GETTING INVOLVED IN GLOBAL BUSINESS

LOW RISK METHODS: INDIRECT EXPORTING: ALSO CALLED CASUAL OR ACCIDENTIAL EXPORTING. BASICALLY A LOCAL COMPANY IS APPROACHED BY A “BROKER” WHO STATES THAT A FORIEGN COUNTRY BUSINESS WISHES TO SELL ITS PRODUCT THERE.

DIRECT EXPORTING: A SIGNIFICANT STEP FORWARD A BUSINESS MAKES THE DELIBERATE DECISION TO ACTIVELY EXPAND GLOBALLY INTO OTHER COUNTRIES WITH ITS PRODUCTS. INVOLVES: MARKET RESEARCH, CUSTOMER ANALYSIS, RISK ANALYSIS AND AN UNDERSTANDING OF THE HOST COUNTRY BEHAVIOUR AND CULTURE.

MANAGEMENT CONTRACTING: KNOWKEDGE, SKILLS, EXPERTISE CAN ALSO BE EXPORTED. CAN ASSIST IN: PLANNING (STRATEGIC);  FINDING OPPORTUNITIES;  COORDINATING RESOURCES;  SOLVING PROBLEMS; MAKING DECISIONS; PROVIDING SPECIFIC EXPERTISE

LICENSING: A COMPANY FROM ONE COUNTRY GIVES A COMPANY IN ANOTHER COUNTRY( WITH THE PRODUCTION CAPABILITY), THE RIGHT TO MAKE AND SELL ITS PRODUCT. E.G., VERY COMMON FOR SOFT DRINK COMPANIES (E.G., COKE) TO USE PRIVATE BOTTLING COMPANIES TO PRODUCE ITS PRODUCT. THE GERBER COMPANY STARTED SELLING ITS PRODUCTS IN JAPAN USING A LOCAL PRODUCER TO MAKE ITS PRODUCTS THROUGH LICENSING.

FRANCHISING: ALREADY DISCUSSED EARLIER. BASICALLY, A PARENT COMPANY (THE FRANCHISOR) SELLS THE RIGHT TO OTHER PEOPLE (FRANCHISEES) TO SET UP BUSINESS OPERATIONS THE SAME (OR SIMILAR) TO THE PARENT COMPANY.  USUALLY, SOME ADAPTATIONS ARE NECESSARY. IT IS AN EXCELLENT MEANS BY WHICH TO EXPAND INTERNATIONALLY.  E.G., McDONALDS, KFC, PIZZA HUT.

ABOVE FORMS OF INVOLVEMENT ARE SEEN AS LOWER RISK: MINIMAL COST INVOLVED; MINIMAL INVESTMENT NEEDED ACCEPTABLE PROFITS,

JOINT VENTURES (STRATEGIC PARTNERSHIPS) A BUSINESS VENTURE BETWEEN TWO OR MORE BUSINESSES FROM DIFFERENT COUNTRIES. DIFFERENT COMPANIES MAY PROVIDE: RAW RESOURCES; SHIPPING FACILITIES; MANAGEMENT EXPERTISE; MANUFACTURING CENTRES;  RETAIL OUTLETS.  

FORIEGN DIRECT INVESTMENT BASICALLY, A COMPANY BUYS “SHARES” (I.E., INVESTS) IN FORIEGN BUSINESSES.

WHOLLY OWNED SUBSIDIARIES: A FORIEGN COMPANY SETS UP OR BUYS CONTROLLING INTEREST IN LOCAL BUSINESS. HOST COUNTRY MAY RESTRICT FORIEGN OWNERSHIP OF LOCAL LAND AND RESOURCES.

IMPORTING PRODUCTS FOR SALE LOCALLY: IMPORTS ARE PRODUCTS (OR SERVICES) PURCHASED FROM BUSINESSES IN OTHER COUNTRIES.  

REASONS FOR IMPORTING: PRODUCT DEMANDED BUT NOT AVAILABLE LOCALLY (E.G., BANANAS, COFFEE, TEA, RICE)  FORIEGN PRODUCTS CHEAPER THAN LOCALLY PRODUCED PRODUCTS ( E.G., TAIWANESE ELECTRONICS); NEEDED AS INPUTS INTO PRODUCTION AND NOT AVAILABLE LOCALLY (E.G., JAPAN IMPORTS IRON ORE, CRUDE OIL, ETC).

STEPS IN IMPORTING: 1) DETERMINE/FIND/DOCUMENT WANT OR NEED: WANT/NEED IDENTIFIED AND BUSINESS ATTEMPTS TO FIND SOLUTION OUTSIDE HOME COUNTRY; THROUGH TRAVEL OR USE OF AGENT AN INTERESTING PRODUCT/SERVICE IS FOUND IN ANOTHER COUNTRY; MUST MEET HOME COUNTRY CUSTOMS AND IMPORT REGULATIONS/CONDITIONS.

For Example: FOOD AND DRUGS ACT; MEAT INSPECTION ACT; CONSUMER PACKAGING AND LABELLING ACT; HEALTH OF ANIMALS ACT;

For example: SEEDS ACT; FERTILIZERS ACT; HAZARDOUS PRODUCTS ACT; CANADA ARGICULTURAL PRODUCTS ACT; FISH INSPECTION ACT;

For example: FEEDS ACT; WEIGHT AND MEASURES ACT; CANADIAN FOOD INSPECTION ACT.

