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Chapter 13: Export-Import Management. TOPIC PLAN. Negotiation of an international sale Main methods of payment Trade finance techniques Credit, factoring, forfeiting, counter trade Australia’s exporters Export management in a multinational company Exports of Small and Medium enterprises.
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TOPIC PLAN • Negotiation of an international sale • Main methods of payment • Trade finance techniques • Credit, factoring, forfeiting, counter trade • Australia’s exporters • Export management in a multinational company • Exports of Small and Medium enterprises
Major steps in the negotiation of an international sale 1.Enquiry Exporter in Country B Exporter in Country A 2. Quotation/Offer 3. Order 4. Order Acceptance/ contract
INCOTERMS • Incoterms 2000 • EXW – Ex-Works • FCA- Free Carrier • FAS- Free Alongside Ship • FOB-Free on Board • CFR-Cost and Freight • CIF- Cost, Insurance and Freight
The four contractual relationships • 1. The International Sale of Goods Contract • Exporter and Importer • 2. The Letter of Credit (L/C) • Importer and the Importer’s bank • 3. The Bill of Lading • Carrier and Exporter( under CFR/CIF) or with the Importer (under an FOB sale) • 4. Insurance contract • Insurance company and Exporter (CIF) and Importer (CFR/CIF)
Export Marketing issues • Channels of distribution • National market:producer-export agent-import agent-major wholesaler-small wholesaler • Modus operandi is different • Pricing • (1) requiring prices in export markets that yield higher returns that are available in domestic markets • (2) “one-price” strategy • (3)pricing to yield lower returns, at least in the short run • (4) pricing to sell production in excess of the domestic needs
Trade financing-Methods of Payment • Cash in Advance • Documentary letters of credit • Revocable credits • Irrevocable credits • Confirmed credits • Draft(bill of exchange): the instrument normally used in international commerce to effect payment. • Drawer (“Maker”) and Drawee • Sight drafts and time drafts
European Importer AUSTRALIAN EXPORT SALE TO EUROPE € European Bank L / C ANZ BANK Aussie Exporter
TRADE FINANCING:Bank finance • Credit to importer • Supplier credit (by the exporter) • Buyer credit(directly to the foreign buyer) • Short term (up to 2 years) • Medium term (2-5 years) • Long-term (over 5 years)
Trade Financing: Non-Bank Finance • Government loans and guarantees(Export credit insurance):EFIC,COFACE etc. • Factoring • Factor buys export receivables at a discount of 2-4% Exporter -ultimately liable in case of default. • Forfeiting • Non-recourse export finance • Guarantee (avail) from the importer's government • Counter trade
COUNTERTRADE • Main forms • Barter • Counter purchase • Buyback(Compensation) • Offsets(Local content) • Pro-active vs. Reactive counter trade • Disadvantages:Time-consuming;Costly
Government Loans and Guarantees • Export credit insurance-guarantee programs • France-over 20% of exports • Japan-low interest loans to export companies • Brazil-favourable exchange rates to exporters • US-EXIMBANK • "Mixed credit"
Australian Exporters • Small size by international standards • Top 50 Australian exporters(Median:US $300m) • Top 50 US exporters(Median :US$ 1.3billion.) • Primary products dominate the top 50 placings. • ETM’s: the fastest growing export sector. • 150 “born-global” ETM exporters • Foreign ownership plays a dominant role
Selected indicators regarding the top 50 exporters in Australia and Canada
Export Management for the MNE • More international options(exports & foreign production) • Exports of complete products or only parts • Changes in Foreign business strategy(Step 5-Bus.plan) • Exports to MNEs affiliates • Choice of foreign currency • Transfer pricing • More local market knowledge than non-MNE's
SME's in global business activities • Worldwide:37,000 transnational enterprises with over 205,000 affiliates. • Contribution of SME's to nation's exports • Taiwan : 60 % • Denmark : 50 % • Sweden : 30 % • France : 26 % • AUSTRALIA :< 10 %
Australia's Small and Medium Enterprises • Total number of Australian SME's :about 530,000 • Internationalised Small and Medium Enterprises(ISME'S) • Number of ISME's: at least 4,500 • International turnover:A$ 6.5 b. • Direct domestic employment : ab.40,000 • Over 20 % of turnover from global operators • Active in at least 5 countries(mainly SE Asia).
IMPORT MANAGEMENT • Importing-neglected aspect of international business strategy • Importing channels-Direct and Indirect • Importing-part of the purchasing function • MNE imports from off-shore manufacturing affiliates