The foreign Trade operations The foreign Trade operations of enterprisesof enterprises

Exporting is not just for large enterprises, many small firms have benefited significantly from the moneymaking opportunities of exporting too.• The volume of export activity in the world economy is increasing as exporting has become easier• Despite the opportunities for exporting, it remains a challenge for many firms :_ What are the opportunities and risks associated with exporting?  

Political risks, cultural risks, foreign exchange risks._ How can companies improve their export performance?_ What information programs and government resources can help exporters?_ What are the basic steps in financing exporting?_ How can countertrade facilitate exporting?

Component part of foreign economic activity is foreign trade activity, that is an enterprise in area of international exchange goods, jobs, services, information, results of intellectual activity. Foreign trade operations can be classified on different criteria

On directions of trade foreign trade operations usually subdivide into: Export;

Import;

Re-export;

Reimportation

An export is an export of goods outside a country. Under an export in world economic practice understand and statistically taken into account : firstly, export outside the state of the goods, produced, grown or obtained in this state, and also goods before brought from abroad and exposed to processing; secondly, export of the goods before brought in, processing of them was true under custom control.

At crossing of custom border to the export of goods sanctions of this custom mode must be applied and corresponding accompanying documents are attached:

license to the export of commodity; documents about bringing of corresponding payments that include a customs duty and customs charges (gathering); cargo customs declaration.

A re-export is an export for the border of the before brought in commodity not undergoing in the country of exporter to some processing. By the article of re-export part the commodities realized on international auctions and commodity exchanges come forward. In this case re-export operations are needed for continuation of trade operation, i.e. import of goods from the country of origin in the country of his location during realization of exchange or auction and subsequent export of this goods by the customer of the third country.

Also there can be a situation of a force re-export, i.e. a force re-export takes place in case of refuse customer to pay the brought in commodity in the moment of arrival of him in the point of setting or bankruptcy of customer coming in the moment of receipt to them commodity. In this case normal motion of external economic transaction is violated and produced re-export of commodities in the country of exporter.

A re-export can come forward component part of more difficult foreign trade operation, for example, during realization of large projects of building abroad, requiring purchases of separate types of properties and complete equipment in the third countries, often passing delivery of him in the country of re-export. In addition, re-export operations can be used with the purpose of turning to the account due to resale of commodity on different markets and difference in prices.

An import is an import of commodities in a country from other states. Under an import in world economic practice understood and statistically taken into account : firstly, import in the country of commodities of foreign origin directly from a country-producer or country-mediator for the personal consumption or for their processing with the purpose of consumption up country or export from it;

secondly, import in the country of commodities for their processing under custom control; and, thirdly, import of commodities from free trade (of zone being out of custom territory given zones

During realization of the imported transactions, passing of goods through a border assumes the presence of next basic documents : license to the import of goods in a country; document about the payment of the imported customs duty; document about the payment of collection for custom registration.

Reimportation is an import from abroad the before taken out home commodities not undergoing there to processing. To reimportation the commodities, not put up for auction, returned from consignment storages et al, behave mostly.

On the forms of foreign trade operations they are divided by: barter; trade compensative; industrial compensative

Basic foreign expansion entry decisions

• A firm preparing foreign expansion must make three decisions

_ Which markets to enter_ When to enter these markets - Timing of entry_ What is the scale of entry (Large scale entry, Small scale entry)

Entry modes

_ Exporting_ Turnkey Projects_ Licensing_ Franchising_ Joint Ventures_ Wholly Owned Subsidiaries

Export Strategy• it often makes sense to initially focus on one, or few of markets.• it may make sense to enter a foreign market on a fairly small scale in order toreduce the costs of any subsequent failure.• the exporter needs to recognize the time and managerial commitment involved inbuilding export sales,

• in many countries it is important to devote a lot of attention to building strong andenduring relationships with local distributors and / or customers.• it is important to hire local personnel to help the firm establish itself in a foreignmarket.

The reasons of expansionThe factors that drive enterprises to seek business development and growth through international and global operations:_ Market factors_ Cost factors_ Competitive factors_ The international business environment

Exporting Promises

• Large firms may realize promise

– are proactive about exporting– systematic with exporting effort– have knowledge of foreign markets– can see where they can leverage their technology, products and marketing skills

Exporting Pitfalls• Poor market analysis• Superficial understanding of competitive conditions

• Underestimation of time and expertise needed to develop a foreign export market Some customers require face-to-face interactions

– Lack of allocation of sufficient managerial resources– Underestimation of need/value to develop local relationships (“let the agent deal with this”)

• Failure to customize the product to the needs of foreign users (industrial or consumer) • Ineffective distribution system • Weak promotion program • Poor understanding of involved logistics

Exporting• Advantages:– Avoids cost of establishing manufacturing operations– Helps improve economy– Country can buy other necessary item by the money earned from export

• Disadvantages:– May compete with low-cost location manufacturers– Possible high transportation costs– Tariff barriers– Possible lack of control over marketing

Export and import financing• Lack of trust between international trading partners due to several factors– Parties have never met– Language, cultural and legal system differences– Difficulties in tracking down a party in case of default

• Problem solved by using a third party trusted by both as an intermediary – normally a reputable bank• Exporter to be assured of payment and importer to be assured of product

Tools used to aid transactions• Letters of Credit (LOC)– Bank guarantee on behalf of importer to exporter assuring payment when exporter presents specified documents• Drafts (Bill of Exchange)– Written order issued by the exporter, telling an importer to pay a specified amount of money at a specified time

• Bill of Lading– Issued to exporter, by carrier. Serves as receipt, contract and document of titleLetter of credit• Issued by a bank at the request of the importer• Bank pays a specified sum to a beneficiary, normally the exporter, on presentation of particular, specified documents

• Fee paid by importer for letter of credit

• May reduce borrowing ability of importer since the letter is a financial liability

Counter Trade• Countertrade is an alternative

means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.

• A range of barter like agreements

– Trade goods/services for other goods/services

– Used when currencies not convertible

– Used when the currencies are too unstable

• The Growth of Countertrade – In the modern era, countertrade arose

in the 1960s as a way for the Soviet Union and the Communist states of Eastern Europe, whose currencies were generally nonconvertible, to purchase imports.

– During the 1980s, the technique grew in popularity among many developing nations that lacked the foreign exchange reserves required to purchase necessary imports. There was a notable increase in the volume of countertrade after the Asian financial crisis of 1997.