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International Business : The Challenge of Global Competition, 8/e
Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American
Export and Import Practices

E Learning Session

  1. Who exports? PowerPoint (33.0K)
    1. Exporting is sometimes misperceived as the purview of small business
    2. Studies show that US largest companies are also largest exporters
  2. Why export?
    1. Reasons for exporting are linked to two basic goals Concept Check
      • Desire to increase profit
      • Desire to protect markets from being eroded
      • Any of the following reasons can achieve either of these goals
        1. To serve markets where (a) the firm has no production facilities or (b) the local plant does not product the firm's complete product mix
        2. To satisfy host government's requirement that local subsidiaries export
        3. To remain competitive in home markets by importing labor intensive components
        4. To test foreign markets and foreign competition inexpensively
        5. To meet actual or prospective customers' requests for the firm to export
        6. To offset cyclical sales in domestic market
        7. To achieve additional sales which allows firm to use excess production capacity
        8. To extend a product's life cycle
        9. To distract foreign competitors that are in the firm's home market
        10. To partake in the kind of success the firm's management has seen others achieve by exporting
        11. To improve equipment utilization
  3. Why don't they export?
    1. Two major reasons US firms do not export
      • Preoccupation with vast American market
      • A reluctance to become involved in a new and unknown operation
    2. When nonexporting firms are asked why they are not active in exporting they offer these reasons
      • Locating foreign markets
      • Payment and financing procedures
      • Export procedures
  4. Locating foreign markets
    1. Sources of export counseling PowerPoint (31.0K)
      • Trade Information Center
        1. US Department of Commerce Trade Information Center (TIC)
        2. Resource for information about support and assistance to enter export
        3. Trade Information Center Web Site
          1. Links to government export programs, trade promotion events, and trade lead information
      • International Trade Administration Concept Check
        1. Offers a wide range of export promotion activities including counseling, analysis of foreign markets, assessment of industry competitiveness, and development of market opportunities and sales representations
        2. Provides the following resources
          1. International economic policy-country desk specialists are current on economic and commercial conditions in their assigned countries
          2. Trade development-promotes trade interests of American industries and publishes information in seven sectors: aerospace, automotive affairs and consumer goods, basic industries, capital goods and international construction, science and electronics, and textiles and apparel
          3. US and foreign commercial service-105 districts in branch offices throughout the US and Puerto Rico that have trade specialists to help firms assess their export opportunities
      • Small business administration
        1. The Office of International Trade of the Small Business Administration (SBA) offers assistance through SBA district offices
        2. Also works though
          1. SCORE programs-experienced executive offer free one-on-one counseling to small firms
          2. SBDC-SBI programs-many universities offer free consulting to small business
      • Department of Agriculture
        1. The Dept. of Agriculture has a single contact point for export assistance, Ag Exporter Assistance
    2. Department of Commerce export assistance program Concept Check
      • Foreign market research
        1. Specialists might suggest that the potential exporter consult the National Trade and Data Bank, a service that selects the most recent trade promotions, how to publications and international trade and economic data
        2. NTDB provides comprehensive guides to new exporters and source of specific product and regional data
        3. The Trade Opportunities Program (TOP) might also be consulted
          1. List sales leads
          2. Published in The Journal of Commerce
        4. Smaller number of potential markets
          1. When a smaller number of potential markets have been identified, they may be researched on the Country Commercial Guides at NTDB
