IB 302 exam 2
DDP costs can include EXW plus FCA plus FOB plus CIP plus:
−All import costs including customs fees and duties
FCA costs can include EXW plus FCA plus:
−Inland trans. To port of exit −Insurance cost for inland trans. −Additional freight forwarder's and documentation fees
CIP costs can include EXW plus FCA plus FOB plus:
−Ocean freight or air freight −War risk −Harbor Maintenance fee −Fuel adjustment factor, bunker surcharge, or bunker adjustment factor −Currency adjustment factor −Destination delivery charges or container service charges −Cargo insurance
FOB costs can include EXW plus FCA plus:
−Port charges −Cost of loading goods on board ship −Heavy lifting charges
what two instances are FCA used?
−When exporter wants least responsibilities −If goods are loaded on board an inland carrier at a location beyond the factory
individualism vs. collegtivism
- degree to which people in a country prefer to act as individuals rather than in groups -higher number = more individualistic
disadvantages of indirect exporting
- limited control - limited feedback - no gained market knowledge
what are pressures to adapt a product or service
1. differences in technical standards - including testing 2. variation in consumer behavior, needs and ability to buy 3. government standards and restrictions
what are the pressures to standardize a product
1. economies of scale in R&D 2. product usage company size 3. country of origin effect 4. converging international consumer tastes
the 3 tiers of C-TPAT
1. self assessment 2. pay boarders and customs to come into your business and foreign businesses to audit you. 3. also exhibit best practices in all areas of the supply chain
under the patent coorperation Treaty how long do you have to extend a patent?
2 years
When a product that was imported into the U.S. is exported:
99% of the import duty paid can be refunded.
Which of the following would be an example of a piggyback partner for exporting?
A U.S. based fruit drink company uses Starbucks to exports its products internationally.
joint venture
A number of cooperative arrangements in which two companies work together
What is an important distinction between a distributor versus an agent as foreign partners.
Agents typically never take ownership of an order, nor would they warehouse product. Distributors typically do.
what is eligible for a duty drawback?
Any product imported into into the U.S., and then exported, or incorporated into a in the U.S. that is later exported
free trade zone
Areas designated by U.S. Customs to allow entry into the U.S. without importation § Applies to anyone who has received that designation and that radius (about 90 miles) -allows for delay of import duties
what are the two letters for the incoterms where the exporter (seller) is always responsible for the main carriage
C and D
what two c terms are used for ro-ro freight and FOB
CFR and CIF
ABC Air Filters is shipping a special piece of machinery to China air filters. the machinery is too large to fit into a container. ABC Air Filters has agreed to pay for the freight and insurance to Shanghai, but not clear the good through customs
CIF, Shanghai
a U.S. seller has agreed to ship a container by ocean to Hing Kong and pay for freight, and insurance. Buyer is to clear the products through Hong Kong customs and pay all import charges
CIP Hong Kong
ABC air filters is shipping 20 boxes of filters to China Air filters. each box measure 12 x12 x 12. abc air filters has agreed to pay for the freight and insurance to Shanghai, but not clear the goods through customs. Incoterm:
CIP Shanghai
Assume a Paris based manufacturer needs to ship a replacement part to a buyer in Atlanta under warranty, so the Paris manufacturer is responsibility for all costs including clearing customs and paying any duties. Which Incoterm would be appropriate?
DDP Atlanta, GA
A Brazilian company has agreed to send samples by air to a buyer in Chicago, IL. The seller is to pay for freight, to clear U.S. customs, and pay for any applicable U.S> import tariff. Incoterm:
DDP Chicago
China Air Filters needs an emergency replacement of a batch of filters. As the filters are under warranty, ABC Air Filters has agreed to pay for the shipping, customs clearance, and any duty into china. Incoterm:
DDP, Suzhou
what are the two letters for the incoterms where the exporter (seller) is never responsible for the main carriage
E and F
Which of the following sequence of Incoterms represents the least responsibility for the exporter to the most responsibility?
E, F, C, D
what is the incoterm where the only thing the exporter has to do is have the goods at the edge of the door and do nothing else. It's the responsibility of the o buyer to get the product to the ship, pay the import duty and get it to the factory
EXW
assume abc air filters open a subsidiary in shanghai with a warehouse. Due to extensive shipping connections, the china subsidiary will be responsible for all freight, insurance, and custom charges for shipments from the U.S. to the warehouse in Shanghai. the Shanghai subsidiary will also clear the goods for export from the U.S. Incoterm:
EXW, Denver
abc air filters is shipping a special piece of machinery to china air filters. the machinery is too large to fit into a container. ABC air filters has agreed to pay for the freight and insurance to Tacoma but not loaded onto a ship.
