1. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.1 Global Marketing Management, 4e Chapter 17 Export and Import Management

2. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.2 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

3. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.3Introduction  Exporting is the most popular way for many companies to become international.  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.  Furthermore, conducting market research across national boundaries is more difficult, complex, and subjective than its domestic counterpart.

4. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.4Introduction  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.  For successful development of export activities, systematic collection of information is critical.

5. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.5 1. Organizing for Exports  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

6. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.6 1. Organizing for Exports  It is also noted that export research for markets such as China and the Commonwealth of Independent States must still be done largely in the field, because very little prior data exist, and even when available, they are often not reliable.  Export Market Segments –Homogeneous market segments and clusters –Geographical and psychographic segments –Issues of standardization vs. adaptation

7. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.7 2. Indirect Exporting  Indirect exporting involves the use of independent middlemen to market the firm’s products overseas.  Combination Export Manager (CEM)  Export Merchants  Export Broker  Export Commission House  Trading Companies (sogoshosha; see Exhibit 17-1) 17-1)  Piggyback Exporting

8. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.8 2. Indirect Exporting

9. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.9 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).  Export Department  Export Sales Subsidiary  Foreign Sales Branch

10. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.10 3. Direct Exporting

11. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.11 4. Mechanics of Exporting  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- can be proactively dealt with –Export license (general or validated license)

12. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.12 4. Mechanics of Exporting  Export Transactions –The terms of sale –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 shipper’s order bill of lading –Commercial invoice –Freight forwarders

13. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.13 4. Mechanics of Exporting  Terms of Shipment and Sale –INCOTERMS 2000 (International Commercial Terms) –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)

14. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.14 4. Mechanics of Exporting  Payment Terms (see Exhibit 17-6) –Advanced Payment –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 –It is done through a banker or the firm’s treasury in case there is a foreign risk in the export transaction.

15. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.15 5. Role of the Government in Promoting Exports  Export promotion activities generally comprise: 1. Export service programs 2. Market development programs  Export Enhancement Act of 1992  Some governments encourage inward FDI as a way to increase their exports (e.g., Argentina)  Export - Import Bank (Ex-Im Bank; see Exhibit 17- 7)  Tariff Concessions –Foreign Trade Zone

16. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.16 5. Role of the Government in Promoting Exports  American Export Trading Company –The Export Trading Company Act of 1982  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 –Tariffs and local laws of foreign governments which may include: tariffs, local laws relating to product standards and classification, and taxes.

17. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.17 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.  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.

18. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.18 6. Managing Imports – the Other Side of the Coin –Model of Importer Buyer Behavior (see Exhibit 17-7): 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)

19. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.19 6. Managing Imports – the Other Side of the Coin

20. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.20 7. Mechanics of 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 –Fixing liability of payment of import transactions and warehousing

21. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.21 7. Mechanics of Importing  Import Documents and Delivery –Entry documents filed by the consignee:  The bill of lading  Customs form 7533  Customs form 3461  Packing list  Commercial invoice  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.

22. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.22 7. Mechanics of Importing  Import Duties in the United States: –Ad valorem duty –Specific duty –Compound duty –Antidumping import duty –Countervailing duty –Duty drawback:  Direct identification drawback  Substitution drawback  All countries have procedures allowing for the temporary of goods across their borders.

23. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.23 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.  From the importer side, it is also known as “parallel imports.”  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.

24. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.24 8. Gray Markets 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 – Differences in market demand –Legal differences –Opportunistic behavior – Segmentation strategy – The WWW’s information transparency

25. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.25 8. Gray Markets  How to Combat Gray Market Activity (see Exhibit 17-8): –Reactive Strategies:  Strategic Confrontation  Participation  Price cutting  Supply interference  Promotion of gray market product limitations  Collaboration  Acquisitions

26. Chapter 17Copyright (c) 2007 John Wiley & Sons, Inc.26 8. Gray Markets  Proactive Strategies:  Product/service differentiation and availability  Strategic pricing  Dealer development  Marketing information systems  Long-term image reinforcement  Establishing legal precedence  Lobbying