Import/Export Basics (Ch. 2) Beginning Steps 1. 2. 3. 4. 5. 6. Terminology Homework Choosing the product Making contacts Market research What’s the bottom line? 1. Import/Export Terminology • International trade uses distinctive vocabulary • Terms & acronyms guide, regulate, and facilitate trade • Commonly used terms: ▫ Glossary: pgs. 351-385 2. Homework • RESEARCH! • What should you research? ▫ the product ▫ profit potential • Research is a good investment, not a waste of time (even if you already have some experience) 3. Choosing the Product • Familiarity with… ▫ ▫ • the product the industry Advantage in… ▫ ▫ ▫ knowledge contacts language/culture 3. Choosing the Product • Marketing decisions ▫ product standards (ISO) ISO: International standards for business, government, society ▫ technical specifications and codes 220V, 50Hz 120V, 60Hz ▫ quality and product life cycle developed vs. less developed countries ▫ other uses e.g., motorcycles 4. Making Contacts • Who are sources of information? Who can I contact? ▫ import: consulate office, embassy, government ▫ export: industry publications, department of commerce 4. Making Contacts • Who can I contact to market a product/service? ▫ import: trade shows, direct mailers, Internet ▫ export: trade shows, retailers, United Nations • List of trade shows on Alibaba.com 5. Market Research • Your purpose is to make a profit. • Thus, you need to know whether or not your product will survive in a certain market. • You have to do market research! • Read through the import/export checklist on p. 22-24. Which questions do you think are most important? Share with your partner. 6. What’s the Bottom Line? •Make a profit! 1. 2. 3. 4. Initial quotations Terms of sale The market channel Pricing 1. Initial Quotations • Letter of Inquiry a.k.a. Request for Quotation (RFQ) • This is the first step • Who sends the letter? –Importer to exporter • What is in the letter? – Importer asks exporter to send the importer a pro forma invoice. • Look at sample RFQ on p. 25 1. Initial Quotations • PRO FORMA INVOICE • exporter to importer • A temporary invoice which includes product description and specifications, costs, price, quantity, shipping costs, delivery terms, and procedures. • Purpose: describes details of sale in advance; obtain letter of credit • Look at p. 27 for a sample pro forma invoice 2. Terms of Sale • Pricing terms • “Defines the geographical point where the risks and costs of the exporter and importer begin and end.” –p.26 • INCOTERMS: International Commerce Terms • Purpose: prevent misunderstandings of responsibilities and liabilities INCOTERMS • • • • • Most commonly used: EXW FAS CIF DAF EXW EX = from; W = works (factory, warehouse) the SELLER (exporter) the BUYER (importer) • is responsible for packing and labeling merchandise and having it ready for loading (seller doesn’t load) • is responsible for all other risks and costs from the delivery point to the final destination FAS: Free Alongside Ship the SELLER (exporter) the BUYER (importer) • is responsible for packing and labeling merchandise, having it ready for loading, placing it at the side of the ship, and clearing it for export • is responsible for all transportation costs and risk of loss of goods FAS Long Beach see p. 27 CIF: Cost, Marine Insurance, Freight the SELLER (exporter) the BUYER (importer) • is responsible for shipping, insurance and other costs up to the port of final destination • is responsible for risks and costs from the port of destination DAF: Delivered at Frontier the SELLER (exporter) the BUYER (importer) • is responsible to hire someone to take goods to a border crossing point and clear them for export • is responsible for picking up the goods, carrying them across the border, and clearing them for importation 3. The Market Channel • see p. 30 4. Pricing • New/unique product can be a high price • Gain a foothold Marginal Cost Pricing ▫ set market price at the level just above where a loss would occur • Dumping: If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product. ILLEGAL under GATT (General Agreement on Tariffs and Trade) • Pricing Model: p. 31 4. Pricing • Which currency will they use? ▫ depends on volume of transaction ▫ buyer and seller mutually agree ▫ U.S. dollar or Euros 4. Pricing • Commissions ▫ export middleman 7 – 20% ▫ import middleman (distributor) 5 – 20% • Example of cost elements p. 32 (see difference between import/export cost sheet) ▫ key issues (commission): price of the product the number of units 4. Pricing • www.export.gov • www.usitc.gov • U.S. Harmonized Tariff Schedule ▫ international uniformity in the presentation of customs tariffs and foreign trade statistics 4. Pricing • Export: certificate of origin, packing, labeling, sales commission, inland freight, shipping, insurance • Import: customs duty, customs broker, tariffs, repackaging, letter of credit, advertising, promotion, overhead, salaries • p. 33/34 4. Pricing • Case study: Guitars p. 213 • Rates of duty: ▫ General: most favored nations normal trade relations (NTR) ▫ Special: see Table 8.3 ▫ 2: North Korea and Cuba