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4673 – Chap 2

Page 7 of 7

CHAPTER 2 – LAUNCHING A PROFITABLE TRANSACTION

A. THE TECHNICAL MARKETING DECISIONS

Factors to consider include:

1. Product standards and characteristics – Product may be subject to national or international standards, e.g. U.S. federal standards, International Organization for Standardization (ISO)*, etc.

a. ISO Standards

i. ISO - overview

· Founded 1947 (London)

· Members in 164 countries

· Voluntary participation

· Almost 23,000 standards covering most aspects of business and technology.

ii. ISO Standards include, for example:

· ISO 9000 (quality management)

· ISO 9001 – lays out the criteria for a quality management system

· ISO 9004 – how to make a quality management system more efficient and effective

· ISO 14000 – environmental management

· ISO 50001 – energy management

2. Technical specifications and codes

a. Specifications (electrical requirements/voltage, weights and measures) vary from country to country.

b. Product may need to be altered to suit foreign markets.

B. ASSESSING THE MARKET

1. Contacts – Two categories of contacts include:

a. Sourcing

i. Used to find/locate manufacturer or provider of product or service

ii. Typical Sources of contacts:

· Trade associations

· Industry publications

· Chambers of Commerce

· Government

B. ASSESSING THE MARKET (continued)

1. Contacts – (continued)

b. Marketing

i. Used in selling product or service

ii. Sources of Marketing leads:

· Internet

· Trade shows/fairs/expos – (usually most effective source)

· Agents

· Distributors

· Manufacturers’ Reps

· Wholesalers

· Retailers

· Government agencies (e.g., Dept of Commerce)

c. Visit the country

2. Market Research

Knowledge of the market is critical.

a. Exporter Checklist – see pp. 22-23.

b. Importer Checklist – see p. 24.

C. THE PROFIT STRUCTURE OF INTERNATIONAL TRADE

1. Initial Quotation

a. Initiated by:

i. Importer (buyer) sending request for quote (e.g. via email) to exporter (seller).

ii. Unsolicited offer from exporter.

b. Pro forma Invoice (sample on p. 27)

i. Provisional, negotiable document used to begin the negotiations

ii. Sent by exporter to importer

iii. Typically includes:

· Type (including size, weight) and quantity of goods

· Price/value

· Payment terms

· Shipping terms (method, costs)

· Delivery timeframe

C. THE PROFIT STRUCTURE OF INTERNATIONAL TRADE (continued)

2. Terms of Sale

a. Defined as: The pricing terms used in international trade to define geographical point at which risk and costs of the exporter and importer begin and end.

b. Pricing terms used developed by International Chamber of Commerce (ICC) using Incoterms (See Section D below)

c. International Chamber of Commerce (ICC) (iccwbo.org)

i. Founded 1919 (Paris)

ii. Operates in over 100 countries

iii. Hundreds of thousands of members including small, medium and large MNEs and other firms

iv. Developed/published Incoterms

3. Pricing for Profit

a. Market channel

i. Manufacturer

ii. Import/export agents/brokers

iii. Wholesalers

iv. Retailers

v. End users

b. Pricing factors to consider

i. Market entry pricing (to gain market share); beware of dumping

ii. Consider using domestic pricing plus freight, duties, taxes, fees, insurance, etc.

iii. Currency to be used in transaction

iv. See Fig. 2.5, p. 31 for sample pricing model.

D. INCOTERMS (International Commercial Terms)

1. General Overview

a. To eliminate/reduce misunderstandings, disputes, litigation by providing set of international rules for definition and interpretation of commonly used terms in domestic and international trade.

b. First published in 1936; updated/revised every 10 years (most current version Incoterms 2020, effective Jan 1, 2020)

c. Contracts prior to 2020 still valid but parties must specify version being used.

