MAN3600 Ch14

Certificate of Origin

-"Birth certificate" of goods, showing country where product originated

Step 3: Acquire Needed Skills and Competencies

-Acquire new abilities in such areas as product development, logistics, finance, contracts, currency mgmt, foreign languages, and cross-cultural skills

Commercial Invoice

-Actual demand for payment issued by exporter when a sale is concluded

Open Account

-Allow customers several months to make payments -Advantages: Easy for exporter who just bills the buyer -Disadvantages: Risky unless there's strong established relationship b/t exporter and buyer

Step 2: Organize for Exporting

-Assess firm's resource needs -Establish timetable for achieving export goals -Decide on distribution strategy (indirect, direct, company-owned subsidiary)

Bill of Landing

-Basic contract b/t exporter and shipper; authorizes shipping company to transport goods to buyer's destination

Sources of Export Financing

-Commercial banks -Factoring, forfaiting, and confirming -Distribution channel intermediaries -Buyers and Suppliers -Intracorporate Financing (MNE gives subsidiary loans) -Gov't assistance programs (Small Business Administration) -Multilateral Development Banks (MDBs)

Franchising

-Common in retailing; many companies use it to internationalize

Disadvantages of Exporting

-Compared to FDI, offers few opportunities to learn about customers, competitors, and aspects of foreign market b/c firm hasn't established presence -Must dedicate capabilities to conduct complex transactions -Must become proficient in int'l sales contracts, transactions, logistics, etc -Exposes firm to tariffs and other trade barriers -Sensitive to exchange rate fluctuations

Common Dispute Areas with Intermediaries

-Compensation arrangements -Pricing practices -Advertising/promotion practices -After-sales service -Return policies -Adequate inventory levels -Incentives for promoting new products -Adapting the product for local customers

Letter of Credit

-Contract b/t banks of buyer and seller that ensures payment after receipt of export shipment -Advantages: Largely risk-free, helps to establish trust -Disadvantages: Requires following strict protocol, can involve much paperwork

Sources of Info to Identify Potential Intermediaries

-Country and regional business directories -Trade associations -Gov't ministries and agencies -Commercial attaches in embassies -Branch offices of gov't agencies

Step 4: Implement Exporting Strategy

-Devise on-the-ground tactics and adapt products/marketing as needed -Product adaption: modifying product to make it fit needs/tastes of buyers -Marketing communications adaption: modifying advertising, selling style, PR to suit markets -Price competitiveness: keep foreign pricing in line with competitors -Distribution strategy: hinges on developing strong and beneficial relations

Stages of Internationalization

-Domestic market focus -Pre-internationalization (research and evaluate) -Experimental involvement (limited int'l activity, typically exporting) -Active involvement (explore expansion, s/a entry strategies) -Committed involvement

Counterpurchase

-Entails 2 distinct contracts -In the first, seller agrees to a set price for goods and receives cash from buyer -In the second, the seller agrees to purchase goods from buyer -Common in defense industry

FDI

-Establishing presence in foreign market by investing in capital and securing ownership of factory, subsidiary, etc

Working with Foreign Intermediaries

-Exporter relies on intermediaries for much of marketing, physical distribution, and customer service activities in export market -Exporter should cultivate mutually beneficial relations, respond to intermediary's needs, demonstrate commitment, and build trust -Intermediaries prefer handing good, profitable products, and desire support -Criteria for evaluating export intermediaries include: organizational strengths, product-related factors, marketing capabilities, and managerial commitment

Licensing

-Firm allows foreign partner to use its intellectual property in return for royalties and other compensation

Importing

-Firm chooses to buy products/services from foreign sources -US and Canada each others' top importer -Most int'l trade occurs w/ advanced economies

Factors to Consider when Choosing a Foreign Market Entry Strategy

-Goals and objectives of the firm, s/a desired profitability, market share -Degree of control desired in terms of operations, decisions -Resources and capabilities: firm's financial, organizational, and tech -Types of risk inherent in each proposed foreign adventure -Conditions in the target country (legal, cultural, economic circumstances) -Nature and extent of competition (current and future) -Availability and capabilities of partners in market -Value-adding activities the firm is willing to perform in the market -Long-term strategic importance of the market -Characteristics of product or service

Barter

-Goods directly exchanged w/o transfer of money -Oldest form of trade -Requires a single contract, has short time span, and is less complicated

High-Control Strategies

-High-control strategies: equity joint ventures and FDI; focal firm attains max control by establishing a physical presence and ownership of key assets in foreign market

Foreign Market Entry Strategies

-Importing/global sourcing -Exporting -Countertrade -Foreign direct investment (FDI) -Collaborative ventures -Licensing -Franchising

Advantages of Exporting

-Increase sales volume, improve market share -Increase economies of scale, reducing costs -Diversify customer base, reduce dependence on home market -Stabilize fluctuations in sales associated with economic cycles/seasonality of demand -Minimize cost of foreign market entry (use exporting to test) -Minimize risk and maximize flexibility (compared to other entry strategies) -Leverage capabilities/skills of foreign distributors/partners located abroad

Export Intermediation Options

-Indirect exporting: contracting w/ intermediary (trading company) in firm's home country to perform all export functions; common among firms new to exporting; trade company has control -Direct exporting: Contracting w/ intermediaries, s/a distributors, in the foreign market to perform export functions; gives exporter greater control, but more time-consuming -Many firms use both direct and indirect, not mutually exclusive -Company-owned foreign subsidiary: similar to direct exporting, except exporter owns foreign intermediation operation; most advanced out of three