FAS Taucoma
what are the F terms used when shipping using waterway (ocean) and is ro ro freight (can't be containerized)
FAS and FOB
Which of the following Incoterms has the main carriage as the responsibility of the importer?
FCA
A large Chilean company wants buy a pallet of goods from a U.S seller and will pay all freight and insurance. Buyer is to clear the products through Hong Kong customs and pay all import charges. Incoterm:
FCA Chile
For a special ship, China Air filters has appointed its own freight forwarder to handle an air shipment. ABC air filters has agreed to get the shipment to the Denver Airport. ABC Air Filters will clear the goods for export. Incoterm:
FCA Denver airport
What would be an example of a law that follows U.S. companies overseas?
FCPA
a U.S. seller has agreed to ship non-container goods loaded on the "president ocean freighter" ship at Long Beach, CA. Incoterm:
FOB, Long Beach
what laws follow a business over seas?
Foreign Corrupt practices act (FCPA), anti-trust laws, U.S. Embargoes and Export Controls, and product liability are laws that do follow a country overseas
If a company was NOT planning to travel to a foreign country to select a partner, which of the following services would they most likely use?
International Partner Search
What is the disadvantage of using EXW.
It puts the responsibility to comply with U.S. export documentation and regulation with the foreign buyer.
FCA
Responsibility of the seller to get the goods to the named place and given to the carrier § Have to get onto carrier § Clear the good for export
customs trade partnership against Terroism (C-TPAT)
Started in response to 9/11 §Voluntary program available to U.S. manufacturers to certify their commitment to best practices in supply chain security §Main benefit is a lower number of cargo inspections, which increases the speed of shipments and reduces inventory costs
What is the disadvantage of using DDP as an Incoterm?
The final costs to the exporter could be higher than anticipated if the duty rate applied is higher than originally calculated.
indirect exporting
The manufacture has to sell to another company in the home market who then takes the product overseas i. Involves third party in entering a a foreign market ii. Third party assumes the risk
direct exporting
The manufacturer would sell to an entity in a foreign country i. The next channel member is located in a foreign market ii. When a company deals directly with an entity in the foreign market rather than through another domestic company
A company is deciding whether to use or not use foreign direct investment as part of its entry mode. What would be useful information as it makes its decision?
The overall risk associated with the foreign market and how much control and feedback is needed to achieve strategic goals.
jointly owned
When a local company and a foreign company partner together for productions
Assume a company imported a component from China, paid import duties, incorporated the part into a final product, and exported the product to Germany. Can some or all of the import duties be refunded.
Yes
VAT is essentially
a national sales tax.
Piggyback partners
finding a company in your industry that carries a complimentary product and have them take your product international o Assume that your product will be sold through the existing international distribution channel of your partner Less likely that you will know who is representing your product
exclusivity with a partner
for that territory you will not appoint another representative § In exchange you always have a performance goal in the contract to protect the exporter - the single most powerful motivational tool
what entry mode has the most risk?
foreign direct investment
Pizza Hut is looking to allow companies in a foreign market to use the whole of its business model: its trademark, hiring process, marketing techniques, recipes. This type of market entry would best be called:
franchising
FOB
free along board
FAS
free along side
advantages of foreign manufacturing/ foreign sales & distribution
full control, greater feedback, keep all profits
A company that has a U.S. copyright:
generally has international protection.
advantages of direct exporting with FDI
greater control, greater feedback, better meet customer needs
advantages of direct exporting
greater control, greater feedback, gain market knowledge
A company with a U.S. trademark:
has no protection in foreign markets unless it files and receives the trademark in a particular market.
A college class reunion would be an example of:
high context culture
Types of indirect exporting
i. Export management company ii. Piggyback exporting iii. Domestic distributors
wholly-owned foreign production
i. Full control of its manufacturing process in a foreign country ii. Full control and profits but lack of expertise
pros of indirect exporting
i. No international experience required ii. Management is not distracted iii. Faster to the international market iv. Little to no increased financial commitment v. Low risk
A foreign trade zone would ONLY be useful to a company if it _______ some or all products.
