Session 5

Importing, Exporting plus Sourcing and Global Market Entry Strategies

Review of Pre-Class Resources
• Any questions on the content from the previous session.
• Discuss pre-class video as introduction to today’s topic.
Export Selling vs. Export Marketing

• Export selling involves selling the same product, at the same

price, with the same promotional tools in a different place

• Export marketing tailors the marketing mix to international

customers
Requirements for Export Marketing
• An understanding of the target market environment
• The use of market research and identification of market
potential
• Decisions concerning product design, pricing, distribution
and channels, advertising, and communications
Organisational Export Activities
1. The firm is unwilling to export; it will not even fill an
unsolicited export order.
2. The firm fills unsolicited export orders but does not pursue
unsolicited orders. Such a firm is an export seller.
3. The firm explores the feasibility of exporting (this stage may
bypass Stage 2).
4. The firm exports to one or more markets on a trial basis.
 Organisational Export Activities (Cont.)
5. The firm is an experienced exporter to one or more markets.
6. The firm pursues country- or region-focused marketing based on
certain criteria
7. The firm evaluates global market potential for the “best” target
markets.
Potential Export Problems
Top 10 Clothing Exporters
2011 ($ billions)
National Policies Governing Exports and
Imports
• Most nations encourage
exports and restrict imports
• In 2014, the total was $2.8
trillion
• European Union trade,
domestic and foreign, is $3
trillion + US based Zippo Manufacturing Co.,
was awarded the President’s “E” Star
Award for export expansion in 2012.
Government Programs that Support Exports
• Governments concerned about trade deficits or economic
development should educate firms about possible gains from
exporting
• Done at the national, regional & local levels
• After WWII, Japan’s trade ministry developed export strategies
• The China triangle (People’s Republic, Taiwan, & Hong Kong), & the four
tigers--Singapore, South Korea, Taiwan, & Hong Kong) learned from Japan
and built strong export-based economies
Government Programs that Support Exports
• Tax incentives treat earnings from export activities
preferentially either by applying a lower rate to earnings
from these activities or by refunding taxes already paid on
income associated with exporting
• Subsidies, which are direct or indirect financial
contributions or incentives that benefit producers
• Subsidies can severely distort trade patterns when less
competitive but subsidised producers displace competitive
producers in world markets.
Government Programs that Support Exports
• Governmental assistance to exporters. Companies can avail
themselves of a great deal of government information concerning
the location of markets and credit risks
• Government agencies at various levels often take the lead in setting
up trade fairs and trade missions designed to promote sales to
foreign customers
• free trade zones (FTZ) or special economic zones (SEZ) These are
geographic entities that offer manufacturers simplified customs
procedures, operational flexibility, and a general environment of
relaxed regulations.
Governmental Actions to Discourage Imports and Block
Market Access

• Tariffs: 3 Rs—rules, rate schedules, & regulations

• Import controls
• Nontariff barriers (hidden)
– Quotas
– Discriminatory procurement policies
– Restrictive customs procedures
– Arbitrary monetary policies
– Restrictive administrative & technical regulations
Examples of Trade Barriers
Harmonized Tariff System
• Developed by the World Customs Organisation
• Effective January 1989
• Adopted by most trading nations
• Importers & Exporters have to determine the classification number
for any product moved across borders
• Import & export numbers are the same on Schedule B
• Meant to simplify tariff procedures but problems still arise
Tariff Systems
• Single-column tariff
–Simplest type of tariff
–Schedule of duties in which rate applies to imports from all
countries on the same basis
• Two-column tariff
–General duties plus special duties apply
• Normal Trade Relations (NTR) means that countries in the
WTO apply the Column 1 rates most favorable or lowest
rates to all nations (with exceptions). Column 2 rates are for
non-WTO countries
Sample Rates of Duty for U.S. Imports
Preferential Tariff
• Reduced tariff rate applied to imports from certain
countries
• GATT prohibits the use, with three exceptions:
• Historical preference arrangements already existed
• Preference is part of formal economic integration treaty
• Industrial countries are permitted to grant preferential market
access to LDCs
Customs Duties
• Ad valorem duty
• Expressed as percentage of value of goods
• Specific duty
• Expressed as specific amount of currency per unit of weight,
volume, length, or other unit of measurement
• Compound or mixed duties
• Apply
Other Duties and Import Charges Final Exam

prohibition
• Anti-dumping Duties
• Dumping is the sale of merchandise in export markets at unfair
prices
• Special import charges equal to the dumping margin
• Countervailing Duties offset subsidies of the exporting
country
• Variable Import Levies apply to agriculture
• Temporary Surcharges protect local industries and are
used to adjust balance of payment deficits time to time ( government impose
additionally charges)ok,
Key Export Participants final exam