CONTINUED

D. INCOTERMS (International Commercial Terms) (continued)

2. Incoterms 2000

a. Consisted of 13 terms in 4 categories:

b. Categories were:

i. Group E – Departure (Seller makes goods available at seller’s premises)

ii. Group F – Main Carriage Unpaid (Seller delivers goods to carrier at loading port named by buyer)

iii. Group C – Main Carriage Paid (Seller arranges and pays for shipment to destination port. Seller does not assume risk after shipment arrives)

iv. Group D – Arrival (Seller assumes cost and risk of shipment to delivery point named by buyer)

3. Incoterms 2020 (latest version, slightly modified from 2010 version as noted below) consists of 11 terms in 2 categories.

a. Categories:

i. Group 1: RULES FOR ANY MODE OF TRANSPORT:

Used for any mode of transportation including air, rail, ocean, surface (i.e., trucking)

· ExWorks (EXW):

· Seller makes goods available for the buyer to pick up at seller’s premises or another named place (i.e. factory, warehouse, etc.).

· Buyer bears all risk and costs starting when the products are picked up at the seller’s location until they are delivered to the buyer’s location.

· Seller has no obligation to load the goods or clear them for export.

· Often used when making an initial quote.

· Free Carrier (FCA): (to named place)

· Seller delivers the goods export cleared to the carrier selected by the buyer

· Buyer assumes all risks and costs associated with delivery of goods to final destination including transportation after delivery to carrier and any customs fees to import the product into a foreign country.

i. Group 1: RULES FOR ANY MODE OF TRANSPORT: (continued)

· Carriage Paid To (CPT): (to named place of destination)

· Seller clears the goods for export and delivers them to the carrier at a named place of shipment.

· Seller is responsible for the transportation costs associated with delivering goods to the named place of destination but is not responsible for procuring insurance.

· Carriage and Insurance Paid To (CIP): (to named place of destination)

· Seller clears the goods for export and delivers them to the carrier at a named place of shipment.

· Seller is responsible for the transportation costs associated with delivering goods and procuring minimum insurance coverage to the named place of destination.

· Delivered at Place (DAP): (to named place of destination)

· Seller clears the goods for export and bears all risks and costs associated with delivering the goods to the named place of destination, not unloaded.

· Buyer is responsible for all costs and risks associated with unloading the goods and clearing customs to import the goods into the named country of destination.

· Delivered at Place Unloaded (DPU): (to named place of destination)

· New term in Incoterms 2020 (was Delivered at Terminal in Incoterms 2010)

· Seller clears the goods for export and bears all risks and costs associated with delivering the goods and unloading them at the terminal at the named port or place of destination.

· Buyer is responsible for all costs and risks from this point forward including clearing the goods for import at the named country of destination.

· “Terminal” includes any place such as warehouse, rail, truck, or air cargo terminal, container yard.

· Delivered Duty Paid (DDP): (to named place of destination)

· Seller bears all risks and costs, including duties and taxes, associated with delivering the goods to the named place of destination ready for unloading and cleared for import.

ii. Group 2: RULES FOR SEA AND INLAND WATERWAY TRANSPORT

Use for sea or other maritime transport only.

· Free Alongside Ship (FAS): (to named loading port)

· Seller clears the goods for export and delivers them when they are placed alongside the vessel at the named port of shipment.

· Buyer assumes all risks/costs for goods from this point forward.

· Free on Board (FOB): (to named loading port)

· Seller clears the goods for export and delivers them when they are onboard the vessel at the named port of shipment.

· Buyer assumes all risks/cost for goods from this moment forward.

· Cost and Freight (CFR): (to named destination port)

· Seller clears the goods for export and delivers them when they are onboard the vessel at the port of shipment.

· Seller bears the cost of freight to the named port of destination.

· Buyer assumes all risks for goods from the time goods have been delivered on board the vessel at the port of shipment.

· Cost, Insurance, and Freight (CIF): (to named destination port)

· Seller clears the goods for export and delivers them when they are onboard the vessel at the port of shipment.

· Seller bears the cost of freight and insurance to the named port of destination. Seller’s insurance requirement is only for minimum cover.

CONTINUED

ii. Group 2: RULES FOR SEA AND INLAND WATERWAY TRANSPORT (continued)

· Cost, Insurance, and Freight (CIF): (continued)

· Buyer is responsible for all costs associated with unloading the goods at the named port of destination and clearing goods for import.

· Risk passes from seller to buyer once the goods are onboard the vessel at the port of shipment.