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ECP 6701
Competitive Strategies in Expanding Markets
Export and Import Strategies
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Readings
Daniels, Radebaugh, Sallivan, International
Business, Chapter 17
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Objectives
Identify the key elements of export and import
strategies Compare direct and indirect selling of exports
Discuss the role of trade intermediaries
Identify methods of export payments and the
financing of receivables.
Readings.
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Introduction
Characteristics of Exporters
The probability of a companys being an exporterincreases with the size of the company
Export intensity is not positively correlated with
company size
The largest exporters in the United States also areamong the largest industrial corporations
Smaller exporters make smaller shipments; larger
exporters make larger shipments
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Export Shipments of Various Sizes as Percentages of
Total Dollar Value of Exports
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Why companies export
Exporting
Expands sales and profits Achieves economies of scale and reduces the unit
costs of production.
Is less risky than DFI because it does not require
the same degree of capital. Allows companies to diversify sales location.
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Phases of export development
As companies learn more about the process of
exporting, they tend to export to more countries
they tend to export to more dissimilar countries
which are located further away
they tend to export a larger percentage of theirsales.
The following figure summarizes the various
phases of exporting.
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Phases of Export Development
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Export Strategy
Entry mode depends on ownership advantages of the
company, location advantages of the market, and
internalization advantages of integrating transactionswithin the company
Companies that have lower levels of ownership
advantages either do not enter foreign markets or use
low-risk strategies such as exporting Strategic considerations affect the choice of exporting
as an entry mode
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Designing an Export Strategy
In designing an export strategy, a company
must
Assess export potential
Get expert counseling
Select market or markets
Set goals and get the product to market
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The Import Strategy
Importers need to be concerned with procedural
and strategic issues
An import broker is an intermediary that helps
an importer clear customs
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The Import Strategy
The Role of Customs Agencies
Customs agencies assess and collect duties andensure import regulations are adhered to.
Drawback provisions allow U.S. exporters to apply
for a refund of 99 percent of the duty paid on
imported components.
Documentation
Importers must submit to customs documents that
determine whether the shipment is released and
what duties are assessed.
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Export Intermediaries
Companies use external specialists for
exporting before developing internal capabilities
Companies may market their products either
directly or indirectly through external specialists
or intermediary organizations
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Export Intermediaries
Direct Selling Direct selling involves sales representatives, agents,
distributors, or retailers
A sales representative usually operates on a
commission basis
A distributor is a merchant who purchases the
products from the manufacturer and sells them at a
profit
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Export Intermediaries
Indirect Selling Commission agents work for the buyer
Export Management Companies (EMCs) provideexport services for a specific exporter or group ofexporters
Export Management Companies EMCs in the United States are mostly small, entrepreneurial
ventures that tend to specialize by product, function, ormarket area
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Export Trading Companies (ETCs)
ETCs tend to operate on the basis of demand
rather than supply
ETCs can be formed by
Competitors can be exempt from antitrust laws State and local governments Money-center banks Major corporations
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Foreign Freight Forwarders
A foreign freight forwarder is an export or import
specialist dealing in the movement of goods
from producer to consumer
The typical freight forwarder is the largest export
intermediary in terms of value and weight handled
Air and Ocean Freight Ocean freight is dominant in terms of total weight of
products traded, but air freight is significant in terms
of value of products shipped
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Foreign Freight Forwarders
Documentation: An export license is used to
determine whether products can be shipped to
specific countries
Key export documents include
pro forma invoice
commercial invoice
bill of lading
shippers export declaration
and export packing list
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Export Financing
Financial issues relating to exporting:
Product price
Method of payment
Financing of receivables
Insurance
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Product Price
Export pricing is influenced by:
Exchange rates Transportation costs
Duties
Multiple distribution channels
Insurance costs Banking costs
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Methods of payment
Methods of payments are Cash in advance
Letter of credit
Documentary collection or draft
Open account
Countertrade
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Export Financing
Financing receivables for US exporters
Ex-Im Bank provides direct loans to importers or
guarantees to financial institutions
The Small Business Administration (SBA) guaranteeslong-term financing to small exporters
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Letter-of-Credit Relationships
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An Irrevocable Export Letter of Credit
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Export Financing
A letter of credit obligates the buyers bank to
pay the exporter
A revocable letter of credit may be changed by
any of the parties to the agreement
An irrevocable letter of credit requires all parties
to agree to a change in the documents A confirmed irrevocable letter of credit adds an
obligation to pay for the exporters bank
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Countertrade
Countertrade refers to any one of a number of
different arrangements by which goods and
services are traded for each other Countertrade often takes place because of a foreign-
exchange shortage
Barter occurs when goods are traded for goods
In offset trade, the exporter sells goods for cash
but then undertakes to promote exports from the
importing country in order to help it earn foreign
exchange
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An Offset Transaction
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Summary
The likelihood that a company is becoming an
exporter increases with company size, but thepercentage of sales exported is not correlated
with size.
Companies export to increase sales
revenues, use excess capacity, and diversify
sales.
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Summary
As a company establishes its export business
plan, it must assess export potential, do the
appropriate research, and determine how to
get its goods abroad.
Importers need to be concerned with
procedural and strategic issues.
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Summary
Exporters may engage in direct or in indirect
exporting. Trading companies and export management
companies can be used to engage in indirect
exporting.
Freight forwarders specialize in moving goods from
one country to another.
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Summary
There are four major financial issues related to
exporting: the price of the product, the method
of payment, financing of receivables, and
insurance.
Countertrade and offset trade are special
cases of exporting and importing used whencountries face foreign exchange problems.