1. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 1 Global Marketing Management Masaaki Kotabe & Kristiaan Helsen Third Edition John Wiley & Sons, Inc., 2004

2. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 2 Chapter 17 Export and Import Management

3. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 3 Chapter Overview 1. Organizing for Exports 2. Indirect Exporting 3. Direct Exporting 4. Mechanics of Exporting 5. Role of the Government in Promoting Exports 6. Managing Imports—the Other Side of the Coin 7. Mechanics of Importing 8. Gray Markets

4. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 4 Introduction Exporting is the most popular way for many companies to become international. Exporting is the most popular way for many companies to become international. Exporting is usually the first mode of foreign entry Exporting is usually the first mode of foreign entry used by companies. used by companies. Selling to foreign markets involves numerous high risks, arising from a lack of knowledge about and unfamiliarity with foreign environments, which can be heterogeneous, sophisticated, and turbulent. Selling to foreign markets involves numerous high risks, arising from a lack of knowledge about and unfamiliarity with foreign environments, which can be heterogeneous, sophisticated, and turbulent. Manufactured goods accounted for almost 60 percent of the exports of developing countries (see Exhibit 17-1). Manufactured goods accounted for almost 60 percent of the exports of developing countries (see Exhibit 17-1).

5. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 5 Introduction (contd.) Because of every export transaction, there is, by definition, an import transaction as well. Because of every export transaction, there is, by definition, an import transaction as well. Aside from differences between the procedure and rationale for exports and imports, both are largely the same the world over. Aside from differences between the procedure and rationale for exports and imports, both are largely the same the world over. For successful development of export activities, systematic collection of information is critical. For successful development of export activities, systematic collection of information is critical.

6. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 6 1. Organizing for Exports Research for Exports: The first step is to use available secondary data to research potential markets. Research for Exports: The first step is to use available secondary data to research potential markets. –The identification of an appropriate overseas market involves the following criteria: 1. Socioeconomic characteristics 2. Political and legal characteristics 3. Consumer variables (lifestyle, preferences, culture, taste, purchase behavior) 4. Financial conditions

7. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 7 1. Organizing for Exports (contd.) Export Market Segments Export Market Segments –Homogeneous market segments and clusters –Geographical and psychographic segments –Issues of standardization vs. adaptation

8. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 8 2. Indirect Exporting Indirect exporting involves the use of independent middlemen to market the firm’s products overseas. Indirect exporting involves the use of independent middlemen to market the firm’s products overseas. Combination Export Manager (CEM) Combination Export Manager (CEM) Export Merchants Export Merchants Export Broker Export Broker Export Commission House Export Commission House Trading Companies (sogoshosha; see Exhibit Trading Companies (sogoshosha; see Exhibit 17-1) 17-1) Piggyback Exporting Piggyback Exporting

10. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 10 3. Direct Exporting Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market (see Exhibit 17-2). Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market (see Exhibit 17-2). Export Department Export Department Export Sales Subsidiary Export Sales Subsidiary Foreign Sales Branch Foreign Sales Branch

11. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 11 4. Mechanics of Exporting The Automated Export System (AES) on the Internet The Automated Export System (AES) on the Internet –In the U.S., the AES which was launched in October 1999, enables exporters to file export information at no cost over the Internet. AES is a nationwide system operational at all ports. Legality of Exports Legality of Exports –Export license (general or validated license) Export Transactions Export Transactions –The terms of sale

12. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 12 4. Mechanics of Exporting (contd.) –Monitoring the transportation and delivery of the goods to the assigned party –Shipping and obtaining the bill of lading »Bill of lading A straight bill of lading A straight bill of lading A shipper’s order bill of lading A shipper’s order bill of lading –Commercial invoice –Freight forwarders Terms of Shipment and Sale Terms of Shipment and Sale –INCOTERMS 2000 (International Commercial Terms)

13. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 13 4. Mechanics of Exporting (contd.) –Terms of Shipment (see Exhibit 17-5): »Ex-Works (EXW) at the point of origin »Free Alongside Ship (FAS) »Free on Board (FOB) »Cost and Freight (CFR) »Carriage Paid To (CPT) »Cost, Insurance and Freight (CIF) Payment Terms (see Exhibit 17-6) Payment Terms (see Exhibit 17-6) –Advanced Payment

14. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 14 4. Mechanics of Exporting (contd.) –Confirmed irrevocable letter of credit –Unconfirmed irrevocable letter of credit –Documents Against Payment (D/P) –Documents Against Acceptance (D/A) –Open account –Consignment Currency Hedging Currency Hedging –It is done through a banker or the firm’s treasury in case there is a foreign risk in the export transaction.

15. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 15 5. Role of the Government in Promoting Exports Export promotion activities generally comprise: Export promotion activities generally comprise: 1. Export service programs 2. Market development programs Export Enhancement Act of 1992 Export Enhancement Act of 1992 Export - Import Bank (Ex-Im Bank; see Exhibit 17-7) Export - Import Bank (Ex-Im Bank; see Exhibit 17-7) Tariff Concessions Tariff Concessions –Foreign Trade Zones –Foreign Sales Corporation (FSC)

16. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 16 5. Role of the Government in Promoting Exports (contd.) American Export Trading Company American Export Trading Company –The Export Trading Company Act of 1982 Export Regulations: Export Regulations: –The Trade Act of 1974 –The Foreign Corrupt Practices Act (FCPA) of 1977 –COCOM (Coordinating Committee for Multilateral Exports) –U.S. Antitrust Laws

17. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 17 5. Role of the Government in Promoting Exports (contd.) –Tariffs and local laws of foreign governments which may include: tariffs, local laws relating to product standards and classification, and taxes.

18. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 18 6. Managing Imports – the Other Side of the Coin For organizations in the United States, importing is considerably easier than for most firms in the rest of the world. For organizations in the United States, importing is considerably easier than for most firms in the rest of the world. About 60 percent of the world’s trade is still denominated in U.S. dollars. About 60 percent of the world’s trade is still denominated in U.S. dollars. Most of the time, a U.S. importer does not have to bother with hedging foreign exchange transactions or with trying to accumulate foreign currency to pay for imports. Most of the time, a U.S. importer does not have to bother with hedging foreign exchange transactions or with trying to accumulate foreign currency to pay for imports.

19. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 19 6. Managing Imports – the Other Side of the Coin (contd.) –Model of Importer Buyer Behavior (see Exhibit 17-8): Stage 1. Need recognition and problem formulation (triggered by competition and unavailability) Stage 2. Search (guided by country characteristics, vendor characteristics, and information sources) Stage 3. Choice (vendors evaluation and selection)

20. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 20 7. Mechanics of Importing Steps in Importing: Steps in Importing: –Finding a bank that either has a branch in the exporter’s country or has a correspondent bank –Establishing a letter of credit with the bank –Deciding on the mode of transfer of goods from exporter to importer –Checking compliance with national laws of the importing country –Making allowances for foreign exchange fluctuations

21. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 21 7. Mechanics of Importing (contd.) –Fixing liability of payment of import transactions and warehousing Import Documents and Delivery Import Documents and Delivery –Entry documents filed by the consignee: »The bill of lading »Customs form 7533 »Customs form 3461 »Packing list »Commercial invoice

22. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 22 7. Mechanics of Importing (contd.) »Also accompanied by evidence that a bond is posted with customs to cover any potential duties, penalties, and taxes –For Special Permit for Immediate Delivery, use Customs form 3461 for fast release after arrival. Import Duties in the United States: Import Duties in the United States: –Ad valorem duty –Specific duty –Compound duty

23. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 23 7. Mechanics of Importing (contd.) –Antidumping import duty –Countervailing duty –Duty drawback: »Direct identification drawback »Substitution drawback

24. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 24 8. Gray Markets Gray market channel refers to the legal export/import transaction involving genuine products into a country by intermediaries other than the authorized distributors. Gray market channel refers to the legal export/import transaction involving genuine products into a country by intermediaries other than the authorized distributors. From the importer side, it is also known as “parallel imports.” From the importer side, it is also known as “parallel imports.” Three conditions are necessary for gray markets to develop: Three conditions are necessary for gray markets to develop: 1. Products must be available in other markets. 2. Trade barriers must be low enough for parallel importers.

25. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 25 8. Gray Markets (contd.) 3. Price differentials among various markets must be great enough to provide the basic motivation for gray marketers. Such price differences arise for various reasons: Currency fluctuations Currency fluctuations Differences in market demand Differences in market demand Legal differences Legal differences Opportunistic behavior Opportunistic behavior Segmentation strategy Segmentation strategy

26. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 26 8. Gray Markets (contd.) How to Combat Gray Market Activity (see Exhibit 17-9): How to Combat Gray Market Activity (see Exhibit 17-9): –Reactive Strategies: »Strategic Confrontation »Participation »Price cutting »Supply interference »Promotion of gray market product limitations »Collaboration

27. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 27 8. Gray Markets (contd.) »Acquisitions Proactive Strategies: Proactive Strategies: »Product/service differentiation and availability »Strategic pricing »Dealer development »Marketing information systems »Long-term image reinforcement

28. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 28 8. Gray Markets (contd.) »Establishing legal precedence »Lobbying

29. Chapter 17Kotabe & Helsen's Global Marketing Management, Third Edition, 2004 29 Copyright © John Wiley & Sons, Inc., 2004