3. Objectives
Identify
the key elements of export and import
strategies
Compare direct and indirect selling of exports
Discuss the role of trade intermediaries
Identify methods of export payments and the
financing of receivables.
Readings.
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4. Introduction
Characteristics
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of Exporters
The probability of a company’s being an exporter
increases with the size of the company
Export intensity is not positively correlated with
company size
The largest exporters in the United States also are
among the largest industrial corporations
Smaller exporters make smaller shipments; larger
exporters make larger shipments
5. Export Shipments of Various Sizes as Percentages of
Total Dollar Value of Exports
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6. Why companies export
Exporting
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Expands sales and profits
Achieves economies of scale and reduces the unit
costs of production.
Is less risky than DFI because it does not require
the same degree of capital.
Allows companies to diversify sales location.
7. Phases of export development
As
companies learn more about the process of
exporting,
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they tend to export to more countries
they tend to export to more dissimilar countries
which are located further away
they tend to export a larger percentage of their
sales.
The
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following figure summarizes the various
phases of exporting.
9. Export Strategy
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Entry mode depends on ownership advantages of the
company, location advantages of the market, and
internalization advantages of integrating transactions
within the company
Companies that have lower levels of ownership
advantages either do not enter foreign markets or use
low-risk strategies such as exporting
Strategic considerations affect the choice of exporting
as an entry mode
10. Designing an Export Strategy
In
designing an export strategy, a company
must
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Assess export potential
Get expert counseling
Select market or markets
Set goals and get the product to market
13. The Import Strategy
Importers
need to be concerned with procedural
and strategic issues
An
import broker is an intermediary that helps
an importer clear customs
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14. The Import Strategy
The
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Role of Customs Agencies
Customs agencies assess and collect duties and
ensure import regulations are adhered to.
Drawback provisions allow U.S. exporters to apply
for a refund of 99 percent of the duty paid on
imported components.
Documentation
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Importers must submit to customs documents that
determine whether the shipment is released and
what duties are assessed.
15. Export Intermediaries
Companies
use external specialists for
exporting before developing internal capabilities
Companies
may market their products either
directly or indirectly through external specialists
or intermediary organizations
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16. Export Intermediaries
Direct
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Selling
Direct selling involves sales representatives, agents,
distributors, or retailers
A sales representative usually operates on a
commission basis
A distributor is a merchant who purchases the
products from the manufacturer and sells them at a
profit
17. Export Intermediaries
Indirect
Selling
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Commission agents work for the buyer
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Export Management Companies (EMCs) provide
export services for a specific exporter or group of
exporters
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Export Management Companies
EMCs
in the United States are mostly small, entrepreneurial
ventures that tend to specialize by product, function, or
market area
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18. Export Trading Companies (ETCs)
ETCs
tend to operate on the basis of demand
rather than supply
ETCs
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can be formed by
Competitors can be exempt from antitrust laws
State and local governments
Money-center banks
Major corporations
19. Foreign Freight Forwarders
A
foreign freight forwarder is an export or import
specialist dealing in the movement of goods
from producer to consumer
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The typical freight forwarder is the largest export
intermediary in terms of value and weight handled
Air
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and Ocean Freight
Ocean freight is dominant in terms of total weight of
products traded, but air freight is significant in terms
of value of products shipped
20. Foreign Freight Forwarders
Documentation:
An export license is used to
determine whether products can be shipped to
specific countries
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Key export documents include
pro
forma invoice
commercial invoice
bill of lading
shipper’s export declaration
and export packing list
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23. Methods of payment
Methods
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of payments are
Cash in advance
Letter of credit
Documentary collection or draft
Open account
Countertrade
24. Export Financing
Financing
receivables for US exporters
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Ex-Im Bank provides direct loans to importers or
guarantees to financial institutions
The Small Business Administration (SBA) guarantees
long-term financing to small exporters
27. Export Financing
A
letter of credit obligates the buyer’s bank to
pay the exporter
A revocable letter of credit may be changed by
any of the parties to the agreement
An irrevocable letter of credit requires all parties
to agree to a change in the documents
A confirmed irrevocable letter of credit adds an
obligation to pay for the exporter’s bank
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28. Countertrade
Countertrade
refers to any one of a number of
different arrangements by which goods and
services are traded for each other
Countertrade
often takes place because of a foreignexchange shortage
Barter
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occurs when goods are traded for goods
In offset trade, the exporter sells goods for cash
trade
but then undertakes to promote exports from the
importing country in order to help it earn foreign
exchange
30. Summary
The
likelihood that a company is becoming an
exporter increases with company size, but the
percentage of sales exported is not correlated
with size.
Companies export to increase sales
revenues, use excess capacity, and diversify
sales.
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31. Summary
As
a company establishes its export business
plan, it must assess export potential, do the
appropriate research, and determine how to
get its goods abroad.
Importers need to be concerned with
procedural and strategic issues.
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32. Summary
Exporters
may engage in direct or in indirect
exporting.
Trading companies and export management
companies can be used to engage in indirect
exporting.
Freight forwarders specialize in moving goods from
one country to another.
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33. Summary
There
are four major financial issues related to
exporting: the price of the product, the method
of payment, financing of receivables, and
insurance.
Countertrade and offset trade are special
cases of exporting and importing used when
countries face foreign exchange problems.
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