chapter 16 Flashcards
6what is exporting facilitated by
Decline in trade barriers and increase in regional economic agreements.
Advances in technology and communication.
how do smaller firms find exporting
could be intimidating
what are the promises of exporting
large revenue and profit opportunities
economies of scale happen because of the market expanding
how do large firms react to exporting
proactive aboiut seeking opprtnies, they scalen foreign markets to find opprytineis
how do small and medium sized firms react to exporting
tend to wait for the opprtinies to come to them
why are firms not proactive
- they may be unfamiliar with foreign market opportunities (dont know how big they are or where they are)
- intimated by the complexities and mechanics of exporting to countries where business practices, language, culture currency are Dif then the home market
what are the pitfalls for exporting
- poor market analysis
- poor understanding of competitive conditions in the foreign market
- a failure to customize the product offering to the needs pf foreign customers
- a lack of an effective distribution program
- a lot of paperwork
- errors and delays
how should firms fight their lack of knowledge in order to exprt
- they should collet info
what is sogo shosha
Japanese trading companies; a key part of the keiretsu, the large Japanese industrial groups.
- seek export opportunities for their affiliated large and small companies
how does the USA affect exporting
- they lack information and have historical differences
- they haven’t created an institutional structure for promoting exports similar to that of Germany and Japan
what is the most comprehensive source of info for US firms to increase their knowledge on exporting
- US department of commerce and its dustrruct offices
what are the two orgs dedicated to providing businesses with intelligence and assistance to attack foreign markets (within the department of commerce)
US and foreign commercial service
International trade administration
what is US and foreign commercial service
International trade administration
provide the potential exporter with the best prospect list–> gives the names and addresses of potential distributors in foreign markets along with businesses they are in, products they handle
helps people export
promotes exporting
what does the department of commerce do
have assembled a comparison shopping service for countries that are major markets for US exporters
organizes trade events that help potential exporters make foreign contacts
what does the small business administration do
also helps potential exporters
- employs district international trade officers and regional international trade officers
- provide counselling
what is the CIBERS
increase and promote the nations capacity for International understanding and competitiveness
most companies that engage sin international etude enlist the help of what
export import service providers
what are the main export import service providers
freight forwarders, export management companies, export trading companies, export packaging companies, customs brokers, confirming houses, export agents and merchants, piggyback marketing and economic process zones
what are freight forwarders
mainly in business to create trasnportion for companies that are shipping internationally
- combine smaller shipments into a single large shipment to minimize shipping costs
- also provide servcices like documentation, payment and carrier selection
reight forwarders simplify the shipping process for businesses or individuals by taking care of the logistics, paperwork, and coordination involved in getting goods from one place to another. They play a crucial role in making international trade more accessible and efficient for those involved in the movement of goods across borders.
what is an export management company
Export specialist that acts as an export marketing department for client firms
- offers services to companies that have not previously exported products
what does EMC operate as
the firms agent and distributor
agent:it facilitates deals and earns a commission
distributor: it takes on the responsibility of selling and delivering products in foreign markets.
what are export trading companie s
- export products for companies that contract with them
- they will identify and work with companies in foreign countries that will market and sell the products
- like a middle man
connectsproducers in one country with buyers in another
what are export packing companies
- provide services to companies that are unfamiliar with exporting
- advise companies on design and materials for packing their items
- minimizing packaging to maizmine the number of items shipped
what are customs brokers
- can help companies avoid the pitfalls involved in customs regulations
- can offer a firm a complete package of services that are essential when a firm is exporting to a large number of countries
Customs brokers are individuals or companies that help facilitate the import and export of goods by navigating the customs clearance process on behalf of businesses or individuals. –> make sure the goods cross boards okay
what are confirming houses
- buying agents
- represent foreign companies that want to buy your product
- get the products they want at the lowest prices
- via gvt embassies
is an entity that acts as an intermediary to confirm and guarantee payment in a transaction between an exporter and an importer.