imports
what entry modes have no foreign direct investment
indirect exports and direct exports
what are the four parts to Hofstede cultural index
individualism vs collectivism power distance uncertainty avoidance masculinity vs fminity
disadvantages of licensing
limited control, potentially less profits compared to other modes, may be creating future competitor
advantages of licensing
low investment requirement, fast market entry, use local partner
why do companies prefer to standardize a product
lower costs maximize economies of scale and reduce marketing, sales, and distribution costs
reason for using a sales agent
may provide better control than distributors o Increased control over sales process (pricing, delivery, etc.) o Manufacturer is much more involved in sales process, knows who's purchasing, and has greater feedback from foreign markets o may be most effective way to represent your product
disadvantages of direct exporting with FDI
more complex, more time and effort, more risk
disadvantage of direct exporting
more costly, more time and effort, more risk
disadvantages of foreign manufacturing/ foreign sales & distribution
most expensive, most time and effort required, most risky
horizontal trade shows
multiple industries are represented at the show
What is the risk with direct exporting
not a lot of risk but by definition has to have the movement across the boarder -political, FX econ, FX transactional, commercial risk
what are the triggers would cause a company to use foreign direct investment
o High transportation costs or high entrance barriers o Doesn't make sense to transportation doesn't justify the cost to produce o Needing more control or feedback o Selling to a distributor on an exclusive basis and now feel like you can take on more of the task o Need a close relationship with the buyer o Need access to certain resources
EMC (export management companies
o Manage exports on behalf of the manufacturer o Essentially professional exporters who sell internationally on behalf of other companies o Contact foreign distributors and agents on behalf of the manufacturer o Will likely have an established distribution channel o Provide foreign market knowledge and expertise
What are the short terrm solutions to dealing with international pricing challenges?
o Product differentiation o Challenge the distribution rules o Choose representation based on their pricing structure o Lower pricing o Innovative pricing structure, discounts, and promotions
Implications for exporters using sales agents
o The exporter will be selling to multiple customers in foreign market as contrasted with using a distributor o No overseas inventory is maintained by foreign agent o Agent and foreign customer may not be familiar with specific import regulations or restrictions because they don't import directly o Local laws of some countries may recognize agent as employee of company leading to challenges when agent contract is not renewed
duty drawback
o U.S. companies may claim for a refund of import duties on products exported... gets the all but 1% of money back paid on the duty. The 1% is the handling fee o Can be exported with nothing done to it or could be combined into another product
What are the long term solutions to dealing with international pricing challenges?
o Utilize some foreign manufacturing for parts of the product o Utilize foreign assembly using U.S. components or a mix of U.S. and foreign components o Full foreign manufacturing o Licensing or trademark o Partial Manufacturing o Local Assembly
trademark bandits or squatter
o foreign companies that file for a trademark owned in another country and then hold that mark 'ransom when the foreign company enters the market
manufacturing overseas as an entrance mode
o produces the product specifically to the specific countries o Talking about manufacturing locally to sell internationally o Acquisition o Greenfield- nothing their originally o Joint venture o Licence § Contract manufacturing
how does a bonded warehouse differ from a free trade zone
offers delayed import duties and good for re-exporting - can be anywhere -only used for warehousing -can't test or destroy a product so it can't reduce the price of the tariff
Madrid Protocol
offers one application to file trademark in multiple member countries § owner of a mark to extend into another country with no legal help
what is the risk associated with indirect exporting
political risk... cannot cross the boarder
Which Hofstede cultural dimension helps to understand if a company would prefer lots of layers of management, or a more flat organization?
power distance
Foreign Corrupt Practices Act
prohibits bribes to government officials -grease payments are still allowed
patents
protect technology. Have to demonstrate that the technology you're protecting is new, novelle and doesn't exist (prosecuting the patent application essentially)
copyrights
protecting artistic or literary work - generally do receive international protection
trademarks
protecting brands, designs, symbols o A lot less expensive to extend than patent
the rules on patents internationally
does not provide international protection though it would likely stop the same technology receiving a patent in another WIPO country - looking prior art -testing to see if it's novel
A U.S. patent, in terms of using the technology in a product overseas:
does not provide that protection in foreign markets.