• Anyone with responsibilities for exporting should be familiar with

some of the people and organisations who can assist with various
tasks
• Export participants include:
• purchasing agents, export brokers, and export merchants, who have no
assignment of responsibility
• Others, including export management companies, manufacturers’ export
representatives, export distributors, and freight forwarders, are assigned
responsibilities by the exporter.
 Key Export Participants buyer for export, they are operating
on behalf for oversea customer.
• Foreign purchasing agents are variously referred to as buyer for
export, export commission house, or export confirming house
• The export broker receives a fee for bringing together the seller
and the overseas buyer agent received charges . if u seel house you ask agent to help find buyer
marketing middle from oversea to buy your product. this one can be person or company
man that helps • Export merchants are sometimes referred to as jobbers.
you i dentify Marketing intermediaries that identify market opportunities in
serten business
opportunity
one country or region and make purchases in other countries to
export your fill these needs
product
• Export management company (EMC) - independent marketing
intermediary that acts as the export department for two or more
manufacturers (“principals”) whose product lines do not compete
with each other.
business for many years, your company choosing have own export department, handling theior exporting activities.
these is third party. they are middle person be interming company A and B
 export
distributers,
Key Export Participants cont’d. they are not
performed=ce
ng. limited to
• Manufacturer’s export agents (MEA) can act as an export few compnay.
distributor or as export commission representative they cannot
so many
• An export distributor assumes financial risk. The export
similar distributor usually represents several manufacturers and is
therefore sometimes known as a combination export manager
• The export commission representative assumes no financial
risk. The commission representative is assigned all or some
foreign markets by the manufacturer.

similar, assume they dont have any financial risk. they job only assign
 Key Export Participants cont’d.
mother hens, • The cooperative exporter, sometimes called a mother hen,
export vendors piggyback exporter, or export vendor, is an export organization
some compnay of a manufacturing company retained by other independent
export but the
quantity ios manufacturers to sell their products in some or all foreign
small so the markets
container is big
stilll i have • Freight forwarders are licensed specialists in traffic operations,
sopace
compnay B customs clearance, and shipping tariffs and schedules; simply
said i put, they can be thought of as travel agents for freight.
piggybank like
tumpang specialist handling documents good port B. my goose in port brings me to warehouse clear
customers clearances. i have lorry and i send the goose sending to place-to-place so
transformation.
Organising for Exporting in the
Manufacturer’s Country
Home

• Exports can be handled

–As a part-time activity performed by domestic employees
–Through an export partner
–Through an export department
–Through an export department within an international division
–For multi-divisional companies; each possibility exists for each
division
 Host

