Modes of International Business Exporting/Importing MMIT Modes of International Business Exporting/Importing

International vs. Domestic OPPORTUNITIES 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

International vs. Domestic OPPORTUNITIES 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 Fundamental changes in the business landscape

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

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.

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

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

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

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

Exporting Advantages Disadvantages 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

Export Documentation quotation or pro 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

Incoterms

Who pays for what? Load to truck Export- duty payment Transport to exporter's port Unload from truck at the origin's port Landing charges at origin's port, Loading Transport to import's port Landing charges at importer's port, Unloading Unload onto trucks from the importers' port Transport to destination Insurance Entry -Customs clearance Entry -Taxation EXW No Main Carriage NOT Paid By Seller (Free… Carrier/Alongside Ship/On Board) FCA Yes FAS* FOB* Main Carriage Paid By Seller (Cost and Freight … and Insurance… / Carriage Paid to … and Insurance… ) CFR* CIF* CPT CIP Arrival (Delivery Duty….. Unpaid/Paid) DEQ* DDU DDP * for ship only (+ named Port), others for all carriers (+ named Place)

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

Global Sourcing Importing Outsourcing Contract Manufacturing

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

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

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.

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.