          2. Other publications are the Market Research Reports and Business America
      • Direct or indirect exporting
        1. When a potential market is identified the decision must be made to export directly or indirectly
        2. If indirect is chosen to test exporting, the specialist can assist with identification of agents or distributors
      • Trade specialist will assist, for a fee, any potential exporter who wants to try a broad-based mailing to solicit representatives in the target market
      • If the firm wants to make a foreign site visit, the specialist can set up Gold Key Service though many US embassies
      • The Foreign Agriculture Service offers many of the same services
      • Show and Sell- Dept. of Commerce helps with the following activities
        1. US pavilions at trade fairs
        2. Trade missions-these focus on industry sectors
        3. Product literature centers-Commerce specialists attend trade fairs and distribute product literature
        4. Reverse trade missions-Commerce may fund visit by foreign representatives to the US for fact finding
    3. Other sources of assistance
      • World Trade Centers
        1. Members have access to on-line trading system
        2. System designed to facilitate contact between buyer and seller
      • District Export Councils
        1. Department of Commerce has 55 district export councils composed of volunteers to consult with those interested in trade
      • State governments
        1. All states have similar support for sales leads, locating overseas representatives and counseling
    4. Export marketing plan PowerPoint (32.0K)
      • The export market plan is basically the same as the domestic marketing plan
      • It should be specific about
        1. The markets to develop
        2. The market strategy for serving them
        3. The tactics required to make the strategy operational
        4. Details on arrangements with foreign representatives
      • Market mix
        1. Comments in Chapter 16 are appropriate to exporters
        2. Pricing policies
          1. Pricing is a problem for exporters
          2. Finding the right pricing level that makes the exported good competitive is a challenge
        3. Terms of sale
          1. Conditions of sale that stipulate the point where all costs and risks are borne by the buyer
          2. The following are standard conditions to be negotiated Concept Check
            • FAS (free alongside ship, port of call) seller pays all transportation and delivery expense to the ship's side
            • CIF (cost, insurance, freight, foreign port) seller includes cost of goods, insurance, and all transportation to the named foreign port in the destination country
            • CFR (cost and freight, foreign port)-similar to CIF except that the buyer purchases the insurance
            • DAF(delivered at frontier)-common term used in export to Canada and Mexico where seller includes all costs to the border and the buyer's representative takes possession of goods
            • CIF and CFR are most convenient for buyer but can be a problem for new exporters who are unfamiliar with the small costs that must be added in for freight processing and paper work
            • Preferred method is factory door costs, production cost without any domestic marketing costs or administrative costs added in
        4. Sales agreement
          1. Sales agreement should specify as clearly as possible the duties of the representative
          2. Special attention should be paid to
            • Designation of responsibility for patent and trade mark registration
            • Designation of country or state of legal recourse for contract disputes
  5. Payment and financing procedures
    1. Export payment terms
      • Payment terms can be a decisive factor
      • Cash in advance
        1. Used when credit standing of buyer is unknown or uncertain
        2. Few buyers will accept this condition
      • Open account Concept Check
        1. Seller assumes financial risk
        2. Ships goods and waits for payment
        3. Generally preferred by buyers
        4. Credit reports from many reporting agencies are available to aid in decisions regarding who to sell to on open account
      • Consignment
        1. Goods shipped to buyer and not paid until sold
        2. All risk is assumed by seller
        3. Multinationals frequently sell to their subsidiaries on this basis
      • Letters of credit
        1. Offers some protection to seller
