Chapter 17 - Export and Import Practices International Business by Ball, McCulloch, Frantz, Geringer, and Minor
Chapter Objectives • Explain why firms export • Describe the three problem areas of exporting • Identify the sources of export counseling • Discuss the meaning of the various terms of sale • Identify some sources of export financing • Describe the activities of a foreign freight forwarder • Understand the kinds of export documents required • Identify import sources • Describe the activities of a customhouse broker
Why Export? • Reasons to export • To serve markets where • the firm has no production facilities. • the local plant does not produce the firm’s complete product mix. • To satisfy a host government’s requirement that the local subsidiary export. • To remain competitive in the home market.
Why Export? • Reasons to export (cont’d) • To test foreign markets and foreign competition inexpensively. • To meet actual or prospective customers’ requests for the firm to export. • To offset cyclical sales of the domestic market. • To achieve additional sales. • To extend a product’s life cycle.
Why Export? • Reasons to export (cont’d) • To distract foreign competitors that are in the firm’s home market by entering their home markets. • To partake in the kind of success the firm’s management has seen others achieve by exporting. • To improve equipment utilization rates.
Why Don’t They Export • Two major reasons U.S. firms give for not exporting • Preoccupation with the vast American market. • A reluctance to become involved in a new and unknown operation.
Why Don’t They Export • General Problem Areas that Deter Firm from Exporting • Locating foreign markets. • Payment and financing procedures. • Export procedures.
Sources of Export Counseling • Trade Information Center (TIC) • The federal government has set this up as a first stop for information • about all federal export assistance programs as well as country and regional market information. • Trade Information Center Web Site • Among the items at the TIC index page are • links to government export programs, trade promotion events, and trade lead information.
Sources of Export Counseling • International Trade Administration (ITA) • Three units of the ITA work together to provide export counseling services. • International Economic Policy • Trade Development • U.S. and Foreign Commercial Services
Sources of Export Counseling • Small Business Administration (SBA) • The Office of International Trade of the SBA works through • SBA district offices. • SCORE programs. • SBDC/SBI programs.
Sources of Export Counseling • Department of Agriculture (DOA) • The DOA has a single contact point • Ag Exporter Assistance • within its Foreign Agriculture Service for agricultural exporters seeking export assistance.
Department of Commerce Export Assistance Program • Foreign Market Research • After learning about the company and its products, • the international trade specialist may advise the potential exporter to consult the National Trade Data Bank (NTDB). • The NTDB provides • a comprehensive guide for new exporters. • a source of specific product and regional information for experienced exporters searching for new markets.
Department of Commerce Export Assistance Program • Show and Sell • Four kinds of trade events that facilitate international trade • U.S. pavilions. • Trade missions. • Product literature center. • Reverse trade missions.
Export Marketing Plan • Export Marketing Plan • Essentially the same as the domestic marketing plan. • The plan should be specific about • The markets to be developed. • The marketing strategy for serving them. • The tactics required to make the strategy operational.
Export Marketing Plan • Marketing Mix • Foreign customers may insist on one of the following terms of sale • FAS (free alongside ship, port of call) • Seller pays all the transportation and delivery expense up to the ship’s side and clears the goods for export. • CIF (cost, insurance, freight, foreign port) • Seller quotes a price that includes the cost of the goods, insurance, and all transportation and miscellaneous charges.
Export Marketing Plan • Marketing Mix • Terms of Sale (cont’d) • CFR (cost and freight, foreign port) • This is similar to CIF except that the buyer purchases the insurance because it may be able obtain it at a lower cost or because its required by the buyer’s government. • DAF (delivered at frontier) • The seller quotes a price that covers all costs up to the border where the shipment is delivered to the buyer’s representative.
Payment and Financing Procedures • Types of payment terms offered by exporters to foreign buyers • Cash in advance. • Open account. • Consignment. • Letter of credit. • Documentary drafts.
Payment and Financing Procedures • Cash in Advance • When credit standing of the buyer is not known or is uncertain, • cash in advance is desirable. • Open Account • When a sale is made on open account, • The seller assumes all of the risk. • Terms should be offered only to reliable customers in economically stable countries.
