Import/Export Basics (Ch. 2)

Beginning Steps 1.Terminology 2.Homework 3.Choosing the product 4.Making contacts 5.Market research 6.What’s the bottom line?

1. Import/Export Terminology International trade uses distinctive vocabulary Terms & acronyms guide, regulate, and facilitate trade Commonly used terms: ▫Glossary: pgs

2. Homework RESEARCH! What should you research? ▫the product ▫profit potential Research is a good investment, not a waste of time (even if you already have some experience)

3. Choosing the Product Familiarity with… ▫the product ▫the industry Advantage in… ▫knowledge ▫contacts ▫language/culture

3. Choosing the Product Marketing decisions ▫product standards (ISO)  ISO: International standards for business, government, society ▫technical specifications and codes  220V, 50Hz  120V, 60Hz ▫quality and product life cycle  developed vs. less developed countries ▫other uses for the products  e.g., motorcycles

4. Making Contacts Who are sources of information? Who can I contact? ▫import: consulate office, embassy, government  Embassies and Consulates around the World Embassies and Consulates around the World  World Trade Center Associations (WTCA) World Trade Center Associations (WTCA) ▫export: industry publications, department of commerce  International Dept of Commerce International Dept of Commerce  Federation of International Trade Associations FITA Federation of International Trade Associations FITA  World Trade Center Associations (WTCA) World Trade Center Associations (WTCA) Import and Export Foreign Trade.comForeign Trade.com TRADE SHOWS!!!!! Trade Show Calendar ConferencesTrade Show CalendarConferences Biz Trade Shows

4. Making Contacts Who can I contact to market a product/service? ▫import: trade shows, direct mailers, Internet ▫export: trade shows, retailers, United Nations Alibaba.com Contacts for exporters and importers ▫Trade shows ▫Manufacturers/suppliers ▫Sales representatives ▫Customers ▫FITA Geographically Specific LeadsFITAGeographically Specific Leads

5. Market Research Your purpose is to make a profit. Thus, you need to know whether or not your product will survive in a certain market. You have to do market research! Share your homework answers with your neighbor.

6. What’s the Bottom Line? Make a profit! 1.Initial quotations 2.Terms of sale 3.The market channel 4.Pricing

1. Initial Quotations Letter of Inquiry a.k.a. Request for Quotation (RFQ) This is the first step Who sends the letter? –Importer to exporter What is in the letter? – Importer asks exporter to send the importer a pro forma invoice. Look at sample RFQ on p. 25

1. Initial Quotations PRO FORMA INVOICE exporter to importer A temporary invoice which includes product description and specifications, costs, price, quantity, shipping costs, delivery terms, and procedures. Purpose: describes details of sale in advance; obtain letter of credit Look at p. 27 for a sample pro forma invoice

2. Terms of Sale Pricing terms “Defines the geographical point where the risks and costs of the exporter and importer begin and end.” –p.26 INCOTERMS: International Commerce Terms Purpose: prevent misunderstandings of responsibilities and liabilities

INCOTERMS The Incoterms® rules The Incoterms® rules have become an essential part of the daily language of trade. They have been incorporated in contracts for the sale of goods worldwide and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade. ICC website Most commonly used: EXW FAS CIF DAF

Certificates of Origin ICC provides a critical advocacy and representation role at the global level, promoting the role of chambers as competent authorities in the issuance of COs and the acceptance of electronic COs.

EXW EX = from; W = works (factory, warehouse) the SELLER (exporter)the BUYER (importer) is responsible for packing and labeling merchandise and having it ready for loading (seller doesn’t load) is responsible for all other risks and costs from the delivery point to the final destination

FAS: Free Alongside Ship the SELLER (exporter)the BUYER (importer) is responsible for packing and labeling merchandise, having it ready for loading, placing it at the side of the ship, and clearing it for export is responsible for all transportation costs and risk of loss of goods FAS Long Beach see p. 27

CIF: Cost, Marine Insurance, Freight the SELLER (exporter)the BUYER (importer) is responsible for shipping, insurance and other costs up to the port of final destination is responsible for risks and costs from the port of destination

DAF: Delivered at Frontier the SELLER (exporter)the BUYER (importer) is responsible to hire someone to take goods to the frontier is responsible for picking up the goods, carrying them across the border, and clearing them for importation

3. The Market Channel see p. 30

4. Pricing Profitable but competitive Consider the market channel (each entity marks it up) Consider the region—taxes, cost of doing business, bribes? Unique—can have a higher price Gain a foothold—marginal cost pricing setting a price just above where a loss would occur—p. 30

4. Pricing Dumping—gain market share by incurring a loss p. 30 illegal Pricing Model Commissions p. 32 export middleman—7-20% import middleman—5-20% Currency—must agree

Export vs. Import  Export  Export commission (7-20%)  Freight forwarder  Freight to port (inland freight)  Consular invoice (customs)  Foreign distributer/agent (5-20%)  Sales commission  Export Packing  Labeling

Export vs. Import  Import What should the sales price be???  Customs and customs broker  Duties/Tariffs  Repackaging  Taxes  Banking Costs  Distrubutors  Promotion  Overhead  Salaries