Global Trade Dynamics: Expanding Small Firms' Horizons

1. Chapter 11: Global Business

2. Learning Objectives • To become convinced that small firms should consider exporting and importing • To appreciate the range of approaches that may be used to enter foreign markets • To know that there are widely accepted procedures for reducing the risk of doing business with an individual or firm in another country • To be aware of the wide range of government programs to assist entrepreneurs interested in exporting

3. Trade Barriers • Measures by which a country discourages or prohibits goods from other countries entering its markets

4. Tariffs • A tax levied on imports, often to discourage importation

5. Factors Improving Free Trade Among Countries • Low tariffs (below 4 percent) • Technological change

6. International Trade Deficit • Amount by which a country’s imports of goods and services exceeds its imports • The United States • Consumes more than it produces • Growing international trade deficit

7. Reasons to Start Exporting • 95 percent of the world’s population is outside the United States • Explosive growth of international trade • Exporting is easier due to • Efforts of the World Trade Organization • Treaties such as the North American Free Trade Agreement (NAFTA)

8. Why Companies Export • Use excess capacity • Offset decline in domestic market • Offset seasonality of sales • Reduce dependence on U.S. markets • Take advantage of growth in developing countries

9. Dumping • A company sells its products inter-nationally • For less than its costs or • Below what the company charges in home markets • Practice is illegal • Often occurs

10. Why Firms Don’t Export • Have not yet sold products to all states in the United States • Lack of knowledge about exporting

11. Export Plan • Document that includes: • International markets that will be targeted • Products it will export • How it will reach the markets • Export objectives

12. Two Approaches to Exporting • Indirect • Involves another company or individual • Direct • Company exports on its own

13. Indirect Exporting • Export Management Company (EMC) • An export specialist that acts as the international marketing department for a company • May specialize by industry, geographic area, or both

14. Indirect Exporting (cont.) • International Trading Company • Provide broader array of services than EMC • Capabilities in • Transportation • Financing • Production • Marketing

15. Indirect Exporting (cont.) • Other methods • Companies that act as finders for overseas customers • Buyers for foreign users • Export merchants who buy and ship products in their name • Manufacturers who sell products of other companies

16. Direct Exporting • Company markets its own products in foreign markets • Sales representatives that work for commission pay • Contract with a distributor in a foreign country • Sales directly to foreign retailer • Sales directly to foreign customer such as governments, schools, hospitals

17. Getting Paid • Letter of Credit • Document issued by the bank of an international buyer • Sent to bank of seller • Assures payment when sale is satisfactorily completed

18. Government Assistance • International Trade Administration • Export Assistance Centers • District Export Councils • Office of International Trade

19. Government Assistance for Financing and Insurance • Ex-IM Bank • Small Business Administration • Department of Commerce • Department of Agriculture • Trade Development Agency • Overseas Private Investment Corporation

20. Importing • Sourcing • Uncover sources of a product that offer lower cost or superior quality • Opportunity Spotting • Identifying an item not available in the United States

21. Importing Goods • Entry • Inspection • Appraisal • Classification • Liquidation