Organising for Exporting in the Market Country

• Direct market representation
–Advantages: control and communications

• Representation by independent intermediaries

–Advantages: best for situations with small sales volume
Trade Financing and Methods of Payment
• Documentary credits (letter of credit)
• Documentary collections (bill of exchange)
• Cash in advance
• Sales on open account
• Sales on consignment basis
Documentary Credit-Letter of Credit
Documentary Credit (Con’t)
Methods of Payment
• Documentary Collections (Sight or Time Drafts) use a bill of
exchange(draft) which is a negotiable instrument that easily transfers
from one party to another
• A Bill of Exchange is a written order from one party (the drawer) directs one
party (the drawee) to pay a third party (the payee)
• Different from a L/C in that the bank has no risk
• The exporter-seller bears all the risk
• Fees are lower than L/C so used in low value transactions
Methods of Payment
Cash in Advance
• Credit risks abroad are high
• Exchange restrictions in
destination country may delay
return of funds for a long time
• Any other reason the seller will
not extend terms
• Not used if competitive
pressures or substitute products
exist
Sales on Open Account
• Payment is after delivery
• Used for intracorporate or
subsidiary sales, exchange
controls are minimal, or with
longstanding customers
• Can create a legal problem in
collection without a tangible
obligation
Customs Trade Partnership
Against Terrorism
• The U.S. Customs and Border Patrol inspects cargo
• C-TPAT aims to have businesses certify their security
and that of their partners
• They get inspection priority
Duty Drawback
• Refunds of duties paid on imports that are processed or
incorporated into other goods AND re-exported
• Reduce the price of imported production inputs
• Used in the U.S. to encourage exports
• After NAFTA, U.S. reduced drawbacks on exports to Canada
and Mexico
• China had to reduce drawbacks in order to join the WTO
 Sourcing
•The Sourcing Decision
•Does the company buy or
make its products?
•Where?
•Global outsourcing or offshoring
refers to moving work to another
country
•Call Centres were first
nonmanufacturing moved
Call Center in Bangalore, India
Factors that Affect Sourcing
• Management vision
• Factor costs and conditions
• Customer needs
• Logistics
• Country infrastructure
• Political risk
• Exchange rate, availability, and
convertibility of local money
Other Export/Import Issues
Management Vision
•Some CEOs want to keep
manufacturing at home
(Swatch)
•Some CEOs focus on high-
value-added products rather
than manufacturing sites
(Canon keeps 60% in Japan)
Factor Costs & Conditions
•The cost of land, labor &
capital costs
•Labor in emerging markets
less than $1 hr.,
But $6-$12 in developed
countries
•Sometimes the cost of land,
materials, & capital offset
each other
Other Export/Import Issues
• Customer Needs
• Needs can trump low cost; Dell moved call centres back to U.S. when
customers complained about problems with Indian tech support
• Logistics
• Improved transportation systems & intermodal services cut time & lower
costs
• Country Infrastructure
• Power, transportation, roads, communications, service & component
suppliers, a labour pool, civil order, effective government
Other Export/Import Issues
• Political Factors
• Political risk is higher in less developed countries in Africa, South America or
Asia than in the Triad
• Protectionism at the state and federal level
• Senate passed an amendment that would prohibit certain agencies from hiring
companies that used offshore call centres
• Foreign Exchange Rates
• Companies try to use global sourcing to limit risk of volatile exchange rates or
price levels of commodities
Investment Cost of Marketing Entry Strategies
Which Strategy Should Be Used?
• It depends on:
• Vision
• Attitude toward risk
• Available investment
capital
• How much control is
desired Starbucks plans to have 1,500
stores in China by 2015.
Licensing
• A contractual agreement whereby one
company (the licensor) makes an
asset available to another company
(the licensee) in exchange for
royalties, license fees, or some other
form of compensation
• Patent
• Trade secret
• Brand name
• Product formulations
• Worldwide sales of licensed goods
totaled $241.5 billion in 2014 Disney is the world’s top licensor.
Advantages to Licensing
• Provides additional profitability with little initial investment
• Provides method of circumventing tariffs, quotas, and other
export barriers
• Attractive ROI
• Low costs to implement
• Licensees have autonomy to adapt products to local tastes
• License agreements should have cross-technology
agreements to share developments and create competitive
advantage for each party
Disadvantages to Licensing

• Limited market control

• Returns may be lost
• The agreement may be short-lived
• Licensee may become competitor
• Licensee may exploit company resources
Special Licensing Arrangements
• Contract manufacturing
– Company provides technical specifications to a subcontractor or local
manufacturer
– Allows company to specialise in product design while contractors accept
responsibility for manufacturing facilities
– May open the firm to criticism if manufacturers operate with harsh working
conditions or have low wages
• Franchising give the rights opne it

– Contract between a parent company-franchisor and a franchisee that allows

the franchisee to operate a business developed by the franchisor in return
for a fee and adherence to franchise-wide policies
– Used by the specialty retailing & fast-food industries
Franchising Questions
• Will local consumers buy your product?
• How tough is the local competition?
• Does the government respect trademark and franchiser rights?
• Can your profits be easily repatriated?
• Can you buy all the supplies you need locally?
• Is commercial space available and are rents affordable?
• Are your local partners financially sound and do they understand
the basics of franchising?
Investment
• Partial or full ownership of
operations outside of home
country
–Foreign Direct Investment
(FDI)
•Forms
– Joint ventures
– Minority or majority equity
stakes
– Outright acquisition
Joint Ventures
• Entry strategy for a single target country in which the
partners share ownership of a newly-created business
entity
• Builds upon each partner’s strengths
• Examples: Budweiser and Kirin (Japan), GM and Toyota, GM
and Daewoo in S. Korea, Ford and Mazda, Chrysler and
BMW
Joint Ventures
• Advantages
– Allows for risk sharing–financial and
political
– Provides opportunity to learn new
environment
– Provides opportunity to achieve
synergy by combining strengths of
partners
– May be the only way to enter market
given barriers to entry
• Disadvantages
– Requires more investment than a
licensing agreement
– Must share rewards as well as risks
– Requires strong coordination
– Potential for conflict among partners
– Partner may become a competitor
Investment via Equity Stake or Full Ownership
• Equity stakes is an investment
• Minority ˂ 50%, Majority˃ 50%, Full ownership =100%
• Start-up of new operations
–Greenfield operations or
–Greenfield investment
• Merger with an existing enterprise
• Acquisition of an existing enterprise
• Examples: Roche acquired Genentech in 2008 for $43 billion
Examples of Market Entry &
Expansion by Joint Venture
Examples of Equity Stake
Examples of Acquisitions
Issues in Acquisitions
• Globalisation is driving acquisitions; smaller firms cannot expand
without a partner
• “It was very clear to us that Helene Curtis did not have the capacity to project
itself in emerging markets around the world. As markets get larger, that forces
the smaller players to take action.”
Ronald Gidwitz, CEO Unilever, on acquiring Helene Curtis
• Ownership circumvents tariffs & quota barriers, gets new markets,
allows technology transfers and gain new manufacturing methods.
Alternatives for Market Entry
• Licensing, joint ventures, minority or majority equity stake, and
ownership—are points along a continuum of alternative strategies for
global market entry and expansion.
• Companies may use a combination
• Ex. Borden Foods stopped licensing for branded food products in Japan and
set up its on production, distribution & marketing but kept JVs in non-food
products

