Professional Documents
Culture Documents
Readings
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.
Introduction
Characteristics of Exporters
The probability of a companys being an exporter increases with the size of the company Export intensity is not positively correlated with company size The largest exporters in the United States also are among the largest industrial corporations Smaller exporters make smaller shipments; larger exporters make larger shipments
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.
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 their sales.
Export Strategy
Entry mode depends on ownership advantages of the company, location advantages of the market, and internalization advantages of integrating transactions within 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
Assess export potential Get expert counseling Select market or markets Set goals and get the product to market
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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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Customs agencies assess and collect duties and ensure 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. Importers must submit to customs documents that determine whether the shipment is released and what duties are assessed.
Documentation
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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
Export Management Companies (EMCs) provide export services for a specific exporter or group of exporters
Export Management Companies
EMCs in the United States are mostly small, entrepreneurial ventures that tend to specialize by product, function, or market area
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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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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
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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Documentation: An export license is used to determine whether products can be shipped to specific countries
pro forma invoice commercial invoice bill of lading shippers export declaration and export packing list
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Export Financing
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Product Price
Exchange rates Transportation costs Duties Multiple distribution channels Insurance costs Banking costs
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Methods of payment
Cash in advance Letter of credit Documentary collection or draft Open account Countertrade
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Export Financing
Ex-Im Bank provides direct loans to importers or guarantees to financial institutions The Small Business Administration (SBA) guarantees long-term financing to small exporters
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Letter-of-Credit Relationships
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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
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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
An Offset Transaction
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Summary
The likelihood that a company is becoming an exporter increases with company size, but the percentage 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 when countries face foreign exchange problems.
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