Export & import strategy14

ECP 6701
Competitive Strategies in Expanding Markets
Export and Import Strategies

1

Readings
 Daniels,

Radebaugh, Sallivan, International
Business, Chapter 17

2

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.
3

Introduction
 Characteristics
–
–
–
–

4

of Exporters

The probability of a company’s 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

Export Shipments of Various Sizes as Percentages of
Total Dollar Value of Exports

5

Why companies export
 Exporting
–
–
–
–

6

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.

Phases of export development
 As

companies learn more about the process of
exporting,
–
–
–

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.

 The

7

following figure summarizes the various
phases of exporting.

Phases of Export Development

8

Export Strategy
–

–

–

9

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

Designing an Export Strategy
 In

designing an export strategy, a company
must
–
–
–
–

10

Assess export potential
Get expert counseling
Select market or markets
Set goals and get the product to market

The Import Strategy
 Importers

need to be concerned with procedural
and strategic issues

 An

import broker is an intermediary that helps
an importer clear customs

13

The Import Strategy
 The
–
–

Role of Customs Agencies

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.

 Documentation
–

14

Importers must submit to customs documents that
determine whether the shipment is released and
what duties are assessed.

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

15

 Direct
–
–
–

16

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

 Indirect

Selling

–

Commission agents work for the buyer

–

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

17

Export Trading Companies (ETCs)
 ETCs

tend to operate on the basis of demand
rather than supply

 ETCs
–
–
–
–

18

can be formed by

Competitors can be exempt from antitrust laws
State and local governments
Money-center banks
Major corporations

Foreign Freight Forwarders
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

 Air
–

19

and Ocean Freight

Ocean freight is dominant in terms of total weight of
products traded, but air freight is significant in terms
of value of products shipped

Foreign Freight Forwarders
 Documentation:

An export license is used to
determine whether products can be shipped to
specific countries
–

Key export documents include
 pro

forma invoice
 commercial invoice
 bill of lading
 shipper’s export declaration
 and export packing list

20

Export Financing
 Financial
–
–
–
–

21

issues relating to exporting:

Product price
Method of payment
Financing of receivables
Insurance

Product Price
 Export
–
–
–
–
–
–

22

pricing is influenced by:

Exchange rates
Transportation costs
Duties
Multiple distribution channels
Insurance costs
Banking costs

Methods of payment

 Methods
–
–
–
–
–

23

of payments are

Cash in advance
Letter of credit
Documentary collection or draft
Open account
Countertrade

Export Financing
 Financing

receivables for US exporters

–

–

24

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

Letter-of-Credit Relationships

25

An Irrevocable Export Letter of Credit

26

Export Financing
A

letter of credit obligates the buyer’s 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 exporter’s bank
27

Countertrade
 Countertrade

refers to any one of a number of
different arrangements by which goods and
services are traded for each other
 Countertrade

often takes place because of a foreignexchange shortage

 Barter

28

occurs when goods are traded for goods
 In offset trade, the exporter sells goods for cash
trade
but then undertakes to promote exports from the
importing country in order to help it earn foreign
exchange

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.
30

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.

31

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.
32

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.

33

Export & import strategy14

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