Export and Import Strategies

Export and Import Strategies

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 exports • To identify the elements of import and importing strategies • To discuss the types and roles of third-party intermediaries • To profile the role of counter-trade

Exporting and Importing • 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.

Exporting and Importing • Importing is the converse: the purchase of products by a company based in one country from sellers that reside in another.

World’s Top Trading Countries

Environmental Factors Influencing Export and Import Operations

Export Strategy • Advantages to exporting • Operational control • Exporting allows managers to exercise operational control but does not let them exercise much marketing control. An exporter usually resides far from the end consumer and often enlists various intermediaries to manage marketing and service activities

Export Strategy • Advantages to exporting • Requires less expertise, time, and capital than other modes of entry such as FDI.

The Internationalization Process This chart shows the progression in internationalization from licensing (minimum), to foreign direct investment (maximum).

Why go International? • Diversity against home market risks • Tap into growing markets • Follow competition • Reduce costs (manufacturing) • Overcome trade barriers • Protect intellectual property rights.

Export Strategy • Advantages to exporting • Helps companies expand and diversify sales as well as achieve economies of scale • Exporting enables companies to diversify their activities, thereby fortifying their adaptability to changes in the home market

Questions to Consider Companies typically consider the following questions in evaluating the export option: • What do we want to gain from exporting? • Is exporting consistent with our goals? • Will exporting put undue demands on our resources? If so, how will we meet them? • Does exporting leverage our core competency? • Does exporting fit the current configuration of our value chain? • Do our coordination systems support the needs posed by exporting? • Are the projected benefits of exporting worth the costs? • Would our resources be better used to develop new domestic business?

Characteristics of Exporters • Although the largest companies are the biggest exporters, small companies are also expanding their export capability. • Firm characteristics moderate its export intensity. Size plays a role, but often management commitment, efficiency, and cost structure matter more.

Two Views of Export Development Two views of export shape interpretation: The slow, sequential dynamic of incremental internationalization. As a company gains experience, resources, and confidence, it progressively exports to increasingly distant and dissimilar countries.

Two Views of Export Development Two views of export shape interpretation: Born Global • Rather than slowly learning about foreign markets, born-global companies step straight onto the world stage, exporting from day one of operations.

Phases ofExport Development

Pitfalls of Exporting • Adjusting Financial Management • The currency and credit processes of export require adept financial management. Companies often struggle with the fact that completing an export sale requires them to help foreign customers obtain credit.

Pitfalls of Exporting • Adjusting Customer Management • Worldwide, customers demand a greater range of services from their vendors. The fact that most products are available from many vendors boosts the buyer’s negotiating power.

Pitfalls of Exporting • Adjusting for Information Technology • Historically, exports were arm’s-length, ship-it-and-forget-it transactions. Contact with customers relied on hard-copy documents either faxed or posted overnight. This situation created useful time lags with which to deal with customers’ concerns. Now, the ease of contacting vendors via e-mail or inexpensive voice-over-Internet-protocol (VoIP) gives customers real-time access, thereby increasing demands on the exporter.

Pitfalls of Exporting Additional Stumbling Blocks • Insufficient commitment by top management to overcome the inevitable demands and difficulties of export • Underestimating the usefulness of public and private export expertise • Misestimating the costs of shipping and the complexity of customs regulations and procedures.

Pitfalls of Exporting Additional Stumbling Blocks • Poor selection of local agents to represent the company abroad • Reacting to orders from around the world instead of designing a purposeful sales strategy • Neglecting export markets when the domestic market booms

Pitfalls of Exporting Additional Stumbling Blocks • Failure to treat international distributors on an equal basis with those in the home market • • Unwillingness to modify products to meet other countries’ regulations or cultural preferences • • Failure to print service, sales, and warranty messages in local languages • • Bypassing public export assistance when the company lacks qualified personnel • • Failure to prepare for disputes with customers

Designing an Export Strategy • Assess the company’s export potential by examining its opportunities and resources. It identifies whether it can leverage its core competency overseas. Managers confirm there is sufficient production capacity, or that they can develop it, if success comes sooner than forecast..

Designing an Export Strategy 2. Obtain expert counseling on exporting. The U.S. government, for example, offers a wealth of information and advice on the practical points of exporting—www.export.gov is the official gateway to trade support provided by the Commerce Department, the State Department, and the Small Business Administration.

Designing an Export Strategy 3. Select a market or markets. The incremental internationalization view of exporting holds that companies target countries that are similar to their home market.

Designing an Export Strategy 4. Formulate and implement an export strategy. Export ambitions ultimately must translate into precise objectives, planned tactics, hard time lines, and resource allocations that deliver products to foreign buyers. The development of the plan depends on the company, its outlook toward export markets, and its core competency.