Steps in Importing 2) LOCATE AND CONTACT FORIEGN SUPPLIERS (THROUGH BROKER?); 3) FINALIZE PURCHASE AGREEMENT INCLUDING: PURCHASE PRICE AND PAYMENT METHOD; SHIPPING ARRANGEMENTS; WHEN, WHERE AND HOW DELIVERED. 4) RECEIVE GOODS: MAKE FINAL PAYMENT; CHECK FOR ACCURACY/DAMAGE. PAY SHIPPING, IMPORT DUTIES ETC.

Assignment Choose an industry and write down the steps needed for a new company to set up imports and exports. What legal processes are required? How would the company choose which foreign markets to operate in? Should the company create subsidiaries or set up a joint venture? Which trade shows could the company attend? Present the information to the class as your group is the head of the company (i.e. from the company’s point of view).

THE EXPORTING PROCESS INDIRECT EXPORTING (ALREADY DISCUSSED).

DIRECT EXPORTING: STEPS: 1) LOCATE POTENTIAL FORIEGN CUSTOMERS; 2) DETERMINE WANT/NEED FOR PRODUCT/SERVICE;   

DIRECT EXPORTING: STEPS: 3) MAKE ANY NECESSAY MODIFICATIONS OR ADAPTATIONS GIVEN: GEOGRAPHY; CULTURE; LEGAL RESTRICTIONS.

DIRECT EXPORTING: STEPS: 4) SALES TERMS AGREEMENT:  SEVERAL COSTS HAVE TO RECOGNIZED: INSURANCE; TRANSPORTATION (MAJOR COST); ACTUAL PURCHASE COSTS. AS WELL AS WHO PAYS WHAT COSTS: SELLER; BUYER.

Steps Exporting: TERMS  a) FREE ON BOARD (FOB): HERE, THE TOTAL SELLING PRICE OF THE PRODUCT INCLUDES THE COST OF LOADING THE GOODS ONTO A VESSEL AND, AT A SPECIFIED PLACE.  b) COST(TRANSPORTATION), INSURANCE AND FREIGHT (CIF): ALL OF THESE COSTS ARE INCLUDED IN THE SELLING PRICE.  c) COST AND FREIGHT (C & F): INCLUDED IN SELLING PRICE; BUYER MUST ARRANGE INSURANCE SEPARATELY.

Steps Exporting THERE ARE NUMEROUS COMPANIES THAT ASSIST EXPORTERS WITH THE “LOGISTICS” OF SHIPPING CALLED FREIGHT FORWARDERS. THEY MAY SPECIALIZE IN ONLY DEALING WITH CERTAIN COUNTRIES AND PRODUCTS. THEY ARE CALLED “FREIGHT FORWARDERS” THESE COMPANIES MAY ALSO ACT LIKE DISTRIBUTORS.

ACTUAL SHIPPING INVOLVES A NUMBER OF DOCUMENTS INCLUDING:   A BILL OF LADING: WHICH IS THE AGREEMENT BETWEEN THE EXPORTER AND THE SHIPPING COMPANY. CERTIFICATE OF ORIGIN: WHICH INCLUDED THE NAME OF THE COUNTRY WHERE THE GOODS WERE MADE (FOR EXPORT TAX PURPOSES).

Steps Exporting 5) COMPLETE TRANSACTION: AND EXCHANGE ONE CURRENCY FOR ANOTHER.

Reasons companies don’t export:  1) NO AGENTS/REPRESENTATIVES IN THE FORIEGN COUNTRY; 2) PRODUCT NOT APPROPRIATE;  3) LOCALLY, INSUFFICIENT PRODUCTION FACILITIES;  4) HIGH COSTS;  5) DIFFICULTY/FUSTRATION IN UNDERSTANDING FORIEGN BUSINESS PRACTICES 6) DIFFICULTY OBTAINING PAYMENT. 

SERVICES CAN ALSO BE EXPORTED: HOSPITALITY (HOTELS, FOOD SERVICES); ENTERTAINMENT (MOVIES; AMUSEMENT PARKS); FINANCIAL SERVICES; HEALTH CARE; INFORMATION PROCESSING: EDUCATION/TRAINING. SERVICES CAN ALSO BE EXPORTED:  

FINALLY, TWO GENERAL FUNDING SOURCES TO SUPPORT EXPANSION OF BUSINESS. 1) EQUITY CAPITAL 2) DEBT CAPITAL. FINALLY, TWO GENERAL FUNDING SOURCES TO SUPPORT EXPANSION OF BUSINESS.

EQUITY CAPITAL: THIS COULD INCLUDE: MORE INVESTMENT BY OWNER(S); USE OF COMPANY PROFITS;  SALE OF SHARES; SALE OF COMPANY ASSETS.

DEBT CAPITAL: INVOLVES BORROWING OF FUNDS. BANK/FINANCIAL INSTITUTION LOANS; SALE OF COMPANY BONDS; MORTGAGE AGAINEST BUILDINGS. DEBT CAPITAL MUST BE PAID BACK WITH INTEREST.