CHAPTER 17

EXPORT AND IMPORT STRATEGIES


Case: Grieve Corporation

- Top 50 U.S. exporters generate 30% of U.S. merchandise exports.

- Grieve Corporation had not considered exports proactively due to: nature of its product, doubts about its success abroad, concern about competition

- Tips: know your product, learn about the competitive situation in foreign market; advertise in the local market; build a strong response base back home; solve your own problems; learn the customs an etiquette at the home of the countries you visit, and have the authority to make decisions and commit the company.


I - INTRODUCTION

- Successful Exporting is a complex process

- The probability of being a successful exporter increases with company size


II - OVERALL EXPORTING STRATEGY

A - STEPS

a) identify the product it wants to sell,

b) explore market opportunities,

c) develop production strategy,

d) prepare the goods for market,

e) determine the best strategy for getting the goods transport to market, and

f) sell the product, and finally receive payment


B - EXTERNAL AND INTERNAL FACTORS


The choice of exporting as an entry mode is a function of different factors:

a) Company Size, international experience, and ability to develop differentiated products.

b) Location advantages of the market: combination of market potential (size and growth potential) and investment risks

c) Internalization Advantages: refer to the benefits of holding onto specific assets or skills within the company and integrating them into its activities rather than licensing and selling them


III - STRATEGIC CONSIDERATIONS

a) What does the company wants to gain from exporting?

b) Is exporting consistent with other company goals?

c) What demand will exporting place on its key resources-management and personnel, production capacity, and financing, and how will these demands be met?

d) Are the expected benefits worth the costs, or would company resources be better used for developing new domestic business?


IV - FACTORS FAVORING EXPORTS

a) increase sales revenue
b) meets the needs of clients working abroad
c) alleviates excess capacity in the domestic market
d) ease the perceived risk of operating in foreign environments, and
e) address market diversification strategy


V - STAGES OF EXPORT INVOLVEMENT

a) Exporting by accident, rather than by design
b) Exploring Exporting
c) Experienced Exporter


VI - POTENTIAL PITFALLS

It is important to identify the major problems that exporters often face:

a) Failure to obtain qualified export counseling and to develop a master international marketing plan before exporting an export business.

b) Insufficient Commitment by top management to overcome the initial difficulties and financial requirements of exporting

c) Insufficient care in selecting overseas agents or distributors

d) Chasing Orders from around the world

e) Unwillingness to modify products to meet other countries' regulations or cultural preferences

f) Failure to print service, sales, and warranty messages in locally understood languages

g) Failure to consider use of an export management company or other marketing intermediary

h) Failure to consider licensing or joint-venture agreements in countries that have import restrictions.


VII - DESIGNING AN EXPORT STRATEGY

a) Assess the company's export potential by examining its opportunities and resources

b) Obtain expert counseling on exporting

c) Select a market or markets

d) Formulate an export strategy (short-term, long-term, allocation of resources, deadlines, tactics, etc)

e) Determine how to get the goods to market


VIII - AN EXPORT BUSINESS PLAN

a) Key Elements of the Plan (financial, management team, target markets, product)
b) Business History ( international experience, personnel experience)
c) Market Research (Target Market-Market Conditions)
d) Marketing Decisions (direct exporting , indirect exporting)
e) Legal Decisions (Copyright protection, contracts)
f) Manufacturing and Operations (Location of Production)
g) Personnel Strategies (Personnel needed to manage exports)
h) Financial Decisions (Tax consequences of export activity, financial needs and future source of funding)



IX - EXPORT INTERMEDIARIES

A company that either exports or is planning to export must decide whether certain essential activities are to be handled by its own staff or through contracts with other companies. The following functions must be carried out:

a) Stimulate Sales, obtain orders, and do market research
b) Make credit investigations and perform payment, and collection activities
c) Handle Foreign Traffic and Shipping
d) Act as support for the company overall sales, distribution, and advertising staff.


Performing these functions can be costly and can require expertise a company doesn't have. Thus, most firms initially use external specialists and or intermediary organizations.


A - DIRECT SELLING

Exporters undertake direct selling:

a) to give them greater control over marketing functions and to earn
b) to earn higher profits


Concerns about selecting a distributor or sales representative:

a) The size and capabilities of its sales force
b) Its sales record
c) An analysis of its territory
d) Its current product mix

e) Its facilities product mix
f) Its facilities and equipment
g) Its marketing policies
h) Its customer profile
i) Its promotional Strategies


Sales representative: usually operates either exclusively or nonexclusively within an assigned market and on a commission basis, without assuming risk or responsibility.

Distributor: merchant that purchases the products from the manufacturer and sells them at a profit. Distributors usually carry a stock of inventory and service the product.


B - INDIRECT SELLING

The exporter deals through an indirect intermediary, which is another domestic company before entering the marketplace.

a) Export Management Company

Usually acts as the export arm of a manufacturer. Primary function is to obtain orders for its client's products through the selection of appropriate markets, distribution channels, and promotion campaigns. It collects, analyses, and furnishes credit information and advice regarding foreign accounts and payments terms.
Handle documentation, arrange for transportation, set-up patent and trademark protection.
EMCs operate on a contractual basis, two to five years. An EMC might operate on the basis of a commission for sales and a retainer for other services.


b) Export Trading Companies

ETCs resemble EMCs but operate more on the basis of demand and supply. ETCs are like independent distributors that match up buyers and sellers. ETCs find out what foreign customers want and then identify different domestic suppliers or the products. Rather than representing a manufacturer, an ETC looks for as many manufacturers as it can find to supply overseas customers.

Export Trading Company Act - 1982


c) Non-U.S. Trading Companies


Sogo-Shosha, Keiretsu


d) Piggyback Exports

An exporter can use another exporter as an intermediary. Ex: A firm may agree to supply products to a foreign distributor even though it does not produce the entire range of products. Them it might look for other manufacturer to fill the gaps in the product line. The second manufacturer becomes an exporter indirectly.

e) Foreign Freight Forwarder

The freight forwarder manages the movement of cargo from origin to destination. Once a foreign sale has been made, the freight forwarder acts on behalf of the exporter in obtaining the best routing and means of transportation based on space availability, speed, and cost.
Getting the product from the manufacturing facility to the air or ocean terminal and overseas.
The forwarder secures space on planes or ships an necessary storage prior to shipment, reviews L/Cs, obtains export licenses, and prepares necessary shipping documents.
Advise on packing and labeling, insurance, repack shipments.


f) Air and Ocean Freight

Agility, cost, frequency, timely delivery, convenience, just-in-time inventory management


g) Documentation


- Pro Forma Invoice
- Commecial Invoice
- Bill of Lading
- Consular Invoice
- Certificate of Origin
- Shippers Export Declaration
- Export Packing List


X - EXPORT FINANCING

Major issues related to export financing: price of the product, methods of payment, financing of receivables, and insurance.

A- PRODUCT PRICE

Export Pricing is influenced by:

- Exchange Rates
- Transportation Costs
- Duties
- Multiple Channels
- Insurance Costs
- Banking Costs


B - METHODS OF PAYMENT

Cash in Advance

Letter of Credit: revocable letter of credit/irrevocable letter of Credit, confirmed letter of credit.

Bill of Exchange

Countertrade


C - THE IMPORT STRATEGY

Import Broker

- Valuing products in a way that they qualify for more favorable duty treatment.
- Deferring Duties by using bonded warehouses and foreign trade zones
- Limiting liability properly marking an import's Country of origin

The Role of Customs Agencies


Logistics

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