1 CHAPTER XXVI EXPORT ENTRY STRATEGIES & EXPORT INTERMEDIARIES  Export Entry Strategies  Indirect Exporting  Direct Exporting  Direct Foreign Investment  Export Intermediaries  Buying agents  Export Management Companies  Export Trading Companies

2 Export Entry Strategies  How to enter foreign markets?  Indirect Exporting  Direct Exporting  Foreign Direct Investment

3 Indirect Exporting  Lets another company handle exports as an intermediary  Immediate access to foreign markets  Minimizes cash outlays and risks of exporting  Minimizes staff efforts  May lose control over foreign sales

4 Direct Exporting  Takes charge of all exporting activities  Requires more time, personnel, and corporate resources  Maintains more control over overseas distribution  Gets higher profit & closer ties with foreign buyers a. Manufacturer's Agents  Take no title to the goods  Carry catalogs and samples  Usually paid commission on sales

5 Direct Exporting Direct Exporting b.Distributors  Merchants who buy the goods from U.S. exporters and resell them in a foreign market at a profit  Carry inventory of products & spare parts & Provide after-sale service  Advertising and promotion activities with allowance from the exporter  Extend credits to local buyers

6 Direct Exporting c.Exporting to foreign retailers  Foreign department or chain stores Traveling salesmen Catalogs, brochures or samples d. Exporting to end-users  Foreign governments  Institutions: Hospitals, Schools  Foreign manufacturers who use U.S. products as components

7 Foreign Direct Investment (FDI)  Foreign branch, sales office, distribution hub, assembly operation or manufacturing facility in the foreign country  Requires extensive personnel and financial commitment  Exposed to political and economical risks  A long wait for a return of investment  Direct control over manufacturing and distribution

8 Export Intermediaries  Buying Agents  Finders of U.S. products for foreign buyers: Foreign government’s buying mission, Chain stores, Dept stores.  Register products with them

9 Export Intermediaries  Export Management Companies (EMCs)  Act as the export department of one or several manufacturers of noncompetitive products: Supply-driven  Provide domestic manufacturers with immediate access to foreign markets  Do not take title to the goods  Compensation: Sales commission Salary Basic salary plus commission  Small firms: 60% 6 or fewer employees  When exports reach 15 to 20% of manufacturer's total sales or export sales grow over $1 million, manufacturers tend to have their own export department for direct export.

10 Export Intermediaries  Export Trading Companies (ETCs)  Provide the same export facilitation services as an EMC  Focus on procurement of products for foreign buyers. No loyalty to manufacturers: Demand- driven  Conduct business in their own name  Take title to the goods and pay the manufacturers directly

11 Export Trading Company Act of 1982 of the U.S.  To promote and encourage the formation of ETC's  To utilize economies of scale and diversification of risks in penetrating foreign markets  Provides exemption from U.S. antitrust law for joint export activities:  Export Trade Certificate of Review from USDC with concurrence of USDJ  Available at Office of Export Trading Companies Affairs (OETCA)OETCA

12 Export Trading Company Act of 1982 of the U.S.  Permits bank's participation: Bank Trading Companies  Permits cooperatives to form ETC Cooperatives: Agricultural industry like Sunkist  ETCA has not been successful in establishing U.S. Trading Companies similar to Foreign Trading Companies such as  Japanese trading companies (Sogo-shosha)  Korean trading companies (Jonghap Sangsa)