International Marketing Chapter 8 The Export Process

Motivations to Internationalize l Proactive Motives l Profit advantage l Unique products l Technological advantage l Exclusive information l Managerial urge l Tax benefit l Economies of scale l Reactive Motives l Competitive pressures l Overproduction l Declining domestic sales l Excess capacity l Saturated domestic markets l Proximity to customers and ports The Foreign Sales Corporation (FSC)

Change Agents l Internal change agents l Enlightened management l New management l Significant internal event l External change agents l Demand l Other firms l Distributors l Banks l Chambers of commerce l Export agents l Governmental activities

Key Managerial Characteristics Affecting Export Involvement l Education l International Exposure l Expertise l International orientation l Commitment

Internationalization Stages l Innate, or start-up, exporters l Partially interested exporter l Experimental exporter l Export adaptation

Internationalization concerns l Stage 1: The completely uninterested firm l Stage 2: The partially interested firm l Stage 3: The exploring firm l Stage 4: The experimental exporter l Stage 5: The experienced small exporter l Stage 6: The experienced larger exporter

Main Corporate Concerns for the Firm l Financing l Information on business practices l Communication l Providing technical advice l Sales effort l Obtaining financial information l Handling documentation l Physical product l Marketing information gathering

Corporate Strategy and Exporting l The impact on the perception of risks l The impact on profits Profit and Risk During Export Initiation

l L icensing : The licensor permits another firm to use its intellectual property for compensation designated as a royalty l Assessment of Licensing: Requires neither a capital investment nor knowledge and marketing in the target market l Issues in Licensing Licensor Transfer costs to licensor R&D cost Opportunity cost (loss of direct exporting, foreign investment, etc.) Licensee and compliance to number of dimensions stipulated Export Control Regulations Confidentiality of the intellectual property Record keeping and provisions for licensor audits l Trademark in Licensing

l Franchising: A form of licensing in which a parent company grants another independent entity the right to do business in a prescribed manner. l Export Management Companies : Domestic firms that specialize in performing international marketing services as commission representatives or a distributors for several firms. As distributors: purchases the goods form domestic firms and assumes trade risks. Greater risk, greater profit As agents: Developing the foreign market, sales strategies, and establishing contacts abroad. It charges High commission on potential high sales volume. l Power conflict between EMC and clients l Export trading companies (ETC)

Stages in Setting of Prices Price Dynamics l Skimming: Highest possible contribution in a short period of time l Market Pricing : When similar products exist l Penetration Pricing : Product is offered at a low price to generate volume sales and achieve market share

Export Pricing Strategy l Standard Worldwide Price l Dual Price: Domestic and Export prices are differentiated l Cost-Plus Method: True cost, fully allocating domestic and foreign costs….too expensive? l Marginal Cost Method : Considering the cost of making the product without fixed costs, overhead, marketing, administrative, etc.)….allows lower price l Market-Differentiated Pricing: Market dependent

Export-related Costs l The cost of modifying a product for a foreign market l Operational costs of exporting (market research, communications, promotions, etc. l Cost incurred in entering the foreign market: tariffs, buyer related risks, exchange risks, etc.) Price Escalation l Clear cut costs l Hidden costs

Terms of Sale l Incoterms are the internationally accepted standard definitions for terms of sale set by the International Chamber of Commerce since Incoterms: l exworks (EXW) l free carrier (FCA) l free alongside ship (FAS) l free on board (FOB) l cost and freight (CFR) l delivered duty paid (DDP) l delivered duty unpaid (DDU)

Considerations for Negotiating Terms of Payment l The amount of payment and the need for protection l Terms offered by competitors l Practices in the industry l Capacity for financing international transactions l Relative strength of the parties involved

The Risk Triangle Most Advantageous Consignment Open Account Documents against Acceptance Letter of Credit Confirmed Letter of Credit Cash in Advance Least Advantageous High Risk/High Trust Low Risk/Low Trust

The Letter of Credit l Irrevocable versus revocable l Confirmed versus unconfirmed l Revolving versus nonrevolving

Draft: Most drafts are documentary which means that the buyer must have shipping documents first before cashing the check Documentary Collection: Bank is acting a the seller’s agent Banker’s Acceptance Discounting Open Account Consignment Selling

Adjusting to Foreign Currency Fluctuations Forward Exchange Market Price Manipulation Price Negotiations Leasing

Dumping Remedies for Dumping Antidumping duty Countervailing duties Ranges of Dumping Predatory dumping Unintentional dumping