International business
naiffalah
chapter_14_fenton_presentation_1.pptxExport and Import Practices
Chapter 14
Chapter Objectives
Explain why firms export and challenges to exporting
Identify the sources of export counseling and support
Discuss the meaning of the various terms of sale
Identify some sources of export financing
Describe the activities of a foreign freight forwarder
Understand the kinds of export documents required
Identify import sources
Describe the activities of a customhouse broker
Who Exports?
Many people believe large multinationals do not export because they supply their foreign markets from local production
However, some of the largest U.S international firms were also the nation’s largest exporters.
Who Exports? (continued)
The U.S. Bureau of Census reported that manufacturers accounted for the largest proportion of exports (69+%).
The survey showed that the top 50 manufacturers accounted for a minimum of 45% of the known export value while;
200,000+ small and medium-size firms were responsible for 31% of the known export value.
Why Export?
Reasons to export
To serve markets where
the firm has no production facilities.
the local plant does not produce the firm’s complete product mix.
To satisfy a host government’s requirement that the local subsidiary export.
IOW: By rule, the organization must export.
To remain competitive in the home market.
Why Export?
Reasons to export (cont’d)
To test foreign markets and foreign competition inexpensively.
To meet actual or prospective customers’ requests for the firm to export. (AKA: Accidental Exporting)
To offset cyclical sales of the domestic market.
To achieve additional sales.
(Using production capacity to reduce fixed cost per unit.)
To extend a product’s life cycle.
Why Export?
Reasons to export (cont’d)
To distract foreign competitors that are in the firm’s home market by entering their home markets.
To partake in the kind of success the firm’s management has seen others achieve by exporting.
To improve equipment utilization rates.
(Using production capacity to reduce fixed cost per unit.)
Why Don’t They Export
Two major reasons U.S. firms give for not exporting
Preoccupation with the vast American market.
Or their respective home market.
A reluctance to become involved in a new and unknown operation.
Why Don’t They Export
General Problem Areas that Deter Firm from Exporting
Locating foreign markets.
Payment and financing procedures.
Export procedures.
Sources of Export Counseling
Trade Information Center (TIC)
The federal government has set this up as a first stop for information:
about all federal export assistance programs as well as country and regional market information.
Trade Information Center Web Site
http://www.export.gov/exportbasics/ticredirect.asp
Among the items at the TIC index page are
links to government export programs, trade promotion events, and trade lead information.
Sources of Export Counseling
International Trade Administration (ITA)
Good Source for Continuing Assistance from United States Department of Commerce
Three units of the ITA work together to provide export counseling services.
International Economic Policy
Trade Development
U.S. and Foreign Commercial Services
Access to global market data.
Sources of Export Counseling
Centers for International Business Education and Research (CIBERs)
Small Business Administration (SBA)
The Office of International Trade of the SBA works through
SBA district offices.
SCORE programs: Experienced executives offering free counseling at SBA district offices.
SBDC/SBI programs: Small Business Development Center
Sources of Export Counseling
Department of Agriculture (DOA)
The DOA has a single contact point
Ag Exporter Assistance
within its Foreign Agriculture Service for agricultural exporters seeking export assistance.
Department of Commerce Export Assistance Program
Foreign Market Research
After learning about the company and its products,
the international trade specialist may advise the potential exporter to consult the National Trade Data Bank (NTDB). (Generally Fee Based)
The NTDB provides
a comprehensive guide for new exporters.
a source of specific product and regional information for experienced exporters searching for new markets.
Department of Commerce Export Assistance Program
Show and Sell
Four kinds of trade events that facilitate international trade
1. U.S. Pavilions- D O Commerce selects about 100 global trade fairs annually to recruit American firms for a U.S. Pavilion. Exhibitors receive extensive support from Commerce.
2. Trade Missions- 5 to 12 business executives from an industry sector.
Participants are given advanced publicity, logistical support and pre-arranged appointments with government officials and potential buyers..
Department of Commerce Export Assistance Program
Show and Sell
Four kinds of trade events that facilitate international trade (continued)
Product Literature Center- Commerce Trade Development specialists represent U.S. companies at international trade shows.
They distribute literature and talk to visitors, and inform the firms who the interested visitors were for follow-up.
4. Reverse Trade Missions- the U.S. Trade Development Agency funds visits to the U.S. by representatives of foreign governments to meet with American industry and government officials.
Other Sources of Assistance
World Trade Centers Association:
Over 300 World Trade Centers provide access to an online trading system.
Exporters need only a computer and a modem to place offers to sell in an electronic database.
Access can be gained with a local telephone in 800 cities in 100 countries.
Other Sources of Assistance (continued)
District Export Councils: Department of Commerce has 51 district export councils composed of volunteer business and trade experts who assist in workshops and arrange for consultations for newcomers.