what are export agents
- buy products directly from the manufacturer and package and label the proidcys the way they want
- they then sell the products internationally through their own contracts under their own names (have all of the risks )
- no effort for firms but you lose control over your products
what is piggyback marketing
- an arrangement where one firm distributes another firms products
in order for piggybacking to work
n order to be succesfull–> requires complementary products and the same target market of customers
what do EPZ include
foreign trade zones, special economic bonds, customs zones
why do companies use EPZS
- to receive shipments of products that are then reshipped in smaller lots to customers throughout the surrounding areas
its an special area for business, focused on expports
how else can a firm reduce the risks associated with exporting
- has to be careful about its choice of export strategy
the probability of exporting well can be increased how
- by taking simple steps
1. for the novice exporter, hire an EMC to help
2. initially focus on one market or a handful
3. enter the foreign markett on a small scale (helps you learn about the foreign market and gives you time)
4.expprter needs to recognize the time and managerial commitment in building export sales
5. devote a lot of attention to building strong and enduring relationships with local disturbutos and customers
6. hire local personnel to help the firm establish itself in the foreign market
7. firm needs o be proactive about seeking export opprtuneis
8. exporter retain the option of local production
what is CORE
- assits firms in self assessment of their exporting profiecny, evaluates both the firms and the intended produces readiness to be taken inytermationaly, highlights the firms strengths and weaknesses within the context of exporting
measures a companies readiness to export
prodict readiness+ company rediness= company’s overall readiness
Firms engaged in international trade have to trust someone:
They may have never seen.
Who lives in a different country.
Who speaks a different language.
Who abides by (or does not abide by) a different legal system.
Who could be very difficult to track down if he or she defaults on an obligation.
how to solve a ;acc of trust
- use a third party
what Is a letter of credit
Issued by a bank, indicating that the bank will make payments under specific circumstance
- at the request of the importer
is a bank-issued guarantee for secure payment in international trade, providing assurance to both the buyer and the seller–> seller gets paid if they fulfill specified conditions, such as delivering the goods on time and providing the required documents
THE BANK
advantage of the letter of credit
- trust the reputable banks even if they dont trust each other
- exporter may find that having and LC will facilitate obtaining pre export financing
what Is a drawback for the importer for LC
- the fee the importer must pay to get the letter of credit
- may reduced her ability to borrow funds for other purposes (cause its a financial liabilitiy)
what is a bill of exchange
An order written by an exporter instructing an importer, or an importer’s agent, to pay a specified amount of money at a specified time
what is a draft
An order written by an exporter telling an importer what and when to pay
Used to settle trade transactions.
in domestic transactions, how is a draft used
the buyer can often obtain possession of the merchandise without signing a formal document acknowledging his or her obligation to pay
in international trasnacrins, how is a draft used
payment or a formal promise to pay is required before the buyer can obtain the merchandise.
drafts fall into which two categories
- sight drafts
- time drafts
what are sight drafts
A draft payable on presentation to the drawee
as soon as the person who has to pay sees the draft, they have to pay
what are time drafts
A promise to pay by the accepting party at some future date.
what is a. bankers acceptance
when a time draft is drawn on and accepted by a bank.
The bank officially accepts the obligation to pay the specified amount at a future date. this allows the buyer to get its funds ready and the seller knows he willl get paid.
what is a trade acceptance
- when the time draft drawn on and accepted by a business firm
one business has to pay the other
time drafts are what
negotiable instruments –> once the draft is accpcted, the maker can sell the draft to an investor at a discount from its face value
what is a bill of lading
A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title.