Import Strategy There are three types of importers: • Those looking for any product around the world to import and sell. • Those looking for foreign sourcing to get their products at the cheapest price. • Those using foreign sourcing as part of their global supply chain.

Advantages of Importing • Specialization of Labor makes export to and import from countries around the world more efficient than manufacturing every product in every country. For instance, Nike buys shoes manufactured by companies located in several Asian countries.

Advantages of Importing • Local Unavailability • Companies import products that are, due to geographic, policy, or developmental reasons, locally unavailable.

Advantages of Importing • Global Rivalry • In areas such as telecommunications, automobiles, and business services, pose relentless pressures. These pressures often spur a company to combat import competition by switching to foreign suppliers whose components enable it to lower the cost or boost the quality of its finished products.

Advantages of Importing • Diversification of Operating Risks - An importer, like an exporter, diversifies its operating risks by tapping international markets. In many industry settings, developing alternative suppliers makes a company less vulnerable to fortunes of a single supplier.

Import Brokers • Key Broker Functions: • Valuing products in such a way that they qualify for more favorable duty treatment • Qualifying for duty refunds through drawback provisions • Deferring duties by using bonded warehouses and foreign trade zones • Document and paper-flow management • Limiting liability by properly marking an import’s country of origin

Customs Agencies • Efficiency Improvement. • Long delays, too many documents, and high administrative fees boost trade costs that increase prices. For those reasons, customs agents continually test the latest technologies and management systems.

Customs Agencies • Procedural Assistance • Successful importing hinges on knowing how to clear goods through customs, assigning optimal customs duties, and complying with regulations.

Future: The Technology of Trade • Advances in transportation and communication increases trade • Collaborative software allows smaller companies to engage in international trade more efficiently • 3rd Party Logistics . Growing availability of low-cost overnight shipping has robbed big firms of a long-running competitive advantage third-party logistics, or “3PLs”), like FedEx and UPS.

Import Documentation • Bureaucratic Impediments • The efficiency of importing is challenged by delays, documents, and fees. • An irony of growing globalization is import inefficiencies due to delays, documents, and administrative fees.

The Export Process Principal types of exporting: • Direct—products sold to an independent party outside of the exporter’s home country. • Indirect exports—products sold to an intermediary in the domestic market, which then sells the goods in the export market.

Indirect Selling • Export Intermediaries • Export Management Companies: operate on a contractual basis—usually as an agent of the exporter. • Export Trading Companies: operate based on demand rather than supply. They identify suppliers who can fill orders in overseas markets.

Direct Selling • Direct selling involves sales representatives, distributors, or retailers. • Direct Selling to Foreign Retailers and End Users • Direct Selling over the Internet

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

Sources of Regulatory Assistance In the United States, a number of institutions, most notably the department of Commerce and its affiliates, help firms identify and realize export and import opportunities.

Freight Forwarders A foreign freight forwarder is an export or import specialist dealing in the movement of goods from producer to consumer. • Primary transportation modes include: • Surface freight (truck and rail), ocean freight, and airfreight. • Intermodal transportation—the movement across different modes from origin to destination.

Counter-trade This is an umbrella term for several sorts of trade, such as barter or offset, in which the seller accepts goods or services, rather than currency or credit, in payment for its products.

A Little Electronic Magic at Alibaba.com http://www.alibaba.com

E-Commerce • Before the Internet, international trade was usually limited to larger companies • Today, companies of all sizes use online technologies to: • Find Information • Source Products • Identify Suppliers • Market Products…etc.

Country Specific Portals • The emergence of country specific portals has accelerated the process of international trading through online bazaars for international traders • Examples: • www.koreatradeworld.com • www.bizeurope.com

E-Trade in China • Alibaba: Chinese Internet company, introduces Chinese manufacturers to global and domestic buyers. • Enables an interactive community of buyers and sellers to meet, chat, and trade online • Most users are SMEs from developing countries • www.Taobao.com

Focus on Small-Medium Companies • Founder Jack Ma’s vision: expand historic outward flow of Chinese products to the world • Low cost way to search suppliers and undergo trade deals. • Additional features create further transparency

Questions 1. Visit www.alibaba.com, go to the “Advanced Search” box, and enter the product you seek. Select required criteria and click on “Search.” Review the list of companies that qualify and find a suitable one. Analyze this process for ease, usefulness, and potential value. 2. List, in separate columns, the benefits and costs of using sites like Alibaba to trade internationally. What does your analysis say to companies like Grieve (our opening case) as they think about their export strategy? 3. Visit www.alibaba.com, www.trade-india.com, and ww.tradekey.com. Compare and contrast their features. 4. Is it reasonable to speculate that eventually most trade between companies might take place in the context of sites like Alibaba.com? 5. How transparent do sites like Alibaba.com make the import-export transaction? Would you still worry about fraud? 6. How might the global financial crisis create opportunities and threats for Alibaba.com?

Export and Import Strategies