International Business

Chapter Thirteen
Export and Import Strategies
Chapter Objectives
• To introduce the ideas of import and export
• To identify the elements of export and
exporting strategies
• To compare direct and indirect selling of
exporting
• To identify the elements of import and import
strategies
• To discuss the types and roles of third-party
intermediaries in exporting
• To discuss the role of countertrade in
international business
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Introduction:
International Trade Strategy

• International trade consists of

(i) exporting (product outflows)
(ii) importing (product inflows)
• In general, trade activities:
– are a natural extension of a firm’s
distribution strategy
– entail a lower level of risk than licensing or
foreign direct investment
[continued]

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• 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
– results in receipts from the customers
– affords 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
– results in payments to the sellers
– affords less control over the production function
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Fig. 13.1: Exporting and Importing
in International Business

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Export Strategy
• The decision to export must take into account
global concentration, global synergies, and
global strategic motivations.
• Strategic factors affecting the choice of
exporting as a mode of entry include:
– the ownership advantages of the firm
– the location advantages of the market
– the internalization advantages of specific assets
– the international experience of the firm
– the firm’s ability to differentiate its products
– its fit with the overall strategy of the firm
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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
Exporting requires expertise in dealing with government
institutions, particularly customs agencies, as well as the
documentation process.

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Characteristics of Exporters
Research has shown that:
(i) the probability of exporting increases
with the size of company revenues
(ii) export intensity, i.e., the percent of total
revenues generate by exports, is not positively
correlated with company size
• While large companies are the biggest exporters,
small companies expand their export capacity to:
– increase market share overseas
– fortify their domestic competitiveness
• The risk profile of management and the nature of
industry competition are just as relevant as firm size.
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Stages of Export Development
• Firms tend to move through three phases
of export development:
– pre-engagement
– initial exporting
– advanced exporting
• As they do so, firms tend to:
– export to a greater number of countries
– extend their markets to more distant countries
– move into environments that are increasingly different from
those of their home countries
– expect exports to grow as a percent of total sales
– consider foreign direct investment as a possible alternative to
exporting
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Fig. 13.2: Phases of Export
Development

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Pitfalls of Exporting
Problems, delays, and pitfalls associated with the
export process may include:
• the failure to obtain qualified export counseling
and/or marketing intermediaries
• the insufficient commitment of top management
• the underestimation of total transaction costs
• the poor selection of overseas agents or distributors
• the favoring of domestic markets at the expense of
international distributors and customers
• an unwillingness to make necessary modifications
• the failure to adequately prepare for international
dispute resolution
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Designing an Export Strategy

To design an effective export strategy, manage-

ment must:
• assess the company’s export potential
[examine market opportunities and firm resources]
• obtain expert counseling on exporting
[get both government and specialized assistance]
• select target markets
[passively or proactively pursue market opportunities]
• formulate and implement an effective strategy
[define objectives and tactics and establish schedules
and deadlines]
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Fig. 13.3: International Business
Transaction Chain

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An Export Business Plan
I. Executive Summary: key elements
II. Business History: firm and industry insights
III. Market Research: target countries & market conditions
IV. Marketing Decisions: marketing mix elements
V. Legal Decisions: legal agreements & protection
VI. Manufacturing and Operations: location & capacity
VII. Personnel Strategies: short- & long-term needs
VIII. Financial Decisions: funding & risk
IX. Implementation Schedule: timeline
A detailed export business plan is an essential element in
the implementation of a sound yet insightful export strategy.

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The Import Process
• Basic types of imports include:
– industrial and consumer goods and services sought by
customers not related to the foreign exporter
– intermediate goods and services that are part of the
customer’s global supply chain
• The import documentation process can
be both complicated and cumbersome.
• Import documents are of two types:
– those that determine whether customs will release a
shipment
– those that contain the information necessary for duty
assessment and data gathering purposes.
At a minimum, the required documents would include an entry
manifest, a commercial invoice, and a packing list.

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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
Importing requires expertise in dealing with
government institutions, particularly customs agencies,
as well as the documentation process.