When someone sends goods to be shipped to another location, the shipping company gives them a bill of lading. This document confirms that the goods have been received for shipping (receipt), outlines the terms of the shipment (contract), and can be used to claim the goods upon arrival (document of title).
what are the three purposes of a bill of lading
- it is a recipet
- a contract
- a document of title
how is the bill of lading a reciept
- indicates that the carrier has received the merchandise described on the face of the document
how is the bill of lading a contract
- it specifics that the carrier Is obligated to provide transpiration service in return for a certain charge
how is the bill of lading a document of title
- it can be used to obtain payment or a written promise of payment before the merchandise is released to the importer.
because whoever holds the bill of lading has the right to claim and receive the goods.
prospective us exporters can draw on two forms of gvt backed assistance to help finance their export programs
- export import bank
- foreign credit insurance association
what is the export import bank
Agency of the U.S. government whose mission is to provide aid in financing and facilitate exports and imports.
- assist in the financing of US exports of products and services to support US employment and market competivness
- direct lending operation
the lack of a letter of credit exposes what
the exporter to the risk that the foreign importer will default on payement.importer may not pay if there is no letter of credit
in the united states, export credit insurance is provided by
FCIA (foreign credit insurance association)
- provides coverage against commercial and political risks
what is countertrade
The trade of goods and services for other goods and services.
Alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.
- barter like agreements
how did countertrade emerge
- emerged in the 1960s as a way for the old soviet union whose currencies were non convertible to purchase imports
who is countetrade popular among
- developing nations that lack the foreign exchange reserves required to purchase necessary imports
why would prospective exporters use countertrade
- because countertrade is a means of financing international trade
it offers a creative way to facilitate transactions when traditional payment methods may be challenging.
what are the five types of countertrade
- barter
- counterpurchase
- offset
- switch trading
- compensation and buyback
what is barter
The direct exchange of goods or services between two parties without a cash transaction.
- simplest bit not common
- most restrictive
what are issues with bartering
- if goods are not exchanged simultaneously, one party ends up financing the other for a period
- firms engaged in barter have a risk of having to accept gppds they dont or cant use
what is counterpurchase
A reciprocal buying agreement
- when a firm agrees to purchase a certain amount to materials back from a country to which a sale is made
- using proceeds from the sale you just made to buy materials from the other country
Imagine Country A wants to sell airplanes to Country B. However, Country B says, “We’ll buy your airplanes, but you also need to buy a certain amount of our steel.” So, in this counterpurchase agreement, Country A not only sells airplanes but also agrees to purchase steel from Country B.
what is offset
Agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from any firm in the country
similar to counterpurhcase but instead you can buy back materials from any firm in the country so its more flexible
how is offset more attractive than counter purchase
- gives the exporter a greater flexibility to choose the goods that it wishes to purchase
what is switch trading
Use of a specialized third-party trading house in a countertrade arrangement
- counter purchase credits arise when you enter an offset or counter purchase argeeemt.
- a third party trading house buys the firms counter[urhcase credits and sells them to another firm that can better use them
switch trading is like a middleman maneuver where a third party facilitates a trade between two companies without actually handling the physical goods.
what is a buyback
Agreement to accept a percentage of a plant’s output as payment for contract to build a plant.
- you just built a plant in a country and then you take a percentage of the profits made
Party A builds a salt processing plant in Country B, providing capital to this developing nation. In return, Country B pays Party A with salt from the plant.
what is countertrade main acctraction
- it can give a firm a way to finance an export deal when other means are not possible
- A countertrade agreement may be required by the government of a country to which a firm is exporting goods or services.
- Can become a strategic marketing weapon
what are cons of countertrade
Firms would normally prefer to be paid in hard currency.
May involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably.
what is the type of firm that is musky likely to engage in countertrade
- large, diverse, multinationl entreprises that can use their worldwide networks of contacts to dispose of goods acquired in counter trading
what is the impact of the macro environment
Changes in trade barriers can affect export strategy.
Must weigh attractiveness of exporting as a strategy against pros and cons of establishing production facilities in the target country.
Need to keep tabs on the relative movements of currencies against each other.
Must consider the long-term economic prospects of a country before deciding whether it would make sense to invest time, effort, and money in building export sales there.