9-16
Global Strategic Partnerships Final Exam

• Possible terms:
• Collaborative agreements
• Strategic alliances
• Strategic international alliances
• Global strategic partnerships

Oneworld is a GSP made up of

American Airlines and other
airlines around the world.
The Nature of Global Strategic Partnerships
Characteristics of Global Strategic Partnerships

• Participants remain independent following formation of the

alliance
• Participants share benefits of alliance as well as control
over performance of assigned tasks
• Participants make ongoing contributions in technology,
products, and other key strategic areas
Five Attributes of True Global Strategic Partnerships
• Two or more companies develop a joint long-term strategy
• Relationship is reciprocal
• Partners’ vision and efforts are global
• Relationship is organised along horizontal lines (not vertical)
• When competing in markets not covered by alliance,
participants retain national and ideological identities
Global Strategic Partnerships
Success Factors of Alliances
• Mission: Successful GSPs create win-win situations, where
participants pursue objectives on the basis of mutual need
or advantage.
• Strategy: A company may establish separate GSPs with
different partners; strategy must be thought out up front to
avoid conflicts.
• Governance: Discussion and consensus must be the norms.
Partners must be viewed as equals.
Success Factors (Con’t)
• Culture: Personal chemistry is important, as is the
successful development of a shared set of values.
• Organisation: Innovative structures and designs may be
needed to offset the complexity of multi-country
management.
• Management: Potentially divisive issues must be identified
in advance and clear, unitary lines of authority established
that will result in commitment by all partners.
Alliances with Asian Competitors
• Western companies must learn from Asian firms’ excellence
in manufacturing, overcome NIH syndrome, become
students, not teachers Not Invented Here

• Four common problem areas

–Each partner had a different dream
–Each must contribute to the alliance and each must depend on
the other to a degree that justifies the alliance
–Differences in management philosophy, expectations, and
approaches
–No corporate memory
Cooperative Alliance in Japan: Keiretsu

• Inter-business alliance or enterprise groups in which

business families join together to fight for market share
• Often cemented by bank ownership of large blocks of stock
and by cross-ownership of stock between a company and
its buyers and non-financial suppliers
• Keiretsu executives can legally sit on each other’s boards,
share information, and coordinate prices
 Horizontal Keiretsu
• Big Six: Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, DKB Groups
• Horizontal keiretsu: intragroup relationships involve shared stock
holdings and trading relations
• Large, powerful with revenues in hundreds of billions
• Can block foreign suppliers causing higher prices
• Promotes corporate stability, risk sharing, long-term employment
 Keretsui
• Vertical keretsui: Hierarchical alliances between manufacturers and
retailers
• Matshusita sells its products through its chain of National stores; 50-80% of
products are Matshusita brands Panasonic, Technics, and Quasar
• Manufacturing keretsui: Vertical hierarchical alliances between
automakers suppliers, and component manufacturers
Cooperative Strategies in South Korea: Chaebol

• Composed of dozens of companies, centered around a

bank or holding company, and dominated by a founding
family
–Samsung
–LG
–Hyundai
–Daewoo
21st Century Cooperative Strategies: Targeting
the Digital Future
• Alliances between companies in several industries that are
undergoing transformation and convergence
• Computers
• Communications
• Consumer electronics
• Entertainment
21st Century Cooperative Strategies
• Semantech: Consortium of 14 tech companies tasked with
saving the U.S. chip-making industry
• Relationship enterprise: groupings of firms from different
industries and countries with common goals and act as one
entity
• Next stage of evolution of the strategic alliance
• Super-alliance
• Virtual corporation
Market Expansion Strategies

• Companies must decide to expand by:

– Seeking new markets in existing countries
– Seeking new country markets for already
identified and served market segments
Factors Favouring
Diversification vs
Concentration