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Types of Industrial Importers

The three basic types of industrial importers are:

• those that opportunistically look for any product around
the world that will generate a positive cash flow
• those that look to foreign sourcing as a means to
minimize product costs
• those that use foreign sourcing as part of their global
supply chain strategy
An import broker is a certified specialist who obtains required
government permissions and other clearances before forwarding
the necessary documents to the carrier(s) of the goods.

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The Role of Customs Agencies
Customs agencies: government bureaus charged
with collecting duties and ensuring that trade
restrictions are enforced and procedures ad-hered
to
• The primary duties of a customs agency are:
– the assessment and collection of all duties, taxes,
and fees on imported products
– the enforcement of customs and related laws, and the
administration of certain navigation laws and treaties
National customs agencies are increasingly involved in dealing with
smuggling operations and preventing foreign terrorist attacks.

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The Role of Customs Brokers
Customs broker: an independent agent who executes
customs transactions on behalf of clients for a fee
• A customs broker can help minimize duties by:
– valuing products in such a way that they qualify for
more favorable treatment
– deferring duties by using bonded warehouses and
foreign trade zones
– limiting liability by properly marking the country of origin of
an imported product
– qualifying for duty refunds through *drawback provisions
*Drawback provisions allow U.S. exporters to apply for a 99%
refund of the duty paid on imported components, provided
they are incorporated into goods to be exported.
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An Import Business Plan
I. Executive Summary: key elements
II. Business History: firm details and industry insights
III. Market Research: target country & market conditions
IV. Marketing Decisions: marketing mix strategy
V. Legal Decisions: legal agreements & protection
VI. Manufacturing and Operations: location & regulations
VII. Personnel Strategies: expertise & hiring needs
VIII. Financial Decisions: funding, financial, & tax issues
IX. Implementation Schedule: timeline
A detailed import business plan is an essential element in
the implementation of a sound yet insightful import strategy.

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The Export Process
Direct exports: goods and services sold directly to
an independent party (foreign customer) outside
of the exporter’s home country
Indirect exports: goods and services sold to or via
an intermediary in the domestic market, who in
turn sells them to a foreign customer
Third-party intermediaries: independent, i.e.,
unrelated, firms that facilitate international trade
transactions by assisting both importers and
exporters
The export documentation process can be
both complicated and cumbersome.

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Indirect Selling/Exporting
Indirect selling/exporting: selling products to
or through an independent (third-party)
intermediary
• Export intermediaries may perform any or all of the
following functions:
– stimulate sales, obtain orders, and conduct market
research
– perform credit investigations and payment-collection
activities
– handle foreign traffic arrangements and shipping details
– provide support for a client’s sales, distribution, and
promotion staff
While services are more likely to be exported on a direct basis,
goods are exported via both avenues.
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Indirect Selling:
Export Management Companies
Export management company (EMC): a firm that
either acts as a manufacturer’s agent or buys
merchandise from manufacturers for inter-
national distribution
• EMCs generally operate on a contractual basis,
provide exclusive representation in a well-defined
foreign territory, and act as the export arm of a
manufacturer.
• Although many EMCs are small, they often specialize
according to product, function, and/or market area.
EMCs may not be the perfect solution if they may have too few
resources, give too little attention, and/or take too much control.

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Indirect Selling:
Export Trading Companies
Export trading company (ETC): a large, indepen-
dent broker whose primary purpose is to match
suppliers to foreign customers for a fee
• ETCs operate primarily on the basis of demand.
• Exporters from Great Britain, the Netherlands, and Japan
long ago realized that wide-reaching trading companies
could market and distribute products more efficiently
than any single producer could.
• ETCs based in the U.S. are exempt from antitrust
provisions to allow them to better penetrate foreign
markets by collaborating with other U.S. firms.

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Direct Selling
Direct selling: exporting through sales representatives
to distributors, foreign retailers, or final end users
• Direct selling:
– gives exporters greater control over the marketing
function
– offers exporters the potential to earn higher profits
• a sales representative: a company representative,
who usually operates on a commission basis within
an exclusive territory
• a distributor: a merchant who purchases goods
from a manufacturer and stocks, services, and
resells them to retailers at a profit
[continued]

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• A firm that has sufficient financial and managerial
resources to export directly may adopt a variety of
organizational structures ranging from a separate
international division to a fully integrated matrix
structure.
• Direct selling demands a separate international sales
force because foreign markets demand different
types of expertise.
• Internet marketing allows firms both large and small
to quickly, easily, and inexpensively engage in direct
marketing.

