1. International Business
Chapter Thirteen
Export and Import Strategies

2. Chapter Objectives To introduce the ideas of import and export
To identify the elements of export and exporting strategies
To compare direct and indirect selling of exporting
To identify the elements of import and import strategies
To discuss the types and roles of third-party intermediaries in exporting
To discuss the role of countertrade in international business

3. Introduction: International Trade Strategy
International trade consists of
(i) exporting (product outflows)
(ii) importing (product inflows)
In general, trade activities:
are a natural extension of a firm’s distribution strategy
entail a lower level of risk than licensing or foreign direct investment
[continued]

4. Exports: goods and services flowing out of a country
Exporting: the sale and delivery of goods and services by a firm based in one country to customers residing in a different country
results in receipts from the customers
affords less control over the marketing function
Imports: goods and services flowing into a country
Importing: the purchase of goods and services by a firm based in one country from sellers that reside in a different country
results in payments to the sellers
affords less control over the production function

5. Fig. 13.1: Exporting and Importing in International Business

6. Export Strategy
• The decision to export must take into account global concentration, global synergies, and global strategic motivations.
• Strategic factors affecting the choice of exporting as a mode of entry include:
the ownership advantages of the firm
the location advantages of the market
the internalization advantages of specific assets
the international experience of the firm
the firm’s ability to differentiate its products
its fit with the overall strategy of the firm

7. Strategic Advantages of Exports
Increase revenues and profitability
Achieve economies of scale in production and research
Alleviate excess capacity in domestic operations
Minimize risk (as compared to licensing and foreign direct investment)
Diversify markets
Exporting requires expertise in dealing with government institutions, particularly customs agencies, as well as the documentation process.

8. Characteristics of Exporters
Research has shown that:
(i) the probability of exporting increases with the size of company revenues
(ii) export intensity, i.e., the percent of total revenues generate by exports, is not positively correlated with company size
While large companies are the biggest exporters, small companies expand their export capacity to:
increase market share overseas
fortify their domestic competitiveness
The risk profile of management and the nature of industry competition are just as relevant as firm size.

9. Stages of Export Development
Firms tend to move through three phases of export development:
pre-engagement
initial exporting
advanced exporting
As they do so, firms tend to:
export to a greater number of countries
extend their markets to more distant countries
move into environments that are increasingly different from those of their home countries
expect exports to grow as a percent of total sales
consider foreign direct investment as a possible alternative to exporting

10. Fig. 13.2: Phases of Export Development

11. Pitfalls of Exporting
Problems, delays, and pitfalls associated with the export process may include:
the failure to obtain qualified export counseling and/or marketing intermediaries
the insufficient commitment of top management
the underestimation of total transaction costs
the poor selection of overseas agents or distributors
the favoring of domestic markets at the expense of international distributors and customers
an unwillingness to make necessary modifications
the failure to adequately prepare for international dispute resolution

12. Designing an Export Strategy
To design an effective export strategy, manage-ment must:
assess the company’s export potential [examine market opportunities and firm resources]
obtain expert counseling on exporting [get both government and specialized assistance]
select target markets [passively or proactively pursue market opportunities]
formulate and implement an effective strategy [define objectives and tactics and establish schedules and deadlines]

13. Fig. 13.3: International Business Transaction Chain

14. An Export Business Plan
I. Executive Summary: key elements
II. Business History: firm and industry insights
III. Market Research: target countries & market conditions
IV. Marketing Decisions: marketing mix elements
V. Legal Decisions: legal agreements & protection
VI. Manufacturing and Operations: location & capacity
VII. Personnel Strategies: short- & long-term needs
VIII. Financial Decisions: funding & risk
IX. Implementation Schedule: timeline
A detailed export business plan is an essential element in the implementation of a sound yet insightful export strategy.

15. The Import Process • Basic types of imports include:
industrial and consumer goods and services sought by customers not related to the foreign exporter
intermediate goods and services that are part of the customer’s global supply chain
The import documentation process can be both complicated and cumbersome.
Import documents are of two types:
those that determine whether customs will release a shipment
those that contain the information necessary for duty assessment and data gathering purposes.
At a minimum, the required documents would include an entry manifest, a commercial invoice, and a packing list.

