methods of receiving payment for exports and the
financing of receivables
To discuss the role of countertrade in international business
© 2001 Prentice Hall
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Exporting and Importing in International Business
OPERATIONS
EXTERNAL INFLUENCES
OBJECTIVES
PHYSICAL AND
SOCIETAL FACTORS
STRATEGY
MEANS
COMPETITIVE
ENVIRONMENT
Modes
© 2001 Prentice Hall
Functions
• Marketing
• EXPORTING AND
IMPORTING
• Global manufacturing
• Supply chain
management
• Accounting
• Finance
• Human resources
Overlaying
Alternatives
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Export Strategy
Choice of entry mode to a foreign market depends on:
• Ownership advantages—specific assets, international experience,
and ability to develop differentiated products
– with few ownership advantages companies either do not
enter foreign markets or use low-risk entry modes such as
exporting
• Location advantages—combination of market potential and
investment risk
• Internalization advantages—benefits of holding specific assets or
skills within the company
Other strategic concerns include:
• Global concentration—only a few major players in a global
industry
• Global synergies—sharing functional expertise with overseas
operations
• Strategic motivations—reasons for exporting
© 2001 Prentice Hall
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Characteristics of Exporters
Companies that export:
• More likely to be large (as defined by revenues)
• Are more likely to have risk-taking managers
• Operate in industries where the leading companies are exporters
Why companies export
• Increased sales revenue most important motivation to export
• Alleviate excess capacity
• Exporting less risky than FDI
• Countercyclical investment diversification
Stage of export development—three broad phases
• Stage unrelated to size of the company
• Availability of Internet has increased company interest in
exporting
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Phases of Export Development
Preengagement
Phase 1
• Companies selling goods and services solely in the
domestic market
• Those companies considering but not currently exporting
Initial Exporting
Phase 2
• Companies that do sporadic, marginal exporting
• Companies that see lots of potential in export markets
• Companies unable to cope with exporting demands
Advanced
Phase 3
• Companies become regular exporters
• Companies gain extensive overseas experience
• Companies may use other strategies for entering markets
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Designing an Export Strategy
Detailed export business plan essential for effective export strategy
• Assess the company’s export potential by examining its
opportunities and resources
• Obtain counseling on exporting
• Select a market or markets
• Formulate and implement an export strategy
Commitment precedes success in exporting
• Development of an export department is one indicator of top
management commitment
© 2001 Prentice Hall
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Structure of an Export Business Plan
I.
Executive Summary
II.
Business History
III.
Market Research
IV.
Marketing Decisions
V.
Legal Decisions
VI.
Manufacturing and Operations
VII.
Personal Strategies
VIII.
Financial Decisions
IX.
Implementation Schedule
© 2001 Prentice Hall
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Import Strategy
Importing—bringing of goods and services into a country
• Results in the importers paying money to the exporter in the
foreign country
Two basic types of imports
• Industrial and consumer goods and services provided to
customers unrelated to exporter
• Intermediate goods and services provided to customers that are
part of the firm’s global supply chain
Why companies import
• Goods and services can be supplied to domestic market at
cheaper price and higher quality
• More efficient than attempting to manufacture every product in
every market
• Provide access to products not available in local market
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Import Strategy (cont.)
Types of importers include those:
• Looking for any product around the world to import and sell
• Looking for foreign sourcing to get their products at the cheapest
price
• Using foreign sourcing as part of their global supply chain
Importing requires expertise in dealing with institutions and
documentation
• Import broker—intermediary who helps an importer clear customs
© 2001 Prentice Hall
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Role of Customs Agencies
Customs—a country’s import and export procedures and restrictions
• Customs agencies—assess and collect duties and ensure import
regulations are adhered to
– deal with smuggling
– assign a tentative value and tariff classification to the
merchandise
– determine if import restrictions apply
Broker or import consultants—help importer minimize import duties by:
• Valuing products to qualify to receive more favorable duty
treatment
• Qualifying for duty refunds through drawback provisions
• Deferring duties by using bonded warehouses and foreign trade
zones
• Marking import’s country of origin
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Role of Customs Agencies (cont.)