State governments: All states have export development departments offering assistance to exporters by providing sales leads, locating overseas representatives, and counseling.
Export Marketing Plan
Export Marketing Plan
Essentially the same as the domestic marketing plan.
The plan should be specific about
The markets to be developed.
The marketing strategy for serving them.
The tactics required to make the strategy operational.
Export Marketing Plan: Terms of Sale
Marketing Mix: Pricing Policies
Foreign customers may insist on one of the following terms of sale: INCOTERMS by the ICC (13 terms revised every 10 years)
FYI: FOB Factory (buyer assumes risks)
Factory door cost: Export preferred method; product cost without administrative and marketing costs factored into the price of the product.
FAS (free alongside ship, port of call)
Seller pays all the transportation and delivery expense up to the ship’s side and clears the goods for export.
CIF (cost, insurance, freight, foreign port)
Seller quotes a price that includes the cost of the goods, insurance, and all transportation and miscellaneous charges.
Export Marketing Plan
Marketing Mix
Terms of Sale (cont’d)
CFR (cost and freight, foreign port)
This is similar to CIF except that the buyer purchases the insurance because it may be able obtain it at a lower cost or because its required by the buyer’s government.
DAF (delivered at frontier)
The seller quotes a price that covers all costs up to the border where the shipment is delivered to the buyer’s representative.
Common for shipments to Canada and Mexico.
Payment and Financing Procedures
Types of payment terms offered by exporters to foreign buyers: IOW Export Payment Terms
Cash in advance.
Open account.
Consignment.
Letter of credit.
Documentary drafts.
Let’s Look
Payment and Financing Procedures
Cash in Advance
When credit standing of the buyer is not known or is uncertain,
cash in advance is desirable.
Open Account (becoming more popular)
When a sale is made on open account,
The seller assumes all of the risk.
Terms should be offered only to reliable customers in economically stable countries.
Payment and Financing Procedures
Consignment
Goods are shipped to the buyer and payment is not made until they have been sold.
All the risk is assumed by the seller.
Letters of Credit
This document is issued by the buyer’s bank,
which promises to pay the seller a specified amount when the bank has received certain documents stipulated in the letter of credit. See example on next slide.
P. 492
Payment made to seller, by sellers bank after being notified by buyers bank that required documents have been submitted.
Start: Acceptance of Sale Terms
1
2
3
4
Payment made to seller, by sellers bank after being notified by buyers bank that required documents have been submitted.
5/ $
8
7
6
10
9
Payment and Financing Procedures
Letters of Credit
Confirmed
Act of a correspondent bank in the seller’s country by which it agrees to honor the issuing bank’s letter of credit.
Irrevocable
Once the seller has accepted the credit, the customer cannot alter or cancel it without the seller’s consent.
Payment and Financing Procedures
Letters of Credit
Before opening a letter of credit, a buyer frequently requests
a pro forma invoice.
This is the exporter’s formal quotation containing a description of the merchandise, price, delivery time, proposed method of shipment, ports of exit and entry, and terms of sale.
Payment and Financing Procedures
Documentary Drafts (other forms of payment)
An export draft (essentially the statement bill)
is an unconditional order drawn by the seller on the buyer instructing the buyer to pay the amount of the order on presentation (sight draft: see next slide) or at an agreed future date (time draft).
No guarantee that buyer will accept and pay a documentary draft whereas a confirmed letter of credit will be paid if documents are in order.
Sight Draft
This is like a check.
Export Payment Risk/Cost Trade-Off
Excellent Study Tool
Export Financing (Re: Credit)
Commercial banks: Private Source Financing
Time draft with maturity of less than 270 by accepting bank. May be bought and sold at a discount in the financial markets.
Factoring
Provides working capital to manufacturers short of cash.
Is essentially discounting without recourse (will not take a loss).
The exporter can sell the note to guarantee payment
Does not exceed 180 days.
Forfaiting
Denotes the purchase of obligations that arise from the sale of goods and services and fall due at some date beyond the 90 to 180 days that is customary of factoring.
Export-Import Bank
The U.S. Export Import Bank (Eximbank)
The principal government agency responsible for aiding the export of American goods and services
through a variety of loan, guarantee, and insurance programs.
Programs are available to any American export firm regardless of size.
Export Financing: Public Sources
Export Financing
Export-Import Bank
Two types of loans available from the Eximbank
Direct loans to foreign buyers of American exports.
Intermediary loans to responsible parties.
E.g. Foreign government lending agency that relends to foreign buyers of capital goods and related services.
Export Financing: Public Sources
Other Government Incentives
Overseas Private Investment Corporation
Offers investors insurance against
expropriation, currency inconvertibility, and damages from wars or revolutions.