        2. A document issued by a bank that promises payment to the seller when the goods are received
        3. Confirmed and irrevocable
          1. Seller will usually request this condition
          2. Irrevocable means that once accepted, the buyer cannot back out of the agreement
        4. Before opening a letter of credit, a buyer frequently requests a pro forma invoice to establish value and to document for any import licenses required
        5. Letter of credit transaction-Fig 17.2 illustrates paper low of a letter of credit transaction
      • Documentary drafts
        1. An exporter may agree to payment on documentary draft
        2. An export draft is an unconditional order that is drawn by the seller on the buyer to pay the draft's amount on presentation (sight draft) or at an agreed upon future date (time draft) and that must be paid before the buyer receives shipping documentation
        3. One very important difference between this and a letter of credit, this can be reneged
      • Risk/Cost trade off of export payment terms
        1. Figure 17.4 illustrates the Risk/Costs trade-offs for various terms and conditions
    2. Export financing
      • Private courses
        1. Commercial banks serve as a course of export financing
        2. Banks may discount a time draft to the seller
        3. Bankers acceptance
          1. A time draft with maturity of less than 270 days that has been accepted by the bank on which the draft was drawn, thus becoming the accepting bank's obligation; may be bought and sold on financial markets like other commercial paper
        4. Factoring is discounting accounts receivable to provide working capital with collections usually not exceeding 180 days
        5. Forfaiting is the purchase of obligations that arise from the sale of goods or services and fall due at some date beyond the 90 to 180 days customary to factoring
        6. Export-Import bank PowerPoint (32.0K)
          1. The Eximbank is the principal government agency responsible for aiding the export of American goods and services through a variety of loans, guarantees and insurance programs
          2. Direct and intermediary loans
            • Provides two types of loans (a) direct loans to foreign buyers of American goods and (b) intermediary loans to responsible parties, such as a foreign government, to relend to buyer
            • Program covers up to 85% of value of goods
          3. Working capital guarantee
            • Helps small business get working capital for cover export sales by guaranteeing capital loans extended by banks
          4. Guarantees
            • Provides repayment protection for lending institutions
          5. Export credit insurance
            • Financing risks can be reduced by acquiring export credit insurance against political and commercial risks
  6. Other government incentives
    1. Overseas Private Investment Corporation (OPIC)
      • Government corporation that offers American investors in developing countries insurance against expropriation, currency inconvertibility, and damages from wars and revolutions
    2. Foreign Sales Corporation (FSC)
      • Special corporation from authorized by the federal government that provide tax advantages for exporting firms
      • Has been judged by the WTO as counter to rules and regulations covering government subsidies
    3. Foreign Trade Zones
      • Of the five types of customs-free areas, free ports, transit zones, free perimeters, export processing zones or free trade zones, the free trade zone is the most common
      • Free trade zone is an area designated by the government of a country for duty-free entry of any nonprohibited good
      • The American version is called a foreign trade zone (FTZ)
        1. Goods brought into a FTZ may be stored, inspected, repackaged, or combined with American components to make products
        2. The finished product often pays less duty than would have been required if the finished good was imported
        3. Advantage to importers are well known by also advantages for exporters
          1. Can provide accelerated export status
          2. Excise taxes are rebated when covered products are exported
          3. Firms must pay duty on components, but duty is refunded when finished products are exported
          4. Because product is considered exported when it enters the FTZ, rebates can be applied for immediately
  7. Export procedures
    1. Foreign freight forwarders
      • Act as agents for exporters
      • Prepare documents, book space with carrier, and act as firm's export traffic department
