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International
Business
Environments & Operations
14e Global Edition
Daniels Radebaugh Sullivan

Chapter 13

Export and Import

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Four Ways of Expanding

Internationally

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Introduction

Exporting and importing are the most

common modes of international business

Exporting and importing are one of the

fastest growing activities in the world

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Introduction
Environmental Factors Influencing Export and Import Operations

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International Expansion :

Exporting

Exporting

the sale of goods or services produced by a

company based in one country to customers
that reside in a different country

Exporting making products at home and selling them abroad

Importing selling at home products that are made abroad

Types of exporters: Non-exporter;

Occasional exporter; Regular exporter
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Going it Alone: Export

HOST COUNTRY

HOME COUNTRY
Revenues

MNE

Customers

Export of Goods

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Exporting
Entry mode is influenced by
Ownership advantages

Location advantages

the firms core competencies

the combination of sales opportunity and

investment risk that creates favorable
locations in foreign markets

Internalization advantages

reflect companies response to market

imperfections that often create uncertainties
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When Is Export Appropriate?

Low trade barriers

Home location has cost advantage

Customization not crucial

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Going it Alone: Export

Advantages

Low initial investment

Reach customers
quickly
Complete control over
production
Benefit of learning for
future expansion

Disadvantages

Potential costs of
trade barriers

Transportation cost
Tariffs and quotas

Foregoes potential
location economies
Difficult to respond to
customer needs well

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Why Export?

Main reasons to export include

Profits
Productivity
Diversification
(of activities)

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Why Export?

Reasons to export

To serve markets where the firm has no or

limited production facilities
To satisfy a host governments requirement
that the local subsidiary have exports
To remain price-competitive in the home
market
To test foreign markets and foreign
competition inexpensively

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Reasons to export?

To offset domestic markets cyclical sales

To achieve additional sales
To extend a products life cycle
To respond strategically to foreign competitors
To achieve the success the firms management
has seen others achieve
To improve the efficiency of manufacturing
equipment

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Reasons not to Export

Two major reasons

Preoccupation with the vast home market

Reluctance to become involved in a new,
unknown and therefore risky operation

Not active in international markets due to

Lack of knowledge
About:

Locating foreign markets

Payment and financing procedures
Export procedures

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Exporters: Initiation
and Development
Top Ten Trade Partners of the United States

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Determinants of Entry
Strategy

Degree of contact with foreign market

desired (no/some/high)

no contact - export intermediary

some contact - foreign import intermediary
high contact - subsidiary, FDI, etc.

Determined by:

market potential
firms capabilities and experience
managerial commitment to export, market and risk
tolerance

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Approaches to Exporting

Export approaches include

Direct exporting
.

Indirect exporting

Passively filling orders from domestic buyers

who then export the product
Selling to domestic buyers who represent
foreign end users or customers

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Entry Options

Indirect export

intermediary located in domestic market

firms with little experience with export
exporter deals with export agents
few intermediaries

Exporter

Intermediary

Agent

Home country

Host Country

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Entry Options

Direct export

intermediary in o/s market

agents and distributors - driven by profit
margin
70-80% of Australian exporters use agents
and distributors

Exporter
Home country

Intermediary
Host Country

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Entry Options

Exporter

Foreign sales subsidiary

Intermed.

...

Subsidiary

Decision for intermediary vs

subsidiary?

distributor - margin on sales

subsidiary - retains margin but exposed to
risk
decision to switch - B/E analysis

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Importing

Importing

the purchase of a good or service by a buyer in

one country from a seller in another

Types of importers

Input optimizers: for better production

Opportunistic: availability
Arbitrageurs: price/ quality

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Why Import?

Reasons to import

Specialization of labor
Global rivalry
Local unavailability
Diversification
Top management outlook

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Importing and Exporting:

Problems and Pitfalls
Financial risks
Customer management
Lack of international business experience
Marketing barriers
Top management commitment
Trade regulations
Trade documentation

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Importing and Exporting:

Resources and Assistance

Companies can get resources and

assistance from
Government agencies
Departments of Commerce
International Trade Administration
The Small Business Administration
UK Trade & Investment:
http://www.youtube.com/watch?v=e0gawu1NCcU#t=121
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Importing and Exporting:

Resources and Assistance

Export intermediaries

third party firms that market products and

services abroad on behalf of manufacturers,
farm groups, and distributors
Export management company (EMC)
Export trade companies (ETC)

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Importing and Exporting:

Resources and Assistance

Customs agents

enforce the rules of trade for a particular

country

Customs brokers

help importers navigate the regulations

imposed by customs agencies

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Payment Procedures

Payment terms offered by exporters to

foreign buyers

Cash in advance

When credit standing of the buyer unknown or uncertain

Open account

When sale is made on open account

Seller assumes payment risk
Offered to reliable customers in economically stable
countries

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Payment Procedures

Consignment

Goods shipped to buyer; payment made when sold

Payment risk assumed by seller

Letter of credit (L/C)

Document issued by buyers bank

Promise to pay seller specified amount

when bank has received documents
stipulated in letter of credit

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Terms of Sale

INCOTERMS

Universal trade terminology developed by the

International Chamber of Commerce

EXW: Ex-Works
Risk passes at factory door
FAS: Free alongside ship, port of call
CIF: Cost, insurance, freight, foreign port
CFR: cost and freight, foreign port
DAF: Delivered at frontier

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X
X

X
X

CFR Cost, Freight, Foreign Port; FAS Free Along Side leave it there after clearing for export
FOB Seller will load on board after clearing for export (Cost and risk shared INCOTERMS 2010)
FCA Free Carrier clear for export and handover to named carrier
CPT Carriage Paid To seller pays named place of delivery
DEQ/DES Delivered Ex Quay/Ship named port of delivery
DDP/DDU Delivered Duty Paid/unpaid ; EXW Just keep outside/warehouse
CIF insurance for maritime; DES CIF + insurance for goods as well
In 2010, eliminated!
DES, DAF, DEQ, DDU,
indicated with X

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Price Levels differences

Home Market

Export market

Export Price Escalation

Ex works price
transport / insurance cost to wholesaler

100

100

transport / insurance cost to wholesaler

22

and document cost when exporting

landed cost

122

Import tarif (ex. App. 15 % of landed cost)

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costs unloading (ex. App. 4%)

Margin Importer (ex. App. 12%)

Wholesaler Margin (ex. App 10%)
Retailersmargin (ex. App 50%)
VAT (ex. 19%)
Retail price
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10,6

16,3

58

90

33,2

51,3

207,8

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Logistics Facilitators

Freight Forwarders (Consolidators)

Warehousing
Transportation Insurance
Importers Credibility: (Dun & Bradstreet)
Export Packing: (Efficient space utilization)
Export Documentation: (app. 20 per
transaction)
Export Advice: (Chambers of Commerce, banks)
Export insurance: (available per country )
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Reconciling Opportunity and

Challenge: An Export Plan

Export plan
identifies useful resources, assigns
responsibility, and stipulates controls

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Reconciling Opportunity and

Challenge: An Export Plan
An Export Plan

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Countertrade

Countertrade

Costs

different arrangements that parties use to

trade products via transactions that use limited
or no currency or credit
inefficient
risky
cumbersome

Benefits

build mutually beneficial relationships

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Technology and
International Trade

Advances in technology are leveling the

playing field for SMEs

Online platform
Software platform
Logistics platform

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mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
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