Part Five Global Strategy Structure and Implementation Chapter

Chapter Objectives • To introduce the ideas of export and import • To identify the elements of export and exporting strategies • To compare direct and indirect selling of exporting • To identify the elements of import and importing strategies • To discuss the types and roles of third-party intermediaries in exporting • To discuss the role of countertrade in international business 2 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Exports & Imports • Exporting refers to the sale of goods or services produced by a company based in one country to customers that reside in a different country • Importing is the purchase of goods or services by a company based in one country from sellers that reside in another 3 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Advantages of Exporting • Lower investment way to enter foreign markets • Lower risk way to enter foreign markets • Expands sales • Achieves scale economies • Diversifies sales 4 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of Exporters • The probability of a company’s becoming an exporter increases with company size, but the extent of exporting does not directly correlate with size • Companies export to increase sales revenues, use excess capacity, and diversify markets 5 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Pitfalls of Exporting • Companies new to exporting (and also some experienced exporters) often make many mistakes • One way to avoid mistakes is to develop a comprehensive export strategy that includes an analysis of the company’s resources as well as its export potential • Companies can also improve the odds of export success by working with an experienced export intermediary 6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Designing an Export Strategy • As a company establishes its export business plan, it must: § assess export potential § obtain expert counseling § select a country or countries where it will focus its exports § formulate its strategy § determine how to get its goods to market 7 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Types of importers • Those looking for any product around the world to import and sell. • Those looking foreign sourcing to get their products at the cheapest price. • Those using foreign sourcing as part of their global supply chain. 8 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Types of imports • Industrial and consumer goods to independent individuals and companies. • Intermediate goods and services that are part of the firm’s global supply chain. 9 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Strategic Advantages of Imports • • Specialization of Labor Global Rivalry Local Unavailability Diversification of Operating Risks 10 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Customs Agencies • Customs agencies assess and collect duties, as well as ensure that import regulations are adhered to • A custom broker helps by valuing products to qualify for: § more favorable duty treatment § qualifying products for duty refunds through drawback provisions § deferring duties by using bonded warehouses and foreign trade zones § limiting liability by properly marking an import’s country of origin 11 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Principal types of exporting • Direct: goods and services are sold to an independent party outside of the exporter’s home country. • Indirect exports: goods and services are sold to an intermediary in the domestic market, which then sells the goods in the export market. 12 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Indirect Selling • Exporters may deal directly with: § agents or distributors in a foreign country § indirectly through third-party intermediaries, such as export management companies § other types of trading companies 13 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Direct Selling • Through distributors who usually deal with retailers instead of end users • To retailers and end users • Internet marketing is a new form of direct exporting that is allowing many small- and medium-sized companies to access export markets as never before 14 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Export Documentation • Key export documents are: § § § § pro forma invoice commercial invoice bill of lading consular invoice certificate of origin shipper’s export declaration export packing list 15 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Export Assistance • Trading companies can perform many of the functions for which manufacturers lack the expertise • Exporters can use the services of other specialists, such as freight forwarders, to facilitate exporting • These specialists can help an exporter with the complex documentation that accompanies exports • Government agencies in some countries, such as the Ex. Im Bank in the United States, provide assistance in: § terms of direct loans to importers § bank guarantees to fund an exporter’s working capital needs § insurance against commercial and political risk 16 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Countertrade • Countertrade is when goods and services are traded for each other. It is used when a firm exports to a country whose currency creates barriers to efficient trade • Common types are: barter, buyback, offset, switch trading, and counter purchase 17 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall