Export and Import Strategies Chapter 13 Export and Import Strategies Chapter 14: Export and Import

Copyright © 2015 Pearson Education, Inc. Learning Objectives Explain the idea of exporting and profile its elements Explain the idea of importing and profile its elements Evaluate the relative benefits and drawbacks of the export and import of e-waste Describe the problems and pitfalls that challenge international traders The Learning Objectives for this chapter are To explain the idea of exporting and profile its elements To explain the idea of importing and profile its elements To describe the problems and pitfalls that challenge international traders To describe the resources and assistance that helps international traders To discuss the idea of an export plan To discuss the practice of countertrade Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Learning Objectives Define the idea of an export plan Discuss the practice of countertrade Describe the resources and assistance for international traders Identify and discuss the platforms that support expanding international trade Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Introduction Exporting and importing are the most common modes of international business Exporting and importing are one of the fastest growing activities in the world Exporting and importing, the most common forms of international business, have seen substantial growth in recent years thanks in part to globalization, an increase in free trade agreements, and institutional development. Companies like exporting and importing because they allow them to capitalize on international opportunities without substantial risk, and with only a low commitment of resources. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. World Trade 1960-2010 The graph shows the pattern of growth of world trade from 1960 to 2010 Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Exporting Exporting the sale of goods or services produced by a company based in one country to customers that reside in a different country Exporting involves sending products to other countries. Occasional exporters fill unsolicited orders, but don’t pursue additional opportunities. Regular exporters are experienced in exporting and aggressively pursue new opportunities. Non-exporters have no experience and do not have any intention of engaging in exporting. Copyright © 2015 Pearson Education, Inc.

Exporters: Initiation and Development Two approaches Incremental internationalization exporting is a learning process Born global instant internationalization global focus Some firms approach exporting in a deliberate sequential way targeting markets that are similar and closer first before moving on to more dissimilar and geographically distant markets. So, a U.S. company might target Canada first, followed by Mexico before moving on to Europe and Asia. In contrast, some companies engage in exports right from the start. These companies assume the domestic market is just one of many opportunities in the global market. The born global approach has been facilitated by advances in technology and lower barriers to trade. Copyright © 2015 Pearson Education, Inc.

Approaches to Exporting Export approaches include Direct exporting involves independent representatives, distributors, or retailers outside of the exporter’s home country Indirect exporting products are sold to an intermediary in the domestic market, which then exports them Passively filling orders from domestic buyers who then export the product Selling to domestic buyers who represent foreign end users or customers In theory, exporting involves making a product, packing it, and then shipping it. In reality though, it’s a bit more involved. Some companies are direct exporters. They sell their product to independent intermediaries in foreign countries who then sell it to the end consumer. Companies that sell their product to independent intermediaries in the home country are indirect exporters. The intermediary resells the product to foreign agents who then sell it to the end consumer. Some companies simply passively fill orders from domestic buyers who then export the product, while others sell to domestic buyers who represent foreign end users or customers. In either of these cases, the company may not know that its product has been resold. Some companies use more than one approach depending on their particular ownership, location, and internalization advantages. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Importing Importing the purchase of a good or service by a buyer in one country from a seller in another Types of importers Input optimizers: uses foreign sourcing to optimize their supply chain Opportunistic: exploiting market gaps Arbitrageurs: looking for price and quality differences between markets Importing involves the purchase of a good or service by a buyer in one country from a seller in another. Note that it’s possible to import services in addition to products. A service import is any transaction that does not result in ownership or is rendered by nonresidents to residents. There are three general types of importers. Input optimizers search around the world for optimal inputs which are then used to produce the firm’s products. Opportunistic importers exploit gaps in the market by importing products that are available from foreign suppliers. Arbitrageurs capitalize on price and quality differences between markets. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Why Import? Reasons to import Specialization of labor Global rivalry Local unavailability Diversification Companies can take advantage of the higher quality at lower prices that labor specialization provides. Apple pays workers in China just over a dollar an hour to produce its iPad2 for example. Similarly, global rivalry has forced companies to use foreign suppliers to keep the costs of inputs low and quality levels high. Sometimes because of the unavailability of products locally, companies have no choice but to import. Finally, like exporters, companies import as part of a diversification strategy. Copyright © 2015 Pearson Education, Inc.

Importing and Exporting: Problems and Pitfalls Financial risks Customer management Lack of international business experience Marketing challenges Government regulation Trade documentation Regular and occasional exporters face a host of problems and pitfalls that make international trade challenging. Some of the more common ones involve financial risks, especially a shortage of working capital to finance an export strategy. In fact, financial constraints are one of the biggest challenges for SMEs. In addition, exporters are hampered by their lack of international expertise, marketing barriers, and the challenges of meeting customer expectations in foreign markets. These demands can put significant pressure on managers. Finally, trade regulations and documentation requirements also make exporting a complex process. Copyright © 2015 Pearson Education, Inc.

Importing and Exporting: Problems and Pitfalls Types of Export Documents This Table shows some of the different types of documentation used in international trade. Copyright © 2015 Pearson Education, Inc.

Importing and Exporting: Resources and Assistance Freight forwarders the largest export/import intermediary in terms of value and weight of products shipped internationally Typically facilitates intermodal transportations. Shipping costs determined by basic supply and demand for container space, ports being used and the direction of the travel Charges the exporter a percentage of the shipment value plus a minimum charge along with some brokerage fee. Freight forwarders specialize in moving goods from the seller to the buyer. These fee based intermediaries can be especially helpful when the cost or timing of freight can make or break a deal. Copyright © 2015 Pearson Education, Inc.

Importing and Exporting: Resources and Assistance Third party logistics (3PLs) move cargo and provide a range of logistics options work in partnership with manufacturers, shippers, and retailers Third party logistics providers are a growing force in international trade. Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc. Countertrade Countertrade different arrangements that parties use to trade products via transactions that use limited or no currency or credit Costs inefficient flexibility Benefits build mutually beneficial relationships In situations where the home country currency is inconvertible or a lack of cash prevents a traditional transaction firms may turn to countertrade. According to the WTO, countertrade accounts for about 5 percent of world trade. Countertrade can be inefficient way to do business. It can also be risky especially if the products received are difficult to resell or are of poor quality. However, because it can allow for mutually beneficial relationships, it’s still used today. Copyright © 2015 Pearson Education, Inc.

Countertrade Common Types of Countertrade This Table shows the common types of countertrade. Copyright © 2015 Pearson Education, Inc.