InternationalEntrepreneurship.com

1
InternationalEntrepreneurship.com

• Lecture 9
• Exporting

Selling a Product, Service or Right to an
overseas customer from within the country of the
Supplier
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Why Export

• Increase sales volumes
• Take advantage of unique situations or advantages
  related to the home and exporting country
  characteristics
• Go after low hanging fruit (easier sales)
• Go where competition is less
• Follow competitor
• Follow up sales leads
• Take advantage of unique personal circumstances
  (relationships, language skills)
• Take advantage of one of the many Govt. sponsored
  assistance programs
• Follow customers or suppliers

3
Export Readiness

• What does the company want to gain from
  exporting?
• Is exporting consistent with other company goals?
  
• What demand will exporting place on company
  resources (executives, money, capacity, staff)?
  How will these demands be met?
• What is the cost/benefit ratio? What are the
  alternatives for the use of resources?

4
Developing an Export Plan

• Which product or services? Do they have to be
  modified for a foreign market?
• Which countries are being targeted?
• What is the customer profile? What marketing and
  distribution channel(s) will be used to reach the
  customers?
• What special challenges pertain to each market
  that must be overcome (competition, cultural
  differences, language, import controls etc)?
• How will the export price be determined?
• What operational steps must be taken and when to
  meet the sales objectives?
• How will success be evaluated?

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Market Research

• The National Trade Data Bank NTDB
• Small Business Administration
• Trade Information Center
• Country Commercial Guides.
• US Agency for International Development
• Specific Custom Reports
• www.CyberAtlas.com

6
Export Strategy
Many companies begin export activities
haphazardly, without carefully screening markets
or options for market entry. While these
companies may or may not have a measure of
success, they may overlook better export
opportunities. If early export efforts are
unsuccessful because of poor planning, your
company may be misled into abandoning exporting
altogether. Formulating an export strategy based
on good information and proper assessment
increases the chances that the best options will
be chosen, that resources will be used
effectively, and that efforts will consequently
be carried through to success.
A Basic Guide to Exporting US Department of
Commerce 1998 P4.
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Price
Ex Works Price 10,000 Freight Atl--Sao
Paulo.. 1,200 Insurance..
200 Cash In Fist (CIF) total. 11,400 Import
duty (20 of CIF) 2,280 Merchant Marine
tax (25 of freight).. 300 Warehousing
expediter (0.65 of CIF). 74
Terminal handling (per container) 315
Contribution to brokers union.. 228
Custom broker fee.. 700 Bank costs
(1-3 of Ex Works price). 200 Total
Landing Charges 4,097
TOTAL 15,497
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Export Advice

• Trade Information Center
• Small Business Administration
• Chamber of Commerce
• Export Assistance Centers, US Dept. of Commerce
• Location of buyers and representatives
• Trade opportunities
• Foreign market advice
• Foreign economic statistics
• Foreign documentation requirements
• US Export licensing and foreign import
  requirements
• Export trade financing options
• International Trade exhibitions
• Export seminars and conferences

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Marketing ChannelsApproaches

• Filling orders of domestic buyers who then export
  the product
• 30 of US Exports are via domestic buyers.
• Seeking out Domestic buyers who represent foreign
  end users or customers
• Exporting indirectly through intermediaries
• Exporting Directly

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Indirect Exporting

• Confirming House (Buying agents for foreign
  customer)
• Export Management Company (Exporting Sales Agent)
• Export Trading Company (Maybe a producers group
  -e.g. Apple and Pear Marketing Board in NZ)
• Export Agents, Merchants and Remarketers (Buy,
  repackage and sell on own account) (Located in
  exporting country)
• Piggyback Marketing (Take advantage of another
  distribution channel to provide a broader product
  portfolio)

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Advantages and Disadvantages of Indirect Marketing

• Potentially lower sales (different motivation and
  effort)
• Inadequate feedback (distance to customer to
  long)
• Wrong market, wrong distributor (wasted
  opportunity)
• Poor control (it is someone elses problem)
• Low risk (low pain)
• Little financial commitment
• Faster to market
• No international experience required
• Higher risk (low gain)

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Direct Exporting

• Sales representatives (Manufacturers
  representative - time contract, commission, often
  represents many complimentary products)
• Agents (Often used where contracts require
  service obligations)
• Distributors (Buys and sells on own account -
  located in importing country) (Often under
  agreement) (Provide after sales service)
• Foreign Retailers (Buy from traveling salesman or
  mail order catalogues.)
• Direct Sales to End Users (Exporter ships and
  services)

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Advantages and Disadvantages of Direct Market
Entry

• Direct control
• Time to market is longer
• Greater investment required
• Increased sales
• Excellent feedback
• Higher risk (cost of failure)

14
Department of Commerce - Business Contact Service

• International Contacts (Lists 30,000 overseas
  companies looking for products)
• Customized Market Analysis (Fee based custom
  search in one country for and agent or
  representative)
• Gold Key Service (Full service matching service
  including appointments)
• International Company Profiles (Full company
  profile)
• Commercial News USA (Published overseas with
  product/service details)
• Agent/Distributor Service (Commercial officers
  abroad will conduct a custom search for agents or
  representatives and proved a list of potential
  candidates)
• Trade Opportunities Program (Subscription service
  of overseas product sales leads)

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Department of Commerce - Trade Event Programs

• International Buyer Program (Brings overseas
  buyers to domestic Exhibitions)
• Trade Fair Certification Program (Financial
  support for a US products booth at a overseas
  exhibition)
• Certified Trade Missions (Support for private and
  government trade missions)
• Matchmaker Trade Delegations (Targeted
  matchmaking mission including appointments)
• Catalogue Exhibition Program (Govt. trade booth
  in overseas locations or exhibitions which
  generates leads based on product literature)

