MMIT

1. MMIT Modes of International Business Exporting/Importing

2. International vs. DomesticOPPORTUNITIES • Seek opportunities for growth through market diversification • Gain new ideas about products, services, and business methods • Better serve key customers that have relocated abroad • Be closer to supply sources, benefit from global sourcing advantages, or gain flexibility in the sourcing of products

3. International vs. DomesticOPPORTUNITIES • Gain access to lower-cost or better-value factors of production • Develop economies of scale in sourcing, production, marketing, and R&D • Confront international competitors more effectively or thwart the growth of competition in the home market

4. FDI Based Explanations: Dunning’s Eclectic Paradigm Three conditions determine whether or not a company will internalize via FDI: • Ownership-specific advantages – knowledge, skills, capabilities, relationships, or physical assets that form the basis for the firm’s competitive advantage • Location-specific advantages – advantages associated with the country in which the MNE is invested, including natural resources, skilled or low cost labor, and inexpensive capital • Internalization advantages – control derived from internalizing foreign-based manufacturing, distribution, or other value chain activities

5. Factors Relevant to Choice of Foreign Market Entry Strategy • The goals and objectives of the firm, such as desired profitability, market share, or competitive positioning; • The particular financial, organizational, and technological resources and capabilities available to the firm; • Unique conditions in the target country, such as legal, cultural, and economic circumstances, as well as distribution and transportation systems; • Risks inherent in each proposed foreign venture in relation to the firm’s goals and objectives in pursuing internationalization; • The nature and extent of competition from existing rivals, and from firms that may enter the market later; • The characteristics of the product or service to be offered to customers in the market.

6. Participants in International Business • The focal firm – initiator of IB transaction, including MNEs and SMEs • Distribution channel intermediary – specialist firm providing logistics and marketing services in the international supply chain • Facilitator – a firm providing special expertise in legal advice, banking, customs clearance, market research, and similar areas

7. Types of Focal Firms • Multi-National Enterprise • Joint-Venture • SME • Born Global Firm • NGOs

9. Foreign Market Entry Strategies of Focal Firms Cross-border business transactions can be grouped into three categories: • Trade: buying and selling of products • Contractual exchange of services or intangibles: buying and selling of services • Equity ownership in foreign operations: establishing foreign presence through direct investment

10. MODES of International Business Activities • Exporting (importing) • Global sourcing (out-s, in-s, offshore) • Contract manufacturing • Licensing and Franchising (mgmt. contract) • Foreign Direct Investment (FDI) • Strategic Alliances (Joint Venture) • Portfolio Investment

12. Exporting Advantages • Relatively low financial exposure • Permit gradual market entry • Acquire knowledge about local market • Avoid restrictions on foreign investment Disadvantages • Vulnerability to tariffs and NTBs • Logistical complexities • Potential conflicts with distributors

14. Export Documentation • quotationorpro forma invoice • commercial invoice is the actual demand for payment issued by the exporter. It includes a description of the goods, the exporter’s address, delivery address, and payment terms. • A packing list, indicates the exact contents of the shipment. • The bill of lading is the basic contract between exporter and shipper. • The shipper's export declaration ("ex-dec”) lists the contact information of the exporter and the buyer (or importer), as well as a full description, declared value, and destination of the products being shipped. • The certificate of origin indicates the country where the product originates. • insurance certificate

15. Incoterms

16. Who pays for what? * for ship only (+ named Port), others for all carriers (+ named Place)

17. Methods of Payment -- Export • Cash in Advance • Letter of Credit • Draft • Open Account

18. Global Sourcing • Importing • Outsourcing • Contract Manufacturing

19. Contract Manufacturing • Hiring firm approaches Contract Manufacturer with Design or Formula • Type of outsourcing • Bidding Process • $ 233 billion business • Wistron, HTC

20. Countertrade • Payments are made in kind rather than cash. • The focal firm is engaged simultaneously in exporting and importing. • Also known as “two-way” or “reciprocal” trade • Used when conventional means of payment are difficult, costly, or nonexistent. • Hard currency unavailable • Developing country doesn’t have expertise to sell in foreign markets

22. Examples of Countertrade Transactions • Caterpillar received caskets from Columbian customers and wine from Algerian customers in return for selling them earthmoving equipment. • Goodyear traded tires for minerals, textiles, and agricultural products. • Coca-Cola sourced tomato paste from Turkey, oranges from Egypt, and beer from Poland in order to contribute to national exports in the countries it conducts business,. • Control Data Corporation accepted Christmas cards from the Russians in a countertrade deal. • Pepsi-Cola acquired the rights to distribute Hungarian motion pictures in the West in a countertrade transaction.

23. Types of Countertrade • Barter refers to the direct exchange of goods without any money. Or a mixture of goods and cash is a compensation deal. • Back-to-back transaction, offset agreements, or counterpurchase involves two distinct contracts, contingent on each other. • Buy-back agreement, the seller agrees to supply technology or equipment to construct a facility and receives payment in the form of goods produced by the facility.