Lesson 8 Exporting, Importing, and Sourcing

1. Lesson 8 Exporting, Importing, and Sourcing

2. Export Selling vs. Export Marketing • Export selling involves selling the same product, at the same price, with the same promotional tools in a different place • Is this the same as a standardized mix in global marketing? • Knowledge • Export marketing tailors the marketing mix to international customers

3. Organizational Export Activities • The firm is unwilling to export; it will not even fill an unsolicited export order • Most businesses fall in this category • None/highly limited knowledge of export procedures and other country markets • The firm fills unsolicited export orders but does not pursue unsolicited orders. Such a firm is an export seller. • Will generally use the services of an experienced exporter • The firm explores the feasibility of exporting • Some awareness of export advantages is exhibited

4. Organizational Export Activities • The firm exports to one or more markets on a trial basis. • The firm is willing to learn from export mistakes and activities • The firm is an experienced exporter to one or more markets • After this success, the firm pursues country- or region-focused marketing based on certain criteria • The firm evaluates global market potential before screening for the “best” target markets to include in its marketing strategy and plan

5. Contradictory Attitudes • Nations like to encourage exports but discourage imports. Why? • What happens if you have high trade deficits? • If imports are greater than exports, what positive effects can be observed?

6. Government programs that support Exports • Tax incentives • Lower corporate taxes, tax deferrals, accelerated depreciation on export assets, tax holiday, etc. • Foreign Sales Corporation (FSC) – rewarded exports from the US (15% exclusion on sales) but does not reward overseas manufacturing and sales (e.g. Boeing vs. P&G)

7. Government programs that support Exports • Subsidies • Direct / Indirect financial contributions • Directly reduce cost of production, enabling lower sales prices • Effect of encouraging sales of uncompetitive products at the expense of competitive products • E.g. Farm subsidies in the US & Europe

8. Governmental Actions to Discourage Imports and Block Market Access • Tariffs (rules, rates and restrictions) • Duties (basic, additional and countervailing) • “taxes that punish individuals for making choices which their governments disapprove” • Extremely complicated system and prone to abuse • Cannot describe every traded item • Classification problems • E.g. is the X-Men action figure a “doll” or a “toy”?

9. Governmental Actions to Discourage Imports and Block Market Access • Non-tariff barriers • Quotas (H1B visas) • Discriminatory procurement policies (local vendors should receive priority consideration; Canadian hiring system) • Restrictive customs procedures (requiring greater documentation, etc.) • Arbitrary monetary policies (e.g. charging high interest rates for financing an import transaction) • Restrictive regulations (e.g. anti-dumping, size, safety and health, hygiene compliances, etc.)

10. Tariff Systems • Single-column tariff (NTR status) • Simplest type of tariff • Rate applies to imports from all countries on the same basis • General duties plus special duties apply • Two-column tariff (Non NTR status) • Higher tariff rates • Only North Korea, Iran, Cuba and Libya

11. Tariff Systems Sample Rates of Duty for U.S. Imports

12. Preferential Tariff • Reduced tariff rate applied to imports from certain countries • GATT prohibits the use, with 3 exceptions: • Historical preference arrangements already existed • Preference is part of formal economic integration treaty • Industrial countries are permitted to grant preferential market access to LDCs

13. Customs Duties • Ad valorem duty • Expressed as percentage of value of goods (generally CIF value at port of import) • Specific duty • Expressed as specific amount of currency per unit of weight, volume, length, or other units of measurement • Compound or mixed duties • Apply both ad valorem and specific on the same items

14. Other Duties and Import Charges • Anti-dumping Duties • Dumping is the sale of merchandise in export markets at unfair prices • Special import charges equal to the dumping margin • Countervailing duties – levied to offset subsidies in exporting countries • Variable Import Levies • Temporary Surcharges

15. Key Export Participants • Foreign purchasing agents (act on behalf of an overseas principal) • Export brokers (bring exporters and importers together – fee basis) • Export merchants • Export management companies (export house) • Export distributor • Export commission representative • Freight forwarders

16. Export Financing and Methods of Payment • Documentary credits (letter of credit) • Banks assume financial risk • More expensive than drafts • Documentary collections (bill of exchange) • Banks do not assume financial risk unless they buy the draft • Cheaper than L/Cs • Cash in advance • Used in the absence of prior good relationships, high credit risk or monopoly position • Sales on open account • Used when good relations have existed for a long time

17. Flow Chart of Documentary Credit

19. Sourcing / Outsourcing / Off-shoring • Must emphasize benefits of sourcing from country other than home country • Has expanded beyond mere blue collar jobs • Covers white collar jobs like call centers, telemarketing, medical transcript services, completing tax returns, research activities, tutoring etc. • Greater computerization / automation and higher labor costs directly linked to greater outsourcing

20. Factors that Affect Sourcing • Profit imperatives • Political ramifications / PR • Factor costs and conditions • Customer Needs • Logistics • Country infrastructure • Political risk • Exchange rate, availability, and convertibility of local money