Importing, Exporting, and Sourcing

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Chapter 8

• Importing, Exporting, and Sourcing

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Export Selling and Marketing

• Export selling
• Does not manipulate the marketing mix, except for
  place
• Only does well for products that are unique with
  little or no competition

• Export Marketing
• Requires
• An understanding of the target market
• The use of marketing research and identification
  of market potential
• Decisions concerning the marketing mix
• Product manipulation

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Organizational Export Activities

• Stages towards exporting
• 1. Unwilling to export
• 2. Fills unsolicited export orders
• 3. Explores feasibility
• 4. Exports to one or more markets for trial
• 5. Experienced exporter to one or more markets
• 6. After success, pursues country/region focused
  mktg
• based on certain criteria (ex English
  speakers)
• 7. Evaluates global market potential before
  screening "best" targets. All markets equally
  considered
• http//www.forbes.com/video/?videofvn/sbtv/sbtv_0
  62607partnergooglevid

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National Policies Governing Imports and Exports

• Exports from China have grown significantly since
  they have joined the WTO.
• Chinese exports to the US command more than 13
  percent share of the overall apparel market.
• Japan, Singapore, South Korea, and the China
  Triangle market have a government-encouraged
  export strategy.

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Tariff Systems

• Single Column
• Flat rate for all imports from all countries
• Two Column
• Base rate, plus special fees depending on
  negotiations from other countries
• Preferential
• Reduced rate for imports from certain countries
• Generally banned by GATT except for
• Historical preference arrangements that existed
  before GATT
• Free trade areas or common markets
• Industrial countries to less developed countries

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Tariff Systems (cont.)

• Harmonized Tariff Systems (HTS)
• Went into effect in 1989
• Harmonized Tariff Schedule B
• Nontariff Barrier
• Also known as Hidden Trade Barriers
• Include quotas, discriminatory procurement
  policies, restrictive customs procedures,
  arbitrary monetary policies, and restrictive
  regulations

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Key Export Participants

• Foreign Purchasing Agents
• Buyer for export
• Export Broker
• Brings together the seller and the overseas buyer
• Export Merchants
• Jobbers
• Export management company (EMC)
• Acts as the export department for two or more
  manufacturers
• Manufacturers Export agent (MEA
• Can act as an export distributor or an export
  commission representative

• Export Distributor
• Assumes financial risk
• Export commission representative
• Assumes no financial risk
• Cooperative Exporter
• Mother hen, piggyback exporter, or export vendor
• Freight forwarders
• Travel agents for freight

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Manufacturers Exporting

• In-house export organization
• Low-cost requiring no additional personnel
• Can only work under two conditions
• The employee assigned to the task must be
  competent in terms of product and customer
  knowledge
• That competence must be applicable to the target
  international market(s)
• External export service providers
• Export trading companies, export merchants,
  export brokers, combination export managers,
  manufacturers export representatives or
  commission agents, and export distributors

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Organizing for export in the market

• Two types direct market representation or
  independent intermediaries.
• Direct Market- selling to wholesalers or
  retailers.
• Ex. Germany and Japan rely on U.S. market

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Additional Export/Import Issues

• 9/11
• Customs Trade Partnership Against Terrorism
• (C-TPAT)
• Duty Drawbacks
• Refunds on duties of imports that are processed
  then reexported
• As duty rates fall worldwide, the drawback is
  less important

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Export Financing and Methods of Payment

• Appropriate method of payment for international
  sale is a basic credit decision
• currency
• availability in buyer's country
• credit worthiness of the buyer
• seller's relationship to the buyer

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Pro Forma Invoice

• Export sale begins on agreement to do business
• Formalized agreement spells out
• how much
• by what means of payment

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Letter of Credit

• Document stating that a bank has substituted its
  credit worthiness for that of the import buyer
• offers exporter 2nd best assurance of payment
  (next to actual cash in advance)
• there are transaction fees

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Letter of Credit Process
Contract
Seller
Buyer

• Pro Forma Invoice
• Issuing bank credit
• Confirming bank credit
• Inform seller of credit

Issuing Bank
Confirming Bank
Credit
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Letter of Credit Process
Seller
Buyer
Goods

• Ship goods
• Inform bank
• Bank confirms
• Sends for completion
• Confirms and releases

Confirming Bank
Issuing Bank
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Time Drafts

• After good working relationship is established
  move to document collection form of payment (open
  account)
• Payment instrument that transfers all the risk of
  non- payment onto the exporter-seller
• Uses Bill of Exchange

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Bill of Exchange

• Negotiable instrument that is easily transferable
  from one party to another.
• Less bank fees

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Other Methods of Payment

• Cash in advance
• credit risk is high
• regulations lengthen transactions
• Open account
• paid for after delivery
• legally risky
  
  

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Sourcing

• Companies must make sourcing decision
• Outsourcing- shifting production jobs or work
  assignments to other companies to cut costs.
• There are other factors than cost that need to be
  taken into consideration

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Where to locate key business activities

• Management Vision
• Factor Costs and Conditions
• Customer Needs
• Logistics
• Country Infrastructure
• Political Factors
• Foreign Exchange Rates

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Management Vision

• Some CEOS determined to keep manufacturing close
  to home
• Example Canon- aims to keep 60 of manufacturing
  at home in Japan.

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Factor Costs and Conditions

• Include land, labor, and capital costs
• Labor ranges from less than a 1/hr emerging
  countries to 6-12/hr in developed countries
• Other factors of production such as land
  materials and capital depends upon availability
  and abundance.
• Japan has high capital but other countries have
  abundant land so these offset

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Customer Needs

• Customers looking for something more than lowest
  possible price.
• Dell example

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Logistics

• Greater distance between product source and
  target market, greater time for delivery and
  higher transportation costs
• Innovation and new technology are cutting these
  costs.

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Country Infrastructure

• Must be well developed
• Includes power, transportation, labor pool,
  roads, etc
• Hong Kong, Taiwan, and Singapore
• Lebanon, Uganda, and El Salvador

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Political Factors

• Lower the level of political risk, less likely
  investor will avoid country
• Less developed a country, the more difficult it
  is to predict political risk

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Foreign Exchange Rates

• Rates very volatile
• Country can look very attractive but may become
  less attractive due to exchange rates

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Any Questions?