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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.