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Preparing the Product

• Product Adaptation (Conform to local Government
  regulations, standards, climate, buyer
  preferences and standards of living)
• Regulations (Protect domestic industries, protect
  health of citizens, local electrical and
  measurement requirements, restrict imports from
  certain countries, restrict unacceptable products
  (cultural or religious))
• Branding, labeling and Packaging (Customs,
  culture, language, content rules, weights and
  measures, local association)
• Installation (Complexity of local assembly and
  installation)
• Warranties (May vary from country to country
  depending on competition, culture and laws)
• Servicing (After sales service - different
  products for different regions)

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Harmonized Code

• Chapters 1-5
• 01 Live animals
• 02 Meat and edible meat offal
• 03 Fish and crustaceans, mollusks and other
  aquatic invertebrates
• 04 Dairy produce birds' eggs natural honey
  edible products of animal origin, not elsewhere
  specified or included
• 05 Products of animal origin, not elsewhere
  specified or included
• Breakdown of Harmonized Codes
• Code Definition Example
• 03 Chapter in which a commodity is
  classified Fish and crustaceans, molluscs and
  other aquatic invertebrates
• 0302 Represents the heading in that
  chapter Fish, fresh or chilled, excluding fish
  fillets and other fish meat of heading
  0304
• 0302.12 Represents the harmonized system
  code subheading Pacific salmon, Atlantic salmon
  and Danube salmon
• 0302.12.0012 Represents statistical
  subdivisions Commodity code for Chinook (king)
  Salmon

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Schedule B

• HTS Schedule B
• 0302.12.0003 Atlanticfarmed
  0302.12.0003 Atlanticfarmed
• 0302.12.0004 Atlanticnot farmed
  0302.12.0004 Atlanticnot farmed
• 0302.12.0013 Chinook (king)farmed
  0302.12.0012 Chinook (king)
• 0302.12.0014 Chinook (king)not farmed
  0302.12.0022 Chum (dog) 0302.12.0022 Chum (dog)
  
• 0302.12.0032 Pink (humpie) 0302.12.0032 Pink
  (humpie)
• 0302.12.0042 Sockeye (red) 0302.12.0042 Sockeye
  (red)
• 0302.12.0052 Coho (silver)
• 0302.12.0053 Coho (silver)farmed
  0302.12.0062 Other
• 0302.12.0054 Coho (silver)not farmed
  0302.12.0062 Other

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Service Exports

• Travel and Tourism
• Transportation
• Architectural, Construction, Engineering
• Education and Training
• Banking, Financial, Insurance
• Entertainment
• Information Services
• Professional Business Services (Accounting,
  Advertising, Legal and Management consulting)
• USA is the worlds leading exporter of services
• Export services Import services by 80 billion
  in 1996
• Largest importers (Europe, Japan, Canada)
• Often companies follow their customers abroad

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Documentation

• Air Freight Waybill
• Bill of Lading (Proof of ownership)
• Commercial Invoice (Layout and content often
  pre-specified by importing country)
• Consular Invoice (Verification by Importing Govt.
  official located in Exporting country)
• Certificate of Origin (Issued by local Chamber of
  Commerce)
• NAFTA Certificate of origin (Needed between USA,
  Canada and Mexico)
• Inspection Certificate (Independent testing
  certification)
• Dock receipt and Warehouse Receipt (Proof of
  delivery)
• Destination Control Statement (Restriction
  destinations)
• Shippers Export Declaration (Used for statistics)
  
• Export License (Required for specific goods
  and/or specific destinations)
• Export Packing List (Detailed list of packages
  with content, weight, labels etc)
• Insurance Certificate (Transit insurance)

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The Role of the Freight Forwarder

• International freight quotations
• Booking inland and international freight
  movements
• Containerization and consolidation of freight
• Providing scheduling of carriers
• Transshipments
• Export and import documentation
• Applying for export licenses
• Overseas documentation and foreign governments
  requirements
• Preshipment inspections
• Marine and air insurance
• Warehousing
• Export packing
• Supervising freight movements (loading)
• Assistance with insurance claims
• Overseas logistics strategies (FTZ)
• Computerized tracking of freight movements

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Terms of Trade

• Ex (All costs from delivery point to buyers cost)
  (Ex-Factory)
• FAS (Free alongside ship) (Seller covers cost of
  delivery to embarkation port)
• FOB (Free on Board) (Seller covers cost of
  loading)
• CIF (Cost, Insurance Freight) (Sellers covers
  cost to importation port)
• CFR (Cost Freight only)
• CPT (Cost only), CIP (Cost Insurance)
• Ex (Seller covers cost of unloading and delivery
  to destination)

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Methods of Payment

• Cash in Advance
• Documentary Letters of Credit (LOC) (Payment on
  Evidence not Acceptance)
• Agree terms, buyer specifies required documents
• Buyers Bank issues irrevocable LOC specifying
  proof required
• US Bank confirms, sends instructions to exporter
• Freight Forwarder completes documents
• Shipping and other proof documents presented to
  US Bank
• Documents sent to importers Bank and used to
  claim goods
• Buyers Bank pays on draft on event or at
  specified time Documentary Drafts (Bank check)
  (Payment on Acceptance of Delivery)
• Open Account (Normal AR credit)
• Consignment Sales
• Countertrade (Barter - payment by goods)

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Financial Risks

• Credit Risk
• Payment in advance
• LOC
• Open account - AR insurance (Export Import Bank
  up to 95)
• Political Risk
• Export Credit Insurance (Export Import Bank 100)
  (Min. premium 1000)
• Economic risk (increases cost, dependency on
  single market)
• Translation risk (net worth conversion - gains
  and losses)
• Hedging (specific to transaction)
• Futures contract (fixed amounts)