Also offers specialized insurance for
American service contractors and exporters operating in foreign countries.
IOW: An insurance agency for international sale of goods and their respective payment processes.
Other Government Incentives
Foreign Sales Corporation
Special corporate firm authorized by the federal government that provides tax advantages for exporting firms.
Can be part of mercantilism process for governments.
Free Trade Zones
An area designated by the government of a country for duty-free entry of any non-prohibited good.
Other Public Incentives
Foreign Trade Zone
Duty-free area designed to facilitate trade by reducing the effect of customs restrictions
Customs drawback
Rebate on customs duties
37
Export Procedures
Foreign freight forwarders act as agents for exporters
Prepare documents
Book space
Offer advice about
Markets
Regulations
Transportation
Packing
Supply cargo insurance
38
Export Shipping Documents
Shipping Documents
Shipper’s Export Declaration
This document is required by the Department of Commerce to control exports and supply export statistics.
General Export License (Most Common License)
Covers export commodities for which validated license not required; no formal application required
Export Shipping Documents
Export Licenses
All goods except those going to U.S. possessions or Canada require either a general export license or a validated export license.
Validated export license requires special authorization for a specific shipment and is needed for strategic materials and all shipments to communist countries.
Export Shipping Documents
Shipping Documents (Insurance Certificate)
Evidence that insurance coverage has been obtained to protect shipment from loss or damage while in transit.
There are three kinds of marine insurance:
(1) basic perils: fire/explosion/jettison/hurricane
(2) broad named perils,
Theft/breakage/leakage (in addition to basic)
(3) all risks: any kind of loss
(war risk is covered separately) (OPIC addressed earlier)
Export Shipping Documents
Automated Export System (AES) –Customs has introduced a single information collection and processing center for electronic filing of the export documentation required by the government.
Export Shipping Documents
Shipping Documents
An export bill of lading serves three purposes.
a contract for carriage between the shipper and the carrier.
a receipt from the carrier for the goods shipped.
a certificate of ownership
Specifies who has ownership at any given time from factory to buyer
Airway Bill
A bill of lading issued by an air carrier
Export Shipping Documents
Collection Documents: Required by buyer before payment is made to seller.
The most common documents for collection
Commercial invoices: These include origination information.
Often include a clause that the goods will not be transshipped.
Consular invoices: Country requirements for a local language version of a commercial invoice prepared by the foreign government counsel. ‘Visaed’.
Certificates of origin: Country requirements for a separate COO. (Usually issued by local Chamber of Commerce)
Inspection certificates: most often required for perishable items, chemicals, and some machinery and other multiple component items and live animals.
Export Shipments
Containers: Re: Semi trailers 8X8 and are 10/20/40 feet long.
LASH (lighter aboard ship): Gives exporters access to shallow inland waterways.
RO-RO (roll on-roll off): Ships that can take on pre loaded trailers on wheels.
Air Freight
Export Shipments
Air Freight
Total cost components that may be lower for air freight include
Insurance rates. (Lower: less chance of damage)
Packing: Can pack for final delivery.
Custom duties. (When calculated for gross weights.)
Replacement costs for damaged goods.
Inventory costs. (Can reduce need for warehouses.)
Export Shipments
Air Freight
When the total cost are high for air freight, it may still be advantageous to ship by air
when factors other than the conventional expense, inventory, and capital are considered.
Production and opportunity costs.
The firm may be air-dependent.
The products may be air-dependent because the market itself is perishable.
Note of Interest: Mercedes ships many of its high end cars via air to other countries.
See E.g. Next Slide
Sea-Air Total Cost Comparison, Shipment and Spare Parts
48
Importing
Ways to identify import sources
If similar imported products are already in the market, visit a retailer and examine the product label.
If the product is not being imported, call the nearest consul or embassy of that country.
Determine if it can be imported or is restricted.
Use the electronic bulletin boards of the World Trade Centers.
Accidental importing also takes place.
Customhouse Brokers
Customhouse Brokers
Independent businesses that handle import shipments for compensation.
Acting as the agent for the importer
Customhouse brokers bring the imported goods through customs.
They also need to know when imports are subject to import quotas and how much of the quota has been already filled.
Import Duties
Bonded warehouse
Area authorized by customs for storage of goods on which payment of import duties is deferred until goods are removed
Automated Commercial System (ACS)
Used to track, control, and process all commercial goods imported into U.S.
Every importer should know
how U.S. Customs calculates import duties, and
the importance of the product classification
This requires knowing the Harmonized Tariff Schedule of the United States
See next slide.
Page from HTSA
This document tells importers what the tariff or quota for a particular product is. Can be product or country specific.
Most countries have a similar process.
End Ch. 14
Harmonized Tariff Schedule of the USA