Documentation—importers must submit to customs documents that
determine whether the shipment is released and what duties are
assessed
• Must file documents to take title of shipment
– taking title—receive products without purchasing them
Third-Party Intermediaries
Companies that facilitate the trade of goods but that are not related to
either the exporter or importer
• Stimulate sales, obtain orders, and do market research
• Investigate credit and collect payments
• Handle foreign traffic and shipping
• Support company’s sales, distribution, and advertising staffs
Some act as agents on behalf of the exporter, and some take title to
goods and sell them abroad
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Direct Selling
Exporter sells through sales representatives to distributors, to foreign
retailers, or to final end users
• Sales representative—sells products in foreign markets on
commission basis without taking title to the goods
• Distributor—a merchant who purchases products and sells them
at a profit
– carries a stock of the product, which it also services
– usually deals with retailers
• A sales organization in foreign country required to deal directly
with end users
Direct Exporting through the Internet
Allows all companies to engage in direct marketing
• Export products to end users
Establish home pages in different languages
© 2001 Prentice Hall
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Indirect Selling
Exporter sells goods directly to or through an independent domestic
intermediary in the exporter’s home country that exports the products
to foreign markets
Export Management Companies (EMCs)—act as export arm of
manufacturer
– operate on contractual basis
– provide exclusive representation in a well-defined foreign
territory
– manufacturer loses some control over foreign sales to EMC
• Export Trading Company (ETCs)—identify suppliers to fill orders
in overseas markets
– determine what foreign customers want
– identify different domestic suppliers for the products
– look for as many suppliers as possible
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Non–U.S. Trading Companies
Largest trading companies in the world are from Japan, South Korea,
Germany, and China
• U.S. has a large number of small trading companies
Sogo Shosha—Japanese trading companies
• The trading arm of the large kieretsus
– kieretsus—Japanese business groups that are networks of
manufacturing, service, and financial companies
Korean trading companies—part of Chaebols
• Chaebols—large Korean business groups that contain a trading
company
Piggyback Exports
Products exported by a company through another manufacturer’s
channels of distribution
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Foreign Freight Forwarders
Freight forwarder—an import or export specialist dealing in the
movement of goods from producer to consumer
• Largest intermediary in terms of value and weight of products
managed
• Services more limited than those of EMC
• Obtains best routing and means of transportation
• Moves products to air or ocean terminal
• Secures space on planes or ships and necessary storage prior to
shipment
• Does not take title to goods or act as sales representative
• Charges based on the shipment value
Intermodal transportation—movement of goods across different modes
from origin to destination
• Increasing reliance on airfreight
– more frequent and lighter-weight shipments
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Documentation
Export license—allows products to be shipped to specific countries
Pro forma invoice—invoice from exporter to importer outlining the selling
terms, price, and delivery if the goods are actually shipped
Commercial invoice—bill for the goods from the buyer to the seller
Bill of lading—receipt for goods delivered to the common carrier for
transportation, a contract for services rendered, and a document of
title
Consular invoice—means of monitoring price of imports and to generate
revenue for the embassy that issues it
Certificate of origin—indicates where goods originated
Shipper’s export declaration—used to monitor exports and compile trade
statistics
Export packing list—itemizes materials in each package
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Export Financing
Product price—export prices tend to escalate due to transportation
costs, duties, multiple wholesale channels, insurance costs, and
banking costs
May depend on dumping laws in importing country
Method of payment—flow of money across borders requires the use of
special documents
• Draft (bill of exchange)—the drawer directs the drawee to make a
payment
– documentary drafts—protect both parties by requiring that
payment be made based on the presentation of documents
conveying the title
» sight drafts—payments must be made immediately
» time drafts—payment may be made at a later time
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Export Financing (cont.)
Method of payment (cont.)
• Letter of credit—obligates the buyer’s bank to pay the exporter
– forms—sight versus time
» revocable—terms may be changed by parties at any
time
» irrevocable—letter that cannot be changed or canceled
without consent of all of the parties
– confirmed letter of credit—exporter has the guarantee of an
additional bank
– open account—necessary shipping documents are mailed to
the importer before any payment from or definite obligation
on the buyer’s part
» usually for members of the same corporation
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Letter-of-Credit Relationships
Importer’s Bank
(opening bank)
The relationship between
importer and opening bank is
governed by the terms of the
application and agreement
for the letter of credit
The relationship between
opening bank and exporter is
governed by the terms of
credit issued by that bank
Exporter
Importer
The relationship between
© 2001 Prentice Hall
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Export Financing (cont.)
Financing receivables—increased time and distance of exporting can
create cash flow problems for exporter
• Banks unwilling to fund exporting due to risks
• Exporters can get access to funds by:
– factoring—discounting of a foreign account receivable
– forfaiting—purchase an exporter’s debt due from customer,
usually as promissory note or bill of exchange
» bank in importer’s country guarantees these instruments
– some government agencies provide direct loans to exporters
or guarantee foreign receivables so that exporters can get
bank financing of receivables
– Export-Import Bank of the United States
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Export Financing (cont.)
Insurance—covers:
• Transportation risks
• Political, commercial, and foreign-exchange risks
Countertrade
Barter—goods are exchanged for goods of equal value without any flow
of cash
• Barter firms act as intermediaries
• Buybacks—products the exporter receives as payment that are
related to or originate from the original export
Offset trade—exporter sells products for cash and then helps to promote
exports from the importing country in order to help it earn foreign
exchange
Direct offsets—any business directly related to the export
• Indirect offsets—all business unrelated to the export
© 2001 Prentice Hall
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An Offset Transaction
McDonnell-Douglas
Monitoring
bank that
credits and
debits payments
F-18s
Canadian military
Exporter’s
product
division
Payments
Goods
Importer in
Canada
Importer in
U.S.
Payments
Goods
Exporter in
Canada
Importer in
third country
Payments
Goods
© 2001 Prentice Hall
Monitoring
bank that
credits and
debits payments
Exporter in
Canada
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