Import - Export Management

INTRODUCTION TO
IMPORT - EXPORT
Nguyen Thi My Hanh
Email: ntmhanh@hcmiu.edu.vn

M.Sc
 Import - Export Management

LEARNING EXPECTATIONS
1. Defining and classifying Export and Import

2. Defining major types of export

3. Determine trade volume

3. Identifying internal and external factors that may

affect import/export.
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1. Defining and classifying Export and Import

• Exports: goods and services flowing out of a country
• Exporting: the sale and delivery of goods and services by a firm based
in one country to customers residing in a different country
vresults in receipts from the customers
vaffords less control over the marketing function
• Imports: goods and services flowing into a country
• Importing: the purchase of goods and services by a firm based in one
country from sellers that reside in a different country
vresults in payments to the sellers
vaffords less control over the production function
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 Import - Export Management

1. Defining and classifying Export and Import

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 Import - Export Management

Import-Export Management
• Import- Export Management: all activities of a company which aim at:
vStrategic planning
vOrganizing, Implementing
vSupervising and Controlling
of all import/export activities from the beginning until the end of a
business operation cycle.
A business operation cycle ranges from searching and contract
negotiation to the end of the contract implementation.

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 Import - Export Management

Strategic Advantages of Exports

• Increase revenues and profitability
• Achieve economies of scale in production and research
• Alleviate excess capacity in domestic operations
• Minimize risk (as compared to licensing and foreign direct
investment)
• Diversify markets

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 Import - Export Management

Strategic Advantages of Imports

• Decrease costs and increase competitiveness and
profitability
• Secure essential inputs and products
• Secure higher quality products, supplies, materials, and/or
components
• Minimize risk and investment
• Diversify suppliers

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 Import - Export Management

TRADE

What American thinks

What experts think

What economists think M.Sc

 Import - Export Management

2. Major forms of export

Direct Export Indirect Export
exporting directly/through sales agents to goods and services sold to or via an
distributors, foreign retailers, or final end intermediary in the domestic market, who
users in turn sells them to a foreign customer.
Advantages: Advantages:
- Gives exporters greater control over the - Concentrates on resources towards
marketing function production
- Offers exporters the potential to earn - Provides a way to penetrate foreign
higher profits markets without complexities
- Has closer relationship with the overseas - Little or no financial commitment
buyer and marketplace
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Indirect Exporting
Third-party intermediaries: independent, i.e., unrelated, firms that facilitate
international trade transactions by assisting both importers and exporters
Export intermediaries may perform any or all of the following functions:
vstimulate sales, obtain orders, and conduct market research
vperform credit investigations and payment-collection activities
vhandle foreign traffic arrangements and shipping details
vprovide support for a client’s sales, distribution, and promotion staff

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 Import - Export Management

- a firm that either acts as a manufacturer’s

representative or buys merchandise from
Export manufacturers for inter-national distribution
Management - generally operate on a contractual basis, provide
Companies exclusive representation in a well-defined foreign
(EMC) territory, and act as the export arm of a manufacturer.
Export - normally take title to the goods and assume all risks
intermediaries associated with doing business in other countries.

- a foreign distribution operation where products are

sold along with those of another manufacturer.
Piggyback - used by companies that have related or
Exporting complementary but non-competitive products.
EX: piggyback exporting of hair-brushes manufacturer
and a shampoo company
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 Import - Export Management

What does the World Trade?

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3. Trade volume

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3. Trade volume
• Geography (Distance) and Size (GDP) are the most important
determinants of bilateral trade flows.
• Note that the world’s largest economies (after the US) are Japan,
Germany, UK, France, and China.

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Why Is Country Size So Important For Trade

Volumes?
• Larger economies produce more goods and services, so there is more to sell on
export markets
• Larger economies generate more income from the sale of goods and services
v Higher income increases demand for all goods –including imported goods
• This is why trade is very concentrated among developed countries:
v 50% of current world trade is between developed economies (countries in
OECD & EU 25)
v 12% of current world trade is between developing economies

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Size matters

- the three largest

European
economies.

- have the highest

values of gross
domestic product
(GDP)

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The Gravity Equation for Bilateral Trade

• Empirically, one can estimate the effects of country size and distance
on bilateral trade by fitting the following ‘gravity’ equation:

where Tij is bilateral trade between countries i and j , Dij is the

distance separating them, and Y is country income
• The parameters a, b, and c are estimated from the regression (as well
as the constant A)
• Note: this is called a ‘gravity’ equation due to the similarity with
Newton’s law of gravitational force
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Estimating the Gravity Equation for Bilateral Trade

• Using bilateral trade data for all countries in the world, the best fit of the gravity
equation

yields coefficients a, b, and c that are very close to 1

• Trade is roughly proportional to country size (just like gravitational force and
mass)
• On average doubling the distance between two countries of similar size will
halve their bilateral trade
• Surprisingly, even with substantial reductions in transportation costs, the effect
of distance has not changed much over the last 50 years!
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EXAMPLE
Economy size (1000 USD) Distance to Bilateral trade
Vietnam
VIETNAM 223,779,865
US 19,485,394,000 6,218
Japan 4,872,415,104 3865
Korea 1,530,750,923 3,111
Australia 1,323,421,072 5,173
China 12,237,700,479 2,458
India 2,650,725,335 3,190

Calculate the bilateral trade between Vietnam and other countries. 20

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 Import - Export Management

Other Determinants of Bilateral Trade Flows

• Although country size and distance are the main determinants of
bilateral trade, other characteristics of country-pair relationships also
matter for trade:
v Sharing a common border (beyond the effect of distance)
v Sharing a common language
v Former colonial ties
v Being part of a free-trade agreement
v Immigration flows
v Other cultural ties
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Forces that effect the success of import/export

• Forces that importers/ exporters can control

• Forces that importers/ exporters can not control.

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Forces that importers/ exporters can control

• Availability of capital
• Finances
• Raw materials
• Personnel
• Production and Marketing capabilities
• Technology

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Forces that importers/ exporters can not control.

• Economic and socioeconomic conditions of the home and host
countries
vForeign exchange rates, inflation, interest rates, GDP per capita,
unemployment, budget deficits, etc.
• Physical conditions
vGeographical location, natural resources, market size, climate,
trading relationship
• Political and legal conditions
vStability of the government and their attitudes toward free trade,
friendly (hostile) political atmosphere.
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Forces that importers/ exporters can not control.

• Regulations and legal systems
vCommon laws, Civil laws, custom regulations
• Cultural conditions
vAesthetics: sense of beauty and good taste; color, messages, etc
vAttitudes and beliefs: attitude toward time
vReligion: Christianity, Buddhism, Islam, Protestantism.
vMaterial culture: technological degree, using of advertising, finance,
management.
vLanguage: low context or high context, verbal and non-verbal communications .
• Financial conditions:
vFluctuation of foreign exchange currency and risks
vSpot rate and forward rate;
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