Payment and Financing Procedures • Consignment • Goods are shipped to the buyer and payment is not made until they have been sold. • All the risk is assumed by the seller. • Letters of Credit • This document is issued by the buyer’s bank, • which promises to pay the seller a specified amount when the bank has received certain documents stipulated in the letter of credit.
Payment and Financing Procedures • Letters of Credit • Confirmed • Act of a correspondent bank in the seller’s country by which it agrees to honor the issuing bank’s letter of credit. • Irrevocable • Once the seller has accepted the credit, the customer cannot alter or cancel it without the seller’s consent.
Payment and Financing Procedures • Letters of Credit • Before opening a letter of credit, a buyer frequently requests • a pro forma invoice. • This is the exporter’s formal quotation containing a description of the merchandise, price, delivery time, proposed method of shipment, ports of exit and entry, and terms of sale.
Payment and Financing Procedures • Documentary Drafts • An export draft • is an unconditional order drawn by the seller on the buyer instructing the buyer to pay the amount of the order on presentation (sight draft) or at an agreed future date (time draft).
Export Financing • Commercial banks • A source of export financing through loans and the discounting of time drafts. • Factoring • Provides working capital to manufacturers short of cash. • Is essentially discounting without recourse. • Forfaiting • Denotes the purchase of obligations that arise from the sale of goods and services and fall due at some date beyond the 90 to 180 days that is customary of factoring.
Export Financing • Export-Import Bank • The U.S. Export Import Bank (Eximbank) • The principal government agency responsible for aiding the export of American goods and services • through a variety of loan, guarantee, and insurance programs. • Programs are available to any American export firm regardless of size.
Export Financing • Export-Import Bank • Two types of loans available from the Eximbank • Direct loans to foreign buyers of American exports. • Intermediary loans to responsible parties. • Foreign government lending agency that relends to foreign buyers of capital goods and related services.
Other Government Incentives • Overseas Private Investment Corporation • Offers investors insurance against • expropriation, currency inconvertibility, and damages from wars or revolutions. • Also offers specialized insurance for • American service contractors and exporters operating in foreign countries.
Other Government Incentives • Foreign Sales Corporation • Special corporate form authorized by the federal government that provides tax advantages for exporting firms. • Free Trade Zones • An area designated by the government of a country for duty-free entry of any nonprohibited good.
Export Documents • Shipping Documents • Shipper’s Export Declaration • This document is required by the Department of Commerce to control exports and supply export statistics. • Most products can be exported under a general export license • No special authorization is necessary.
Export Documents • Shipping Documents • An export bill of Lading serve three purposes. • a contract for carriage between the shopper and the carrier. • a receipt from the carrier for the goods shipped. • a certificateof ownership
Export Documents • Collection Documents • The most common documents for collection • Commercial invoices. • Consular invoices. • Certificates of origin. • Inspection certificates.
Export Shipments • Containers • LASH (lighter aboard ship) • RO-RO (roll on-roll off) • Air Freight
Export Shipments • Air Freight • Total cost components that may be lower for air freight include • Insurance rates. • Packing. • Custom duties. • Replacement costs for damaged goods. • Inventory costs.
Export Shipments • Air Freight • When the total cost are high for air freight, it may still be advantageous to ship by air • when factors other than the conventional expense, inventory, and capital are considered. • Production and opportunity costs. • The firm may be air-dependent. • The products may be air-dependent because the market itself is perishable.
Importing • Ways to identify import sources • If similar imported products are already in the market, visit a retailer and examine the product label. • If the product is not being imported, call the nearest consul or embassy of that country. • Use the electronic bulletin boards of the World Trade Centers. • Accidental importing also takes place.
Customhouse Brokers • Customhouse Brokers • Independent businesses that handle import shipments for compensation. • Acting as the agent for the importer • Customhouse brokers bring the imported goods through customs. • They also need to know when imports are subject to import quotas and how much of the quota has been already filled.