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International Business
Environments & Operations

15e

Daniels ● Radebaugh ● Sullivan

International Business Environments and Operations 15e by Daniels, Radebaugh, and Sullivan

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Chapter 14

Export and Import

Chapter 14: Export and Import

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Learning Objectives

Explain the idea of exporting and profile its elements
Explain the idea of importing and profile its elements
Evaluate the relative benefits and drawbacks of the export and import of e-waste
Describe the problems and pitfalls that challenge international traders

The Learning Objectives for this chapter are

To explain the idea of exporting and profile its elements
To explain the idea of importing and profile its elements
To describe the problems and pitfalls that challenge international traders
To describe the resources and assistance that helps international traders
To discuss the idea of an export plan
To discuss the practice of countertrade

Learning Objectives

Define the idea of an export plan
Discuss the practice of countertrade
Describe the resources and assistance for international traders
Identify and discuss the platforms that support expanding international trade

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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

Exporting and importing, the most common forms of international business, have seen substantial growth in recent years thanks in part to globalization, an increase in free trade agreements, and institutional development. Companies like exporting and importing because they allow them to capitalize on international opportunities without substantial risk, and with only a low commitment of resources.

World Trade 1960-2010

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The graph shows the pattern of growth of world trade from 1960 to 2010

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Introduction

Environmental Factors Influencing Export and Import Operations

This Figure shows the environmental factors that influence exporting and importing opportunities. Notice that exporting and importing are just one way to take advantage of opportunities in foreign markets.

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Exporting

Learning Objective:

Explain the idea of exporting and profile its elements

Learning Objective : To introduce the idea of exporting and profile its elements.

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Exporting

Exporting
the sale of goods or services produced by a company based in one country to customers that reside in a different country
Types of exporters
Non-exporter
Occasional exporter
Regular exporter

Exporting involves sending products to other countries.

Occasional exporters fill unsolicited orders, but don’t pursue additional opportunities.

Regular exporters are experienced in exporting and aggressively pursue new opportunities.

Non-exporters have no experience and do not have any intention of engaging in exporting.

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Exporting

Entry mode is influenced by
Ownership advantages
the firm’s core competencies
Location advantages
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

Ownership, location, and internalization advantages all influence the choice of entry mode. For example, companies that have few ownership advantages are less likely to engage in exporting. Location advantages can attract companies to favorable business environments. Internalization advantages can encourage companies to export rather than engage in licensing.

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Characteristics of Exporters

Size
Large
Small and medium-sized enterprises (SMEs)
Management commitment
Efficiency
Cost structure

What companies are most likely to export? Well, large companies account for most export activity. In the United States for example, the 500 biggest companies are responsible for 60 percent of total export value.

However, even small and medium-sized companies called SMEs are active exporters. Two-thirds of exporters worldwide have fewer than 20 employees.

Perhaps more important though, are other factors including production efficiency, firm competence, and a firm’s commitment to growth via exports.

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Why Export?

Reasons to export include
Profits
Productivity
Diversification

Why export? Three dimensions drive the decision to export.

First, firms export to increase profits by tapping new markets or selling products at premium prices.

Second, exporting is also a way to boost productivity in a firm by increasing scale effects and improving knowledge flows.

Finally, firms export in order to diversify their activities and lower their risk.

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Exporters: Initiation
and Development

Two approaches
Incremental internationalization
exporting is a learning process
Born global
instant internationalization
global focus

Some firms approach exporting in a deliberate sequential way targeting markets that are similar and closer first before moving on to more dissimilar and geographically distant markets. So, a U.S. company might target Canada first, followed by Mexico before moving on to Europe and Asia.

In contrast, some companies engage in exports right from the start. These companies assume the domestic market is just one of many opportunities in the global market. The born global approach has been facilitated by advances in technology and lower barriers to trade.

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Exporters: Initiation
and Development

Top Trade Partners of the United States: Exports and Imports

This Table shows the top ten trade partners of the United States. Notice that it illustrates the interaction of the two perspectives on the export process. In the future, this interaction is likely to accelerate thanks to the opportunities that ecommerce provides and the easy access to information on dissimilar markets provided by the Internet.

Keep in mind that serendipity can also explain a company’s export activity. responding to unsolicited orders can be the start of successful export activity.

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Approaches to Exporting

Export approaches include
Direct exporting
involves independent representatives, distributors, or retailers outside of the exporter’s home country
Indirect exporting
products are sold to an intermediary in the domestic market, which then exports them
Passively filling orders from domestic buyers who then export the product
Selling to domestic buyers who represent foreign end users or customers

In theory, exporting involves making a product, packing it, and then shipping it. In reality though, it’s a bit more involved. Some companies are direct exporters. They sell their product to independent intermediaries in foreign countries who then sell it to the end consumer.

Companies that sell their product to independent intermediaries in the home country are indirect exporters. The intermediary resells the product to foreign agents who then sell it to the end consumer.

Some companies simply passively fill orders from domestic buyers who then export the product, while others sell to domestic buyers who represent foreign end users or customers. In either of these cases, the company may not know that its product has been resold. Some companies use more than one approach depending on their particular ownership, location, and internalization advantages.

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Importing

Learning Objective:

Explain the idea of importing and profile its elements

Learning Objective : To introduce the idea of importing and profile its elements.

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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
Opportunistic
Arbitrageurs

Importing involves the purchase of a good or service by a buyer in one country from a seller in another. Note that it’s possible to import services in addition to products. A service import is any transaction that does not result in ownership or is rendered by nonresidents to residents.

There are three general types of importers. Input optimizers search around the world for optimal inputs which are then used to produce the firm’s products.

Opportunistic importers exploit gaps in the market by importing products that are available from foreign suppliers.

Arbitrageurs capitalize on price and quality differences between markets.

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Why Import?

Reasons to import
Specialization of labor
Global rivalry
Local unavailability
Diversification

Companies can take advantage of the higher quality at lower prices that labor specialization provides. Apple pays workers in China just over a dollar an hour to produce its iPad2 for example.

Similarly, global rivalry has forced companies to use foreign suppliers to keep the costs of inputs low and quality levels high.

Sometimes because of the unavailability of products locally, companies have no choice but to import.

Finally, like exporters, companies import as part of a diversification strategy.

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Importing and Exporting: Problems and Pitfalls

Learning Objective:

Describe the problems and pitfalls that challenge international traders

Learning Objective : To identify the problems and pitfalls that challenge international traders.

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Importing and Exporting: Problems and Pitfalls

Financial risks
Customer management
Lack of international business experience
Marketing challenges
Top management commitment
Government regulation
Trade documentation

Regular and occasional exporters face a host of problems and pitfalls that make international trade challenging. Some of the more common ones involve financial risks, especially a shortage of working capital to finance an export strategy. In fact, financial constraints are one of the biggest challenges for SMEs.

In addition, exporters are hampered by their lack of international expertise, marketing barriers, and the challenges of meeting customer expectations in foreign markets. These demands can put significant pressure on managers.

Finally, trade regulations and documentation requirements also make exporting a complex process.

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Importing and Exporting: Problems and Pitfalls

Types of Export Documents

This Table shows some of the different types of documentation used in international trade.

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