Managing Export Operations

Steps to Managing Export Operations Step 1 -Segment world markets  Product quality and product feature segmentation  Factors influencing segmentation Purchasing power Consumer tastes Weather conditions Level and dispersion of wages and technical skills

Steps to Managing Export Operations Step 1 -Segment world markets  Important factors in analysis Emerging demand met by innovations in product technology in one country that are mirrored in other countries Deregulation and restructuring of markets Government policies and programs

Steps to Managing Export Operations (contd..) Step 2 - Select an Entry Strategy to Promote Sustainable Competitive Advantage  Standardized product to all markets  Product- Life cycle strategy  Localized market strategy  A combination of strategies can also be followed

Steps to Managing Export Operations (contd..) Step 3 - Take a long-run Perspective  Initial costs must be viewed as investments  Returns on investments will not be immediate in export markets

Channels of Distribution in Export Markets International channels will be more complex and have more layers. Distribution costs will be higher May have to use different or many types of distribution with which there is no experience Distribution channels may provide information that can be used as market research and aid in further expansion

Pricing in Export Markets Strategy 1 - Requiring prices in export markets that yield higher returns than are available in domestic markets Based on the belief that export operations are more risky relative to domestic sales - can result in uncompetitive prices.

Pricing in Export Markets Strategy 2- Pricing to yield similar returns in domestic and export markets Based on the viewpoint that export markets do not necessarily differ from domestic markets

Pricing in Export Markets Strategy 3 - Pricing to yield lower returns, or even losses, in export markets—at least in the short run Reflects an approach that views export markets as the potential growth markets of the future - firm vulnerable to antidumping action

Pricing in Export Markets Strategy 4 - Pricing to sell production in excess of the needs of the domestic market so long as these sales make a contribution to fixed overhead and profit View of export markets as a dumping ground for production in times of excess capacity - firms very vulnerable to anti- dumping actions

Stages of Export Market Involvement Stage 1 – Unplanned entry  Unsolicited order from abroad, overproduction, declining domestic sales, pressures, “follow the leader” behavior, government-sponsored trade fairs, and funded export missions Stage 2 – Systematic evaluation of the impact of exports Stage 3 - Exports become a major factor in the firm’s strategy and operations.

Trade Intermediaries Import Traders  For every export, there is an import  Pure importers are market connectors; they create value through linking producers abroad to buyers in the domestic market  Pure importers usually have an advantage such as knowledge of the domestic market and practices

Trade Intermediaries Export Traders  They are also market connectors  Their advantages lie in knowledge of markets in particular countries or in knowledge of worldwide markets for particular products. Trading Houses  Pure import operations and pure export operations are joined together in the trading houses

Vital Questions to be asked Does our product and firm have a sustainable competitive advantage in export markets and, if so, why? What are the export markets and the segments of those markets that will value our product sufficiently (relative to other competing products) to offset our costs of production and distribution?

Vital Questions to be asked Should the firm export a standard product with a standard marketing mix worldwide or should it tailor its products and marketing mix to individual export markets? What natural and government-imposed trade barriers impede linking production in one country to purchase in another, and what factors might facilitate this linkage?

Vital Questions to be asked What are the most appropriate channels of distribution for our product to achieve our goals in export markets?

Present day export trade Tariff and non-tariff barriers to trade have fallen globally and free trade areas have developed. Firms often now analyze trade opportunities on a regional, and sometimes even broader basis

Present day export trade Products are often not sent directly from one home production site to an export market abroad. Inputs are sourced in a number of countries and assembled in other countries, and the final product is sold in yet other countries Trade intricately linked with foreign investment, joint ventures, licensing, franchising, contract production, and component sourcing

Countertrade A special form of exporting is countertrade, the linked exchange of goods for goods in international trade Countertrade covers - Barter,Counterpurchase, Compensation or buyback, Production sharing, Industrial offsets, Switches, Unblocking funds and Debt for equity swaps

Countertrade Can be complicated and costly to negotiate and execute Important characteristics of countertrade contracts need to be attended to carefully by an exporter Generally countertrade is an inefficient form of trade. It creates costs and risks for both importers and exporters

Major Project Development Importance and investment increased during the 1990s –likely to continue to increase in the future. Generally for infrastructure development - electricity generation, telecommunications, water and sewage treatment facilities, and even roads and ports.

Major Project Development Types of Major projects  Turnkey projects Firm undertakes to construct a major project, then turns it over to its owners when it is in full operation

Major Project Development Types of Major projects  Build, operate, and transfer projects (BOT) Firms bid for the right to construct the project, the winning firm also operates the facility after it is completed. Ownership is limited to a certain time period, after which the project is transferred to another organization

Major Project Development Types of Major projects  Build, operate, and own projects (BOO) Firms bid for the right to construct the project. The winning firm also operates the facility after it is completed..

Exports, Imports, and International Finance Important aspects for exporters/importers  Effect of the real exchange rate on competitive advantage,  Effect of variations in the nominal exchange rate on export and import profitability Pricing of the goods in the importers currency Countered by setting up currency hedge Use of forward contracts

Exports, Imports, and International Finance Important aspects for exporters/importers  Effect of trade on financing needs and sources Irrevocable letter of credit (LoC) used to overcome uncertainty