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Import/Export Basics (Ch. 2). Beginning Steps. Terminology Homework Choosing the product Making contacts Market research What’s the bottom line?. 1. Import/Export Terminology. International trade uses distinctive vocabulary Terms & acronyms guide, regulate, and facilitate trade

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beginning steps
Beginning Steps
  • Terminology
  • Homework
  • Choosing the product
  • Making contacts
  • Market research
  • What’s the bottom line?
1 import export terminology
1. Import/Export Terminology
  • International trade uses distinctive vocabulary
  • Terms & acronyms guide, regulate, and facilitate trade
  • Commonly used terms:
    • Glossary: pgs. 351-385
2 homework
2. Homework
  • RESEARCH!
  • What should you research?
    • the product
    • profit potential
  • Research is a good investment, not a waste of time (even if you already have some experience)
3 choosing the product
3. Choosing the Product
  • Familiarity with…
    • the product
    • the industry
  • Advantage in…
    • knowledge
    • contacts
    • language/culture
3 choosing the product1
3. Choosing the Product
  • Marketing decisions
    • product standards (ISO)
      • ISO: International standards for business, government, society
    • technical specifications and codes
      • 220V, 50Hz  120V, 60Hz
    • quality and product life cycle
      • developed vs. less developed countries
    • other uses
      • e.g., motorcycles
4 making contacts
4. Making Contacts
  • Who are sources of information? Who can I contact?
    • import: consulate office, embassy, government
    • export: industry publications, department of commerce
4 making contacts1
4. Making Contacts
  • Who can I contact to market a product/service?
    • import: trade shows, direct mailers, Internet
    • export: trade shows, retailers, United Nations
  • List of trade shows on Alibaba.com
5 market research
5. Market Research
  • Your purpose is to make a profit.
  • Thus, you need to know whether or not your product will survive in a certain market.
  • You have to do market research!
  • Read through the import/export checklist on p. 22-24. Which questions do you think are most important? Share with your partner.
6 what s the bottom line
6. What’s the Bottom Line?
  • Make a profit!
  • Initial quotations
  • Terms of sale
  • The market channel
  • Pricing
1 initial quotations
1. Initial Quotations
  • Letter of Inquiry a.k.a. Request for Quotation (RFQ)
  • This is the first step
  • Who sends the letter? –Importer to exporter
  • What is in the letter? – Importer asks exporter to send the importer a pro forma invoice.
  • Look at sample RFQ on p. 25
1 initial quotations1
1. Initial Quotations
  • PRO FORMA INVOICE
  • exporter to importer
  • A temporary invoice which includes product description and specifications, costs, price, quantity, shipping costs, delivery terms, and procedures.
  • Purpose: describes details of sale in advance; obtain letter of credit
  • Look at p. 27 for a sample pro forma invoice
2 terms of sale
2. Terms of Sale
  • Pricing terms
  • “Defines the geographical point where the risks and costs of the exporter and importer begin and end.” –p.26
  • INCOTERMS: International Commerce Terms
  • Purpose: prevent misunderstandings of responsibilities and liabilities
incoterms
INCOTERMS
  • Most commonly used:
  • EXW
  • FAS
  • CIF
  • DAF
exw ex from w works factory warehouse
EXWEX = from; W = works (factory, warehouse)

the SELLER (exporter)

the BUYER (importer)

  • is responsible for packing and labeling merchandise and having it ready for loading (seller doesn’t load)
  • is responsible for all other risks and costs from the delivery point to the final destination
fas free alongside ship
FAS: Free Alongside Ship

the SELLER (exporter)

the BUYER (importer)

  • is responsible for packing and labeling merchandise, having it ready for loading, placing it at the side of the ship, and clearing it for export
  • is responsible for all transportation costs and risk of loss of goods

FAS Long Beach

see p. 27

cif cost marine insurance freight
CIF: Cost, Marine Insurance, Freight

the SELLER (exporter)

the BUYER (importer)

  • is responsible for shipping, insurance and other costs up to the port of final destination
  • is responsible for risks and costs from the port of destination
daf delivered at frontier
DAF: Delivered at Frontier

the SELLER (exporter)

the BUYER (importer)

  • is responsible to hire someone to take goods to a border crossing point and clear them for export
  • is responsible for picking up the goods, carrying them across the border, and clearing them for importation
4 pricing
4. Pricing
  • New/unique product  can be a high price
  • Gain a foothold  Marginal Cost Pricing
    • set market price at the level just above where a loss would occur
  • Dumping: If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be “dumping” the product.  ILLEGAL under GATT (General Agreement on Tariffs and Trade)
  • Pricing Model: p. 31
4 pricing1
4. Pricing
  • Which currency will they use?
    • depends on volume of transaction
    • buyer and seller mutually agree
    • U.S. dollar or Euros
4 pricing2
4. Pricing
  • Commissions
    • export middleman  7 – 20%
    • import middleman (distributor)  5 – 20%
  • Example of cost elements  p. 32 (see difference between import/export cost sheet)
    • key issues (commission):
      • price of the product
      • the number of units
4 pricing3
4. Pricing
  • www.export.gov
  • www.usitc.gov
  • U.S. Harmonized Tariff Schedule
    • international uniformity in the presentation of customs tariffs and foreign trade statistics
4 pricing4
4. Pricing
  • Export: certificate of origin, packing, labeling, sales commission, inland freight, shipping, insurance
  • Import: customs duty, customs broker, tariffs, repackaging, letter of credit, advertising, promotion, overhead, salaries
  • p. 33/34
4 pricing5
4. Pricing
  • Case study: Guitars p. 213
  • Rates of duty:
    • General:
      • most favored nations
      • normal trade relations (NTR)
    • Special:
      • see Table 8.3
    • 2:
      • North Korea and Cuba