Exporting and Importing Chapter 13

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. The Problems and Pitfalls of Exporting Firms that do not export lose out on huge opportunities for growth and cost reduction Large firms are pro-active in seeking foreign opportunities Medium and small-sized firms are slower -Too busy with local side of business -Ignorance of potential opportunities -Intimidated by mechanics of exporting to a foreign country

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Information sources U.S. Department of Commerce -International Trade Administration -United States and Foreign Commercial service agency -Provide “best prospects” list, “comparison shopping service,” and customized market research survey -Organizes exhibitions at international trade fairs to help potential exporters make foreign contacts and explore export opportunities -Matchmaker program Trade Commissions -Maintained by many large cities

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Export Strategy Risks can be decreased by taking few steps -Hire an export management company or experienced export consultant -Focus on a few markets - learn what is needed -Enter on a small scale -Invest time and managerial commitment -Build strong, enduring relationships with local distributors and customers

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Export and Import Financing Lack of trust between international trading partners due to several factors -Parties often have never met -Language, cultural, and legal system differences -Difficulties in tracking down a party in case of default Problem solved by using a third party trusted by both as an intermediary – normally a reputable bank

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Tools Used to Aid Transactions Letters of Credit (LOC) -Bank guarantee on behalf of importer to exporter assuring payment when exporter presents specified documents Drafts (Bill of Exchange) -Written order by exporter, telling an importer to pay a specified amount of money at a specified time Bill of Lading -Issued to exporter, by carrier -Serves as receipt, contract, and document of title

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Letter of Credit Issued by a bank at the request of the importer Bank pays a specified sum to a beneficiary, normally the exporter, on presentation of particular, specified documents

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Bill of Lading Issued to the exporter by the common carrier transporting the merchandise Serves three purposes: -Receipt - merchandise described on document has been received by carrier -Contract - carrier is obligated to provide transportation service in return for a certain charge -Document of title – can be used to obtain payment or a written promise before the merchandise is released to the importer

McGraw-Hill/Irwin International Business, 6/e, 7/e © 2007, 2009 The McGraw-Hill Companies, Inc., All Rights Reserved. Typical International Transaction