    2. Export documents
      • Shipping documents
        1. Prepared by exporter or freight forwarders to allow goods to ship through customs
        2. Shipper's export declaration (SED)
          1. Required by Dept. of Commerce
          2. Contains
            • Names and addresses of shipper and consignee
            • US port of exit and foreign port of unloading
            • Description and value of goods
            • Export licensee number and bill of lading number
            • Carrier transporting merchandise
        3. Export licenses
          1. All goods, except those going to US possessions or Canada, require license for export
          2. General export license needs no special authorization for export
          3. General license number, available from Dept. of Commerce is placed on shipper's export declaration
          4. Valid export license is mandatory if shipment is destined for strategic materials or to unfriendly countries
          5. VEL is available upon formal application with Commerce dept.
        4. Export bill of lading
          1. Export bill of lading serves three purposes
            • Contract for carriage of goods between the shipper and the carrier
            • A receipt from the carrier that the goods were shipped
            • A certificate of ownership
          2. Bills can be for air shipment (called air waybills) or ocean (called ocean bills of lading)
          3. Ocean bills can be "straight," non negotiable with only the one person authorized to receive, or "to order," negotiable and can be endorsed and used like a check
        5. Insurance certificate
          1. Evidence that the shipment has been insured against loss or damage
          2. Three broad types of marine insurance
            • Basic named perils insures for fires, jettisons, explosions, and hurricanes
            • Broad named perils insures for theft, pilferage, breakage, and leakage
            • All risks insures for all physical damage from any external cause
          3. Premiums depend on a variety of factors
        6. Automated export system
          1. Total cost of shipping papers has been estimated between $150 and $300
          2. Designed by Customs Service to reduce errors in export documents
          3. Currently voluntary but has the goal of full implementation by 2002
      • Collection documents
        1. Seller is required to provide to buyer to receive payment
        2. Commercial invoices
          1. Similar to domestic invoices
          2. Adds origin of goods, export packing marks, and a clause stating the goods will not be diverted to other countries
        3. Consular invoices
          1. Some countries require both commercial and consular invoices
          2. Purchased from the counsel, prepared in the language of the buyer's country, then visa is issued by the consul
        4. Certificates of origin
          1. This document is sometime required in addition to the commercial invoice that attests to origin
          2. Commonly used by local Chamber of Commerce and is issued a visa by consul
        5. Inspection certificates
          1. Frequently required by buyers of grain, foodstuffs, and live animals
          2. Issued by Dept. of Agriculture
  8. Export shipments
    1. Containers
      • Large 8X8-foot boxes by 10, 20, or 40 feet in length
      • Filled with goods and sealed
      • Airlines, with smaller containers, and ocean shipments use similar techniques
      • From port of entry, trucks will deliver containers to site, often unopened
    2. LASH
      • Lighter aboard ship
      • Services inland waterways
      • Barges are loaded with containers in freshwater ports and towed to sea ports
    3. RO-RO
      • Roll on-Roll off
      • Loaded trailers are used instead of containers
      • Providers advantage of container without investment in expensive loading/unloading equipment
    4. Air Freight
      • Speeds international shipping process
      • Ocean freight is cheaper than air freight
      • But total costs may be less for air freight
        1. Insurance rates-less chance of damage
        2. Packing-can ship in domestic packaging
        3. Customs duty calculated on weight
        4. Replacement costs for damaged goods-less chance of damage in shipment
        5. Inventory costs-rapid delivery eliminates need for warehousing
      • Customers are pleased with receiving shipments sooner
      • Other factors affecting costs comparison
        1. Production and opportunity costs-quicker delivery means quicker payment, speeds ROI
        2. Firm may be air-dependent-exporter and is only in business because of the availability of air freight
        3. Products may be air-dependent-perishable goods
        4. Spare parts and factory technicians are available for quick deployment
  9. Importing
    1. In a sense this is the reverse of export issues
    2. To begin import, find out where desired goods are made
    3. Go to consul to see trade representative
    4. If product is not being imported already, many consuls may have to contacted until the right one is found
    5. Banks with international departments sometimes have listing of foreign firms wishing to sell
    6. Electronic bulletin boards of World Trade Centers have listing
    7. When visiting foreign countries, look for opportunities
    8. Customs brokers
      • Help importer to import
      • Many firms provide both customs broker and freight forwarder services
      • Principle activity
        1. Bring goods through customs
        2. Complete documents
        3. Works rules to the advantage of importer
      • Other activities
        1. Arranging transportation of goods after arrival
        2. Monitor for import quotas that would block shipments
        3. Store blocked goods in a bonded warehouse of foreign trade zone
        4. Automated commercial service
          1. System used to track, control and process commercial goods
          2. Reduces paper work, costs
          3. Facilitates movement
    9. Import duties
      • Know how US customs calculates import duties
      • Know the importance of product classification
      • Know the Harmonized Tariff Schedule of the United States
      • Harmonized System
        1. System of agreed upon categorization of products
        2. Interpretive notes suggest how to classify goods by appropriate number
        3. Different classifications have different import duties
      • HTUSA
        1. Each product has its own number
        2. Shows reporting units used by customs
        3. General rates are those for goods coming from GATT countries




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