Chapter 14 - Modes of Trading Internationally

Characteristics of exporters: - Small and medium-sized enterprise (SME)

Firms that have fewer than 500 employees.

Resources and assistance of Importing/Exporting: - Third-party logistics aka 3PL

- A 3PL is a trade intermediary that applies sophisticated technologies and systems to supervise trade logistics. - Are a growing force in international trade. - Like freight forwarders, they move cargo and provide logistic options across virtually every market in the world. - Unlike freight forwarders, they collaborate with manufacturers, shippers and retailers to relieve them of logistics responsibilities.

Resources and assistance of Importing/Exporting: - Freight forwarder

- A freight forwarder specializes in moving goods from seller to buyer. - Popularly known as the " travel agent of cargo". - Are the largest export/import intermediary in terms of value and weight of products shipped internationally.

Common forms of countertrade - Offset

- An exporter sells products for cash and then helps the importer find opportunities to earn hard currency for payment - Are most common when big-ticket products are involved

Approaches to exporting: -Indirect exporting

- Are products sold to an intermediary in the home market, which then exports those products to other countries. - The intersection of retail and globalisation trends makes indirect selling increasingly practical. - More common method for SMEs

Resources and assistance of Importing/Exporting: - Government Agencies

- Because of the macroeconomic and microeconomic benefits of exporting, governments in every country, assist potential and active exporters by providing information and advice on the practicalities and technicalities of exporting. - Macroeconomic benefits: Creates jobs, built foreign exchange reserves, improve the balance of trade, develop foreign relationships and raise living standards. - Microeconomic benefits: Helps firms leverage core competencies, improve financial performance, fortify competitive positioning and sustain the enterprise.

Countertrade: - Benefits

- Countertrade is often unavoidable for companies that want to do business with buyers who have limited or no access to cash or credit. - Companies and countries in tough binds use this method to generate jobs, preserve foreign exchange holdings and develop trade relationships.

The Initiation and development of exporting: -Incremental internationalization

- In economics, internationalization is the process of increasing involvement of enterprises in international markets. It sees physical distance, cultural ties and market similarities fundamentally shaping how companies approach export. - Initially the company starts to export from its home market to the most geographically and psychologically proximate countries. From there, it deliberately expands exports to more and more dissimilar and distant countries.

Countertrade disadvantages

- Inefficiency - Risk - Complicated

Three types of importers

- Input optimizers - Opportunistic - Arbitrageurs

Approaches to exporting: - Selling to Domestic buyers who represent foreign end users or customers

- MNEs, general contractors, foreign trading companies, foreign government and foreign distributors and retailers purchase goods for export. These buyers either need a product or see a demand for it in foreign markets, so they buy it here and ship it there. - A company that makes the product may not know of its export.

Characteristics of exporters

- Naturally, large MNEs are big exporters. Their ownership, location, and internalization advantages help them identify markets, leverage organisational capabilities and manage international risks. - Nevertheless, many see great potential in SMEs who are steadily expanding export activities. - A firms characteristics moderate its exports activity. Size matters, but often management commitment, efficiency, and cost structure matter more.

Three types of exporters

- Non-exporters - Occasional exporters - Regular exporters

The Initiation and development of exporting: - Serendipity

- Research tells of accidental exporters who, responding to coincidence or odd circumstances, successfully enter foreign markets. - Serendipity, making fortunate discoveries by accident, is not an uncommon export trigger.

Why Import ?

- Specialisation of labor - Global rivalry - Local unavailability - Diversification - Top management's outlook

Approaches to exporting: -Direct exporting

- The company directly sells its products to an independent intermediary, such as an agent, distributor or retailer outside its home country, who then sells the product to the local consumers. - Most direct exporters are larger- scale enterprises who are able to spread high fixed costs of storage, processing, marketing and transportation over large sales volumes.

Resources and assistance of Importing/Exporting: - Export intermediaries

- Third-party firms that market products and services abroad on behalf of domestic companies. - They offer an operationally easier and relatively risk-free approach to managing export intricacies.

4 ways a custom broker helps importers

- Valuation -Qualification - Deferment - Liability

Approaches to exporting: - Passively filling orders from domestic buyers who then export the product

-A buyer contacts the company, submits an order, takes delivery and export the product. - A company that makes the product may not know of its export.

Export intermediaries: - Export Trading Company (ETC)

ETC operate based on demand rather then supply. An ETC brings buyers and sellers together, functioning as a trade matchmaker. They identify suppliers who can fill orders in overseas markets.

Why export ?

Exporting helps companies: - Increase profitability - Improve productivity - Diversify activities

The Initiation and development of exporting: -Born global

Firms that begin trading internationally at inception, due to their executives international orientation and improving technological options.

