chapter seventeen

Export and Import Practices

McGraw-Hill/Irwin International Business, 11/e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

Explain why firms export and problem areas of exporting

Identify the sources of export counseling and support

Discuss the meaning of the various terms of sale

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Learning Objectives

Identify some sources of export financing

Describe the activities of a foreign freight forwarder Understand the kinds of export documents required Identify import sources Explain the Harmonized Tariff Schedule of the United States (HTSUSA)

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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?

contd.

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

Not active in international markets due to

Lack of knowledge Locating foreign markets Payment and financing procedures Export procedures
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Sources of Export Counseling

Trade Information Center (TIC)
The federal government has to set this up as a first stop for information Visit http://www.export.gov/exportbasics/ticredirect.asp.

International Trade Administration (ITA)

Offers a wide range of export promotion activities that include Market Access and Compliance (MAC) Trade Development U.S. and Foreign Commercial Services (US&FCS)
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Sources of Export Counseling

Small Business Administration (SBA)
The office of International Trade of the SBA works through Small Business Administration offices Score Program Small Business Development Centers Centers for International Business Education and Research (CIBERs)

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Show and Sell

Trade events to facilitate international trade
U.S. pavilions Trade missions Product literature center Reverse trade missions

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Export Marketing Plan

Essentially same as domestic marketing plan Specific about
Markets to be developed Marketing strategy for serving them Tactics to make the strategy operational

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Terms of Sale
INCOTERMS
Universal trade terminology developed by the International Chamber of Commerce Ex-Works Risk passes at factory door US equivalent: FOB (free on board)

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Terms of Sale, contd.

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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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, contd.

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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Payment Procedures, contd.

Letter of credit
Confirmed L/C Correspondent bank in sellers country agrees to honor issuing banks L/C Irrevocable L/C Once the seller has accepted L/C, buyer cannot alter or cancel it without sellers consent

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Sample Letter of Credit

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Letter of Credit Transaction

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Documents
Air Waybill
A bill of lading issued by an air carrier

Pro Forma Invoice

Exporters formal quotation: description of the merchandise, price, delivery time, method of shipment, ports of exit and entry, and terms of sale

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Export Payment Documents

Export draft
Unconditional order drawn by the seller that instructs buyer to pay the drafts amount on presentation (sight draft) or at an agreed future date (time draft) and that must be paid before buyer receives shipping documents

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Payment Risk/Cost Trade-Off

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Export Financing
Private Source Commercial Banks
Bankers acceptance
Time draft with maturity of less than 270 days that has been accepted by the bank on which the draft was drawn, thus becoming the accepting banks obligation; may be bought and sold at a discount in the financial markets like other commercial paper Factoring Discounting an account receivable without recourse
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Export Financing, contd

Forfeiting
Purchasing without recourse an account receivable whose credit terms are longer than the 90 to 180 days usual in factoring; unlike factoring, political and transfer risks are borne by the forfeiter

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Export Financing contd.

Public Sources
Export-Import Bank (Ex-Imbank)
Principal government agency that aids American exporters by means of loans, guarantees, and insurance programs

Overseas Private Investment Corporation (OPIC)

U.S. government corporation that offers American investors in developing countries insurance against expropriation, currency inconvertibility, and damages from wars and revolutions

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Other Public Incentives

Foreign Trade Zone
Duty-free area designed to facilitate trade by reducing the effect of customs restrictions

Free Trade Zone

An area designated by the government as outside its customs territory

Customs drawback
Rebate on customs duties
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Export Procedures
Foreign freight forwarders act as agents for exporters
Prepare documents Book space Offer advice about
Markets Regulations Transportation Packing
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Supply cargo insurance

Official Procedures for Importing and Exporting

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Shipping Documents
Shippers Export Declaration
U.S. Department of Commerce form to control export shipments and record export statistics

Validated export license

Document issued by the U.S. government authorizing export of strategic commodity or shipment to unfriendly country

General Export License

Covers export commodities for which validated license not required; no formal application required
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Shipping Documents, contd.

Export Bill of Lading
Contract of carriage between shipper and carrier: straight bill of lading is nonnegotiable; endorsed to order bill gives holder claim on merchandise

Insurance Certificate

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Collection Documents
Commercial invoice
Include origin of goods, export packing marks, and clause stating goods will not be transshipped Consular invoice Purchased from the consul and prepared in local language Certificate of origin Issued by local Chamber of Commerce Inspection certificate Frequently required for grain, food, live animals
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Export Shipments

Containers

LASH (lighter aboard ship)

Reduce theft and handling costs

Barges for shallow inland waterways Can drive onto vessel Can arrive in one day
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RO-RO (roll on-roll off) Air Freight

Export Shipments
Containers
Reduce theft and handling cost

LASH (lighter aboard ship)

Barges for shallow inland waterways

RO-RO (roll on-roll off)

Can drive onto vessel

Air Freight
Can arrive in one day
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Sea-Air Total Cost Comparison, Shipment and Spare Parts

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Air Freight
Total cost may decrease Either the firm or the product may be airdependent The market may be perishable Competitive position may be strengthened

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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
Use the electronic bulletin boards of the World Trade Centers

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Customhouse Broker
Independent business that handles import shipments Acts as agent for importer
Customhouse broker brings goods through customs May arrange transportation for goods after they leave customs Need to know when imports are subject to import quotas and how much of the quota has been filled

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Importing
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.

Import Duties
Importer must know how U.S. calculates import duties

The Harmonized Tariff Schedule of U.S. (HTSUSA)

American version of the Harmonized System used worldwide to classify imported products
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Page from the HTSUSA

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