Chapter 16 - export/import Flashcards
Exporting is preferred by a lot because (>90%)
low commitment
Increased volume of exports facilitated by
A decline in trade barriers and increase in regional economic agreements
Advances in technology and communication:
i.e. Modern communication and transportation technology have alleviated the logistical problems associated with exporting
E-commerce and international air services reduce costs, distance and cycle time
Firms who wish to export must
- Identify foreign market opportunities
- Avoid a host of unanticipated problems that are often associated with doing business in a foreign market
- Familiarize itself with the mechanics of export and import financing
- Learn where it can get financing and export credit insurance
- Learn how it should deal with foreign exchange risk
Promises of exporting
Large revenue and growth opportunities:
Firms that do not export often lose out on significant opportunities for growth and cost reduction
Pitfalls of exporting
if unfamiliar with market, procrastinate to find opportunities
- poor market analysis
- Poor understanding of competitive conditions in the foreign market
- Failure to customize the product for foreign consumers
- Lack of an effective distribution program
- Poorly executed promotional campaign
- Problems securing financing
Improving export performance
- international comparisons
- information sources
- Service providers
- Export strategy
Information sources
US department of commerce
ITA: international trade administration
provide the potential exporter with: a “best prospects” list
Small Business Administration (SBA) and center for international business education and research (CIBERs)
Export-import service providers
- freight forwarders
- export management companies
- export trading companies
- export packaging companies
- Customs brokers
- Confirming houses/buying agents
- Export agents and merchants
- Piggyback marketing
- Economic processing zones
freight forwarders
- orchestrate transportation for companies that are shipping internationally
- combine smaller shipments into a single large shipment to minimize the shipping cost
- documentation, payment and carrier selection
Export management companies
FOR companies who did not previously exported products
export documents and operate as the firm’s agent and distributor (like selling product)
export trading companies
- Export products for companies that contract with them
- Identify and work with companies in foreign countries that will market and sell the products
- export documentation, logistics and transportation
export packaging companies
FOR companies that are unfamiliar with exporting
- Advise companies on appropriate design and materials for the packaging of their items
- Can assist companies in minimizing packaging to maximize the number of items to be shipped
Custom brokers
- help companies avoid the pitfalls involved in customs regulations
- all services for exporting to a large number of countries
confirming houses/buying agents
Represent foreign companies that want to buy your product
-get the products they want at the lowest prices and are paid a commission by their foreign clients
Can find them via government embassies
export agents and merchants
- Buy products directly from the manufacturer and package and label the products in accordance with their own wishes and specifications
- They then sell the products internationally through their own contacts under their own names and assume all risks
Piggyback marketing
- one firm distributes another firm’s products
- Successful = complementary products and the same target market of customers
Economic processing zones
- foreign trade zones, special economic zones, bonded warehouses, free ports, and customs zones
Many companies use EPZ to receive shipments of products that are then reshipped in smaller lots to customers throughout the surrounding areas
Steps to export successfully
- Hire an EMC or an experienced export consultant to identify opportunities and navigate the paperwork and regulations involved in exporting
- Focus on one market or a handful of markets
- Enter a foreign market on a small scale to reduce the costs of any subsequent failure
- Exporter needs to recognize the time and managerial commitment involved in building export sales and should hire additional personnel to oversee this activity
- Devote attention to building strong and enduring relationships with local distributors/customers
- Hire local personnel to help the firm establish itself in a foreign market
- Be proactive about seeking export opportunities
- Retain the option of local production
the globalEDGE exporting tool
Company readiness to export tool (CORE)
Used to assess (1) a company’s readiness to export a product and (2) the product’s readiness to be exported
-Assists firms in self-assessment of their exporting proficiency
-Evaluates both the firm’s and the intended product’s readiness to be taken internationally
-Systematically identifies the firm’s strengths and weaknesses
Lack of trust in financing
the distance between the two parties - space, language, culture and by the problems of using an underdeveloped international legal system to enforce contractual obligations
solution to lack of trust
Third party trusted by both (usually a bank)
- Importer obtains bank’s promise to pay on importer’s behalf
- Bank promises exporter to pay on behalf of importer
- Exporter ships “to the bank” trusting bank’s promise to pay
- Bank pays exporter
- Bank gives merchandise to importer
- Importer pays bank
Letter of credit
Issued by a bank at the request of an importer (at a fee)
States that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular specified documents
Draft/bill of exchange
the instrument normally used in international commerce to effect payment
Draft/bill of exchange in domestic transactions
the buyer can often obtain possession of the merchandise without signing a formal document acknowledging his or her obligation to pay
Draft/bill of exchange in international transactions
payment or a formal promise to pay is required before the buyer can obtain the merchandise
sight draft
payable on presentation to the drawee
time draft
allows for a delay in payment-normally 30,60, 90 or 120 days. Presented to the drawee who signifies acceptance of it by writing or stamping a notice of acceptance on its face. —> promise to pay
accepted by bank = banker’s acceptance
accepted by a business = trade acceptance
Bill of lading
Issued to the exporter by the common carrier transporting the merchandise
Bill of lading 3 purposes
Receipt: Indicates that the carrier has received the merchandise described on the face of the document
Contract: Specifies that the carrier is obligated to provide a transportation service in return for a certain charge
Document of title: Can be used to obtain payment or a written promise of payment before the merchandise is released to the importer
Export assistance
- export-import bank
2. export credit insurance
export-import bank
US gov corporation
Assists in the financing of U.S. exports of products and services to support U.S. employment and market competitiveness
Supplements private capital lending with various loan and loan guarantee programs
Loan guarantee program
- Guarantees repayment of medium and long term loans that U.S commercial banks make to foreign borrowers for purchasing U.S. exports
- Also lends dollars to foreign borrowers for use in purchasing U.S exports
Export credit insurance
The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default payment
The exporter can insure against the possibility by buying export credit insurance
Countertrade
alternative means of structuring an international sale when conventional means of payment are difficult, costly and nonexistent
popularity of countertrade
Popular among developing nations that lack the foreign exchange reserves required to purchase the necessary imports
Types of countertrade
- Barter: direct exchange of goods and/or services
- Counter-purchase: reciprocal buying agreement
- Offset: Purchasing goods and services with a specific % of the proceeds from the original sale
- Switch trading: specialized third-party trading house in a countertrade arrangement (countertrade credits)
- Compensation or buybacks: agreement to take a certain % of output as partial payment for the contract
pros of countertrade
- Can give a firm a way to finance an export deal when other means are not available
- could be required
- Can be a strategic marketing weapon
cons of countertrade
- prefer paid in hard currency
2. exchange of unusable or poor-quality goods that the firm cannot dispose of profitably