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Export Documentation
Key export documents include:
• a pro forma invoice
– an outline of the terms of sale, price, and delivery details
• a commercial invoice
– a detailed invoice used to assess duties
• a bill of lading
– a detailed receipt from the carrier transporting the cargo
• a consular invoice
– sometimes required as a means to monitor imports
• a certificate of origin
– used to determine the tariff schedule
• a shipper’s export declaration
– used to monitor exports and compile trade statistics
• an export packing list
– used to determine the nature of the cargo

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Foreign Freight Forwarders
Foreign freight forwarder: an international trade specialist
who assists in the delivery of goods from producer to
customer
Intermodal transportation: the movement of goods across
a variety of modes from origin to destination
• The typical freight forwarder is the largest export intermediary
in terms of the weight and value of cargo handled.
• Freight forwarders may specialize in the type of
mode used or the geographical area served.
• Recent trends leading to a preference
for air freight over ocean freight include:
– the need for more frequent shipments
– lighter-weight shipments
– high-value shipments

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Sources of Foreign Trade
Assistance
• Firms typically have many sources of assistance for
identifying their best foreign trade opportunities.
• Government agencies actively aid the efforts of
potential and active exporters and, to a lesser
extent, potential and active importers.
– In Japan, the Ministry of International Trade and
Industry (MITI) plays a vital role in developing
strategic trade policy and providing operational
assistance.
– In the U.S., a number of institutions, most notably
the Department of Commerce, the Ex-Im Bank, and
the Small Business Administration (SBA) help firms
identify and realize export opportunities.

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Types of Foreign Trade Information
by Source
U.S. Government Agencies
• Market demographics, channels and joint venture partners,
customs regulations & tax issues, credit & insurance, trade
events & leads, documentation requirements, quotations
Trade Associations and Trade Groups
• Market demographics, promotion alternatives, channels,
customs regulations & tax issues
Export Intermediaries
• Channels, host-country requirements, financing, credit &
insurance, logistics

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Countertrade
Countertrade: a reciprocal flow of goods and services
• The two basic types of countertrade transactions
include:
– barter [based on clearing arrangements used to avoid
money-based exchange]
– buybacks, offsets, and counterpurchase [all of which
are used to impose reciprocal commitments]
• Countertrade provides a means to complete a trans-
action when a firm (or government):
– lacks sufficient funds to pay for imports
– lacks sufficient convertible currency or sufficient hard
currency to pay for imports
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Countertrade:
Barter and Buybacks
Barter: the exchange of goods or services for other
goods and services, i.e., a non-monetary
transaction
[Barter is not only the oldest form of countertrade,
it is the oldest form of any type of trade transaction.]
Buybacks: counter-deliveries received as payment by
the exporter that are related to or originate from
the original exported product
• The disadvantages of countertrade include:
̶ transaction inefficiencies
̶ transaction risk
̶ transaction complexities

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Countertrade: Offsets
Offset trade: an exchange of goods or services for
cash that includes a reciprocal commitment to find
opportunities for the importer to earn hard currency
[similar to counterpurchase, but permitting flexibility in
the choice of firm for fulfilling the reciprocal obligation]
• In offset trade, the exporter sells the product for cash,
but then undertakes the promotion of exports from the
importing country in order to help it earn foreign
exchange.
• Offset arrangements are usually one of two types:
– direct offsets: include generated business that directly relates
to the export product
– indirect offsets: include generated business unrelated to the
exported product

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Fig. 13.4: An Offset Transaction

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Implications/Conclusions

• Exporting and importing are necessary

functions for the implementation of firms’
international business strategies.
• The specialization of labor makes exporting
to and importing from countries around the
world more efficient than manufacturing
every product in every country.
[continued]

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• “Born global” companies tend to make ex-
porting a primary goal from the time of their
inception.
• The import process involves strategic and
procedural issues that largely mirror those
of the export process.

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