16. Strategic Advantages of Imports
Decrease costs and increase competitiveness and profitability
Secure essential inputs and products
Secure higher quality products, supplies, materials, and/or components
Minimize risk and investment
Diversify suppliers
Importing requires expertise in dealing with government institutions, particularly customs agencies, as well as the documentation process.

17. Types of Industrial Importers
The three basic types of industrial importers are:
those that opportunistically look for any product around the world that will generate a positive cash flow
those that look to foreign sourcing as a means to minimize product costs
those that use foreign sourcing as part of their global supply chain strategy
An import broker is a certified specialist who obtains required government permissions and other clearances before forwarding the necessary documents to the carrier(s) of the goods.

18. The Role of Customs Agencies
Customs agencies: government bureaus charged with collecting duties and ensuring that trade restrictions are enforced and procedures ad-hered to
The primary duties of a customs agency are:
the assessment and collection of all duties, taxes, and fees on imported products
the enforcement of customs and related laws, and the administration of certain navigation laws and treaties
National customs agencies are increasingly involved in dealing with smuggling operations and preventing foreign terrorist attacks.

19. The Role of Customs Brokers
Customs broker: an independent agent who executes customs transactions on behalf of clients for a fee
• A customs broker can help minimize duties by:
valuing products in such a way that they qualify for more favorable treatment
deferring duties by using bonded warehouses and foreign trade zones
limiting liability by properly marking the country of origin of an imported product
qualifying for duty refunds through *drawback provisions
*Drawback provisions allow U.S. exporters to apply for a 99% refund of the duty paid on imported components, provided they are incorporated into goods to be exported.

20. An Import Business Plan
I. Executive Summary: key elements
II. Business History: firm details and industry insights
III. Market Research: target country & market conditions
IV. Marketing Decisions: marketing mix strategy
V. Legal Decisions: legal agreements & protection
VI. Manufacturing and Operations: location & regulations
VII. Personnel Strategies: expertise & hiring needs
VIII. Financial Decisions: funding, financial, & tax issues
IX. Implementation Schedule: timeline
A detailed import business plan is an essential element in the implementation of a sound yet insightful import strategy.

21. The Export Process
Direct exports: goods and services sold directly to an independent party (foreign customer) outside of the exporter’s home country
Indirect exports: goods and services sold to or via an intermediary in the domestic market, who in turn sells them to a foreign customer
Third-party intermediaries: independent, i.e., unrelated, firms that facilitate international trade transactions by assisting both importers and exporters
The export documentation process can be both complicated and cumbersome.

22. Indirect Selling/Exporting
Indirect selling/exporting: selling products to or through an independent (third-party) intermediary
• Export intermediaries may perform any or all of the following functions:
stimulate sales, obtain orders, and conduct market research
perform credit investigations and payment-collection activities
handle foreign traffic arrangements and shipping details
provide support for a client’s sales, distribution, and promotion staff
While services are more likely to be exported on a direct basis, goods are exported via both avenues.

23. Indirect Selling: Export Management Companies
Export management company (EMC): a firm that either acts as a manufacturer’s agent or buys merchandise from manufacturers for inter-national distribution
EMCs generally operate on a contractual basis, provide exclusive representation in a well-defined foreign territory, and act as the export arm of a manufacturer.
Although many EMCs are small, they often specialize according to product, function, and/or market area.
EMCs may not be the perfect solution if they may have too few resources, give too little attention, and/or take too much control.

24. Indirect Selling: Export Trading Companies
Export trading company (ETC): a large, indepen-dent broker whose primary purpose is to match suppliers to foreign customers for a fee
• ETCs operate primarily on the basis of demand.
• Exporters from Great Britain, the Netherlands, and Japan long ago realized that wide-reaching trading companies could market and distribute products more efficiently than any single producer could.
• ETCs based in the U.S. are exempt from antitrust provisions to allow them to better penetrate foreign markets by collaborating with other U.S. firms.

