Import/Export Basics (Ch. 2)

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 • Commonly used terms: • Glossary: pgs. 351-385

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 • Familiarity with… • the product • the industry • Advantage in… • knowledge • contacts • language/culture

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 • Who are sources of information? Who can I contact? • import: consulate office, embassy, government • export: industry publications, department of commerce

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 • 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? • Make a profit! • Initial quotations • Terms of sale • The market channel • Pricing

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 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 • 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 • Most commonly used: • EXW • FAS • CIF • DAF

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 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 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 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

3. The Market Channel • see p. 30

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. Pricing • Which currency will they use? • depends on volume of transaction • buyer and seller mutually agree • U.S. dollar or Euros

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. 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. 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. 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

Import/Export Basics (Ch. 2)