Characteristics of Importers

Importers have received far less research as exporters have. Data do indicate that importers are also likely to be exporters and in fundamental ways the characteristics of importers are the same as the exporters.

Types of importers: - Input optimizers

Importers that use foreign sourcing to optimise, in terms of price or quality, and the inputs are fed into its supply chain. A company scours the globe for optimal inputs, then directs them to its various production points and its various factories assemble them into finished goods that are then imported by markets worldwide.

Countertrade

Is an umbrella term for several sorts of trade in which the seller accepts goods or services, rather than currency or credit as payment.

Importing

Is the purchase of a good or service by a buyer in one country, the importer, from a seller in another, the exporter.

Exporting

Is the sale of goods or services produced by a firm based in one country to customers that reside in another country.

Common forms of countertrade - Barter

Products are exchanged directly for products of equal value without the use of money as a means of purchase or payment.

Resources and assistance of Importing/Exporting

Public agencies and private intermediaries provide non-, occasional and regular exporters a wealth of resources. Government agencies and private parties such as freight forwarders, custom brokers, trade intermediaries, international banks and consultants are a few of many rescuers that help companies navigate international trade.

Exporters Advantages: - Location Advantages

The combination of sales opportunity and investment risk in foreign markets creates favourable locations. In other words, stable markets with many consumers increase the odds that someone will demand your product.

Types of importers: - Arbitrageurs

This type of importer look to foreign sourcing to get the highest- quality product at the lowest possible price. An agent takes advantage of a price or quality difference between two or more markets, transacting deals that exploit the imbalance and profiting from the difference.

The Initiation and development of exporting

Two views of export shape interpretation: 1. The deliberate, sequential dynamic of incremental internationalization. 2. The instant internationalization of the born global.

Common forms of countertrade - Counter purchase

A company sells products to foreign country promises to make a future purchase of a specific product made in that country.

Types of exporters: -Regular exporters

A company that aggressively pursues export sales as a productive, profitable, strategic activity is regarded as a regular exporter. It has experience along with an improving understanding of the routines and technicalities of international trade.

Resources and assistance of Importing/Exporting: - Customs Broker

A custom broker helps an importer navigate the regulations imposed by customs agencies.

Exporters Advantages: - Ownership Advantages

A firm's core competencies such as, the special outlook, skills capabilities or technologies that run through its operations, are the basis of its competitive advantage. These proprietary advantages anchor how a firm enters a foreign market.

Common forms of countertrade - Buyback

A supplier of capital or equipment agrees to accept future output generated by the investment as payment.

Export intermediaries: - Export Management Company (EMC)

An EMC, by acting as the international trade arm of a company, helps firms establish overseas markets. An EMC can significantly simplify SMEs efforts to identify and penetrate foreign markets.

Reconciling opportunity and challenge: Export plan

An export plan defines a company's intent to leverage resources and manage constraints in initiating and developing export activity.

Exporters Advantages: - Internalization Advantages

Companies often respond to market imperfections, namely the sorts of circumstances that create uncertainties, by internalizing market processes. Directly controlling and managing market activities inside the company reduces the risks and exploits gaps resulting from market imperfections. Internalizing activities enables executives to retain their core competency within the company rather than licensing or selling it.

Problems and Pitfalls of Importing/Exporting

Companies, both big and small, identify with problems and pitfalls that complicate international trade. Exporter and importers have to face complexities and evolving barriers such as: - Financial constraints - Misunderstanding the difficulty of profitably serving consumers in foreign markets - Understanding foreign business practices - High cost - Tough demands on management - Government regulations - Trade documents

Types of exporters: - Non- exporters

Non- exporters commands little to no knowledge about exporting and often professes no intention to engage in international trade at any time.

Common forms of countertrade - Switch or Swap Trading

One country sells to another its obligation to purchase something in a foreign country.

Exporters Advantages

Ownership advantages of the company, location advantages of the market, and internalization advantages from controlling transactions shape how firms enter foreign markets

Approaches to exporting

There are four approaches to exporting, where no one approach is superior to other. 1. Direct exporting 2. Indirect exporting 3. Passively filling orders from domestic buyers who then export the product 4. Selling to Domestic buyers who represent foreign end users or customers

Types of importers: - Opportunistic

These importers look for products around the world that they can import and profitably sell to local citizens. They see a gap in the local marketplace and use it to exploit it by finding, buying, transporting and distributing products available only from foreign suppliers to local customer.

Types of exporters: - Occasional exporters

This type of a company fills unsolicited orders from foreign buyers but investigates international trade options passively, if at all. Occasional exporters understand the basics of the export process, but for any number of reasons, they assign it low priority.