agent
doesn't buy the product from the exporter. They simply make the sale and get a commission for it
vertical trade shows
everything at the show is in one industry
gold key
everything from partner search; Find potential distributors plus set up the appointment
licensing
a. Have some type of intellectual property and give the rights to another company to use it. The company who give the right then gets paid a royalty whenever using it b. When the right to use technology by a third party is given by the holder of the technology
overseas manufacturing
a. when some or all of the manufacturing function is overseas to serve overseas customers i. Lower costs of producing a product that is then imported back in to the home market of the manufacturer after closing a domestic facility: off-shoring Contract manufacturing: when a firm outsources manufacturing to an overseas
disadvantages of a joint venture/ strategic alliance
actual control may be constrained by foreign partner, may lead to lower profits due to shared risk, can be difficult or expensive to disengage from partner
grandfather clause
after the relationship ends some commission may still be paid after the contract ends
full absorption costing
allocates all manufacturing and non manufacturing cost o Not fair to burden your domestic market because of your companies foreign sales
common law
based on custom, precedent and tradition; Court system needed for validation -the U.S.
theocratic
based on religious principles
distributor
buy product from the manufacturer and a profit margin and sell it to the next channel partner o Make their money from the margin or mark up they sell o They warehouse Have more customer support, training opportunities
advantages of a joint venture/strategic alliance
can have some control and feedback depending contract, access to local knowledge and market expertise, shared risks
Calculating the landed cost of a product is useful to:
compare the estimated price of a product in a foreign country against a local competitor.
landed cost
compare the retail price of the imported product to locally available products (or regionally produced) o Purpose is to understand to what extent you'll be at a price disadvantage to an adjacent company
CPT
cost and freight
CFR
cost, freight
CIF
cost, freight and insurance
CIP
cost, freight and insurance -seller not responsible for any import customs fees or duties
DDP
delivered duty paid o The seller has to do everything to get the product to the final place -import duty and clearance is the responsibility of the seller
civil law
detailed laws by government, set codes, court does not review -The french
masculinity vs feminity
division of roles and values in society - achievement vs nurturing o High number = values masculinity more
high context culture
relationships really matter and lots of unspoken rules built into the environment -french and chinese - a high school reunion
In the short term, what might a company do to deal with high international prices?
stress product features and quality.
transfer pricing
tax regulations that can influence the pricing a company uses when selling internationally to related parties (subsidiaries, parent companies, joint ventures, etc.)
for free trade zone, what is the duty rate applied on
the finished good not the original HTUS of the original component imported
what is the caution to the long term solutions to international pricing challenges
they can be risky and expensive
variable costing
to determine selling pricing, only look at incremental cost to produce the product. Way to lower prices when under extreme price escalation o You only allocate those incremental costs associated with making one more of the product § Costs directly related to production or sale
uncertainty avoidance
to what extent do culture want certainty o Degree of preference for structured vs unstructured situations o If high, they want certainty
power distance
to what extent does that culture accept inequality in power. Degree of social inequality considered normal by people o Higher number = accepts more differences in power in the work culture
Which Hofstede cultural dimension helps to understand to what extent a culture would embrace changes?
uncertainty avoidance
when is the duty do for a free trade zone
until the product leaves the factory
trade secrets
used to protect important processes, procedures, techniques or recipes o Never expires just demonstrate that you have went to extent to protect. Protection under WTO and WIPO
Which of the following would result in lower international pricing?
variable pricing
What are the allowable activities in a FTZ?
warehousing, manufacturing, and product testing/destruction
contract manufacturing
when a firm outsources manufacturing to an overseas company Lower costs and less risk than overseas manufacturing
low context culture
when everything is explained -Relationships are important but not critical -Americans and Germands -airport context
when is the only time a duty drawback doesn't apply?
when incorporated foreign products going to Canada or Mexico
equity joint venture
when shared ownership is involved
strategic alliances
when they both work together but the companies don't own each other i. Joint ventures for expanding internationally
what are the rates and dates for a duty drawback
§ Exporter usually receives full amount of duty as a refund, less a 1% handling fee § Products that need to be destroyed also qualify for duty drawback
how do you obtain a duty drawback?
§ Prior to exporting products, the exporter needs to file a drawback proposal with regional commissioner of customs § Exporter must maintain documentation to ensure compliance with drawback procedure
when should someone move to a non-exculsive contract
§ When the market is maturing and you need more control § When you are ready to assume more sales and marketing Some companies never move away from exclusivity
choosing a freight forwarder
§Ask for company details and references §Nurture strong communication §Make sure both parties understand their responsibilities thoroughly
reliance on freight forwarders
§Extremely important for small businesses or beginning exporters §They work with the containerization and booking of freight §Some will specialize in different areas, so many freight forwarders may be needed
Container Security Initiative (CSI)
§Seeks to identify potentially high-risk freight in foreign ports before it reaches the U.S. §Working to make containers "tamper proof"
the role of freight forwarders
§Travel agent for freight §Can become important trade partners §Specialize in logistics