25. Direct Selling
Direct selling: exporting through sales representatives to distributors, foreign retailers, or final end users
Direct selling:
gives exporters greater control over the marketing function
offers exporters the potential to earn higher profits
a sales representative: a company representative, who usually operates on a commission basis within an exclusive territory
a distributor: a merchant who purchases goods from a manufacturer and stocks, services, and resells them to retailers at a profit
[continued]

26. • A firm that has sufficient financial and managerial resources to export directly may adopt a variety of organizational structures ranging from a separate international division to a fully integrated matrix structure.
• Direct selling demands a separate international sales force because foreign markets demand different types of expertise.
• Internet marketing allows firms both large and small to quickly, easily, and inexpensively engage in direct marketing.

27. Export Documentation Key export documents include: a pro forma invoice
an outline of the terms of sale, price, and delivery details
a commercial invoice
a detailed invoice used to assess duties
a bill of lading
a detailed receipt from the carrier transporting the cargo
a consular invoice
sometimes required as a means to monitor imports
a certificate of origin
used to determine the tariff schedule
a shipper’s export declaration
used to monitor exports and compile trade statistics
an export packing list
used to determine the nature of the cargo

28. Foreign Freight Forwarders
Foreign freight forwarder: an international trade specialist who assists in the delivery of goods from producer to customer
Intermodal transportation: the movement of goods across a variety of modes from origin to destination
The typical freight forwarder is the largest export intermediary in terms of the weight and value of cargo handled.
Freight forwarders may specialize in the type of mode used or the geographical area served.
Recent trends leading to a preference for air freight over ocean freight include:
the need for more frequent shipments
lighter-weight shipments
high-value shipments

29. Sources of Foreign Trade Assistance
Firms typically have many sources of assistance for identifying their best foreign trade opportunities.
Government agencies actively aid the efforts of potential and active exporters and, to a lesser extent, potential and active importers.
In Japan, the Ministry of International Trade and Industry (MITI) plays a vital role in developing strategic trade policy and providing operational assistance.
In the U.S., a number of institutions, most notably the Department of Commerce, the Ex-Im Bank, and the Small Business Administration (SBA) help firms identify and realize export opportunities.

30. Types of Foreign Trade Information by Source
U.S. Government Agencies
Market demographics, channels and joint venture partners, customs regulations & tax issues, credit & insurance, trade events & leads, documentation requirements, quotations
Trade Associations and Trade Groups
Market demographics, promotion alternatives, channels, customs regulations & tax issues
Export Intermediaries
Channels, host-country requirements, financing, credit & insurance, logistics

31. Countertrade Countertrade: a reciprocal flow of goods and services
The two basic types of countertrade transactions include:
barter [based on clearing arrangements used to avoid money-based exchange]
buybacks, offsets, and counterpurchase [all of which are used to impose reciprocal commitments]
Countertrade provides a means to complete a trans-action when a firm (or government):
lacks sufficient funds to pay for imports
lacks sufficient convertible currency or sufficient hard currency to pay for imports

32. Countertrade: Barter and Buybacks
Barter: the exchange of goods or services for other goods and services, i.e., a non-monetary transaction
[Barter is not only the oldest form of countertrade, it is the oldest form of any type of trade transaction.]
Buybacks: counter-deliveries received as payment by the exporter that are related to or originate from the original exported product
• The disadvantages of countertrade include:
̶ transaction inefficiencies
̶ transaction risk
̶ transaction complexities

33. Countertrade: Offsets
Offset trade: an exchange of goods or services for cash that includes a reciprocal commitment to find opportunities for the importer to earn hard currency
[similar to counterpurchase, but permitting flexibility in the choice of firm for fulfilling the reciprocal obligation]
In offset trade, the exporter sells the product for cash, but then undertakes the promotion of exports from the importing country in order to help it earn foreign exchange.
Offset arrangements are usually one of two types:
direct offsets: include generated business that directly relates to the export product
indirect offsets: include generated business unrelated to the exported product

34. Fig. 13.4: An Offset Transaction

35. Implications/Conclusions
Exporting and importing are necessary functions for the implementation of firms’ international business strategies.
The specialization of labor makes exporting to and importing from countries around the world more efficient than manufacturing every product in every country.
[continued]

36. • “Born global” companies tend to make ex-porting a primary goal from the time of their inception.
• The import process involves strategic and procedural issues that largely mirror those of the export process.