Countertrade

-International business transaction where all or partial payments are made in kind rather than in cash -Used when conventional means of payment are difficult, costly, or nonexsistent -accounts for 10-33% of all world trade -Common in large-scale gov't procurement -Risky (may involve inferior goods, lead to price paddling, and can be complex/time consuming)

Multilateral Development Banks (MDBs)

-International financial institutions owned by multiple governments w/in world regions or other groups -Objective is to promote economic and social progress in their member countries (many of which are developing) -World Bank

Countertrade

-International transaction in which all/partial payments are made in kind rather than cash

Quotation or Pro Forma Invoice

-Issued on request to advise potential buyer about the price and description of the exporter's product or service

Collaborative ventures

-Joint ventures in which firm makes similar equity investments abroad, but in partnership with another company

Shipper's Export Declaration

-Lists contact info of exporter and buyer, full description, declared value, and destination of products being shipped -Used by governments to collect statistics

Foreign Market Entry Strategies Based on Levels of Control

-Low-control strategies -Moderate-control strategies -High-control strategies

Low-Control Strategies

-Low-control strategies: exporting, countertrade, and global sourcing. Provide least control over foreign operations b/c focal firm delegates considerable responsibilities to foreign partners

Factoring, Forfaiting, and Confirming

-Methods for financing sales -Factoring: is discounting of foreign account receivable by transferring title of sold item and its account receivable to a factoring house (organization specializing in purchasing accounts receivable) for cash at a discount from face value. -Forfaiting: Selling at discount of long-term accounts receivable of the seller or promissory notes of the foreign buyer -Confirming: Financial service in which an independent company confirms an export order in seller's country and makes payment for goods in that country's currency

Diverse Motives for Pursuing Internationalization

-Mgmt must identify firm's motivation for venturing abroad -Motivations reactive or proactive -Reactive: following major customers abroad -Proactive: seeking high-growth markets abroad -Most internationalize to make profits from investments -FDI and collaborative ventures involve more complex motivations

Moderate-Control Strategies

-Moderate-control strategies: contractual relationships, s/a licensing, franchising, and project-based collaborative ventures

Export Documentation

-Official forms and other paperwork required to transport exported goods and clear customs

Cash in Advance

-Payment collected before goods are shipped to customer -Advantages: best for the seller -Disadvantages: Risky from buyer's standpoint, and thus unpopular; tends to discourage sales

Compensation Deal

-Payments in goods and cash

Importing/Global Sourcing

-Procurement of products and services from foreign sources

Exporting

-Producing products/services from foreign services in one country and selling/distributing them in other countries

Insurance Certificate

-Protects exported goods against damage, loss, pilferage, and sometimes delay

Characteristics of Company Internationalization

-Push and pull factors are initial triggers (push are domestic trends pushing company to explore international opportunities, pull are favorable conditions outside the country) -Internationalization may be accidental -Risk and return must be balanced -Internationalization is an ongoing learning experience (expanding takes a long time, providing many new learning opportunities) -Firms may evolve thru stages of internationalization (most firms opt for gradual approach, however, some born global firms internationalize quickly)

Step 1: Assess Global Market Opportunity

-Screen for most attractive markets -Analyze readiness of firm -Identify qualified distributors -Estimate industry market potential and company sales potential

Buy-Back Agreement

-Seller agrees to supply technology/equipment to construct a facility and receive payment in form of goods it produces -May take several years to complete and therefore risky

Service Sector Exports

-Services are largest component of economic activity in advanced economies -Ex: architecture, education, entertainment -Many pure services can't be exported (i.e. hair cuts) -Avoid pure service problems or retail problems by establishing retail stores via FDI (retail requires direct contact) -Most services delivered abroad via entry strategies other than exports -International travel counted as service export -Internet provides way to export some services (airline tickets)

INCOTERMS (International Commerce Terms)

-System of universal, standard terms of sale and delivery -Commonly used in int'l sales contracts and price lists to specify how buyer and seller share cost of freight and insurance, and at what point the buyer takes title for goods

Overview of Exporting

-Usually the firm's first foreign entry strategy -Low risk, low cost, flexible -Majority of exporting firms are SMEs -When talking about trade, trade deficits, trade surpluses, etc. talking about exports -Most exports involve merchandise -Export channels are independent distributors and firm's own marketing subsidiary abroad

Systematic Approach to Exporting

1. Assess global market opportunity 2. Organize for exporting 3. Acquire needed skills and competencies 4. Implement exporting strategy

Four Main Types of Countertrade

1. Barter 2. Compensation Deals 3. Counterpurchase 4. Buy-back Agreement

Ability for exporter/importer to obtain financing is influenced by 4 key factors

1. Creditworthiness of the exporter 2. Creditworthiness of importer 3. Riskiness of the sale 4. Timing of the sale

Methods of payment from most to least secure

Cash in advance, letter of credit, open account, countertrade

Alternative Organizational Arrangements for Exporting

Exporter > Domestic Intermediary > Foreign Intermediary and/or Company-Owned Subsidiary in Foreign Market > Wholesaler and Retailer > Foreign Buyer --This arrangement can vary