Exporting

MODES OF ENTRY INTO INTERNATIONAL MARKETS Exporting Modes of entry into international markets:

Exporting International Licensing International Franchising Specialized Modes Foreign Direct Investment Countertrade
Exporting: Simple mode of internationalizing a domestic business Advantages allows a firm to quickly enter the foreign market often involves less financial exposure permits a firm to enter a foreign market gradually, and in this way allows it to assess local conditions and fine-tune its products to better suit the needs of the customers in the host country Disadvantages little control over marketing and distribution in the host country can quickly lose market to other firms in case of many goods, transportation costs may be high rendering the exported products too expensive for host markets Forms of exporting: Indirect exporting occurs when a firm sells its products to a domestic customer, who in turn exports the product, in either its original form or a modified form Direct exporting involves sales to customers - either distributors or end-users - located outside the firms home country Intracorporate transfers is selling of goods / services by a firm in one country to an affiliated firm in another Export intermediaries: Export management companies

a firm which acts as a clients export department - an EMCs staff are typically knowledgeable

about the legal, financial and logistical details of exporting and importing. can be commission agents or may take title of goods by profiting from the difference between Page 63 local buying price and selling price to the foreign customer Enterprise networks

a group of companies producing related or complementary products pooling resources together to

form marketing companies International trading companies

are firms which are directly engaged in importing and exporting a wide variety of goods on their
own account Export and import management: Terms of Shipment Ex-works (EXW) - at the point of origin The exporter agrees to deliver the goods at the disposal of the buyer to the specified place on the specified date or within a fixed period. All other charges are borne by the buyer. Free Alongside Ship (FAS) - at a named port of export The exporter quotes a price for the goods, including charges for delivery of the goods alongside a vessel at a port. The seller covers the costs of unloading and wharfage. Loading onto the ship, ocean transportation, insurance, unloading and wharfage at a port of destination and transport to the site required by the buyer are on the importers account.

Free on Board (FOB) - at a named port of export In addition to FAS, the exporter undertakes to load the goods on the vessel to be used for ocean transportation and the price quoted by the exporter reflects this cost.

Cost and Freight (CFR) - to a named overseas port of disembarkation The exporter quotes a price for the goods, including the cost of transportation to a named overseas port of disembarkation. The cost of insurance and the choice of the insurer are left to the importer.

Cost, Insurance and Freight (CIF) - to a named overseas port of disembarkation The exporter quotes a price including insurance and all transportation and miscellaneous charges to the port of disembarkation from the ship or aircraft. CIF costs are influenced by port charges (unloading, wharfage, storage, heavy lift, demurrage), documentation charges (certification of invoice, certification of origin, weight certificate) and other miscellaneous charges (fees of freight forwarder, insurance premiums).

Delivery Duty Paid (DDP) - to an overseas buyers premises The exporter delivers the goods with import duties paid including inland transportation from the docks to the importers premises. Terms of payment of an export transaction:

Cash with order

Cash payment when order is placed Confirmed irrevocable letter of credit A letter of credit issued by the importers bank and confirmed by a bank, usually in the exporters country. The obligation of the second bank is added to the obligation of the issuing bank to honor Page 64 drafts presented in accordance with the terms of credit. Unconfirmed irrevocable letter of credit A letter of credit issued by the importers bank. The issuing bank still has an obligation to pay.

 Revocable letter of credit

A letter of credit that may be withdrawn from the beneficiary at any time without prior notice to the exporter. It does not carry a banks obligation to pay. Sight Draft A draft so drawn as to be payable on presentation to the drawee (usually the buyer). Time Draft A draft maturing at a certain fixed time after presentation or acceptance. Open Account No draft drawn; transaction payable when specified on invoice. Consignment A shipment that is held by the importer until the merchandise has been sold, at which time payment is made to the exporter. Other export documents / terms:

A bill of lading
is a contract between the exporter and the shipper indicating that the shipper has accepted responsibility for the goods and will provide transportation in return for payment. A straight bill of lading is non-negotiable. A shippers order bill of lading is negotiable; it can be bought, sold or traded while the goods are still in transit, (title of goods can change hands) - normally the original bill of lading is needed to take possession of goods. Air way bill a contract between the exporter and the air-cargo company. Country of origin certificate certifying where the goods were manufactured Commercial invoice / Consular invoice from consulate office of importing country in importing country language LC margin a percent of payment of the total import amount paid by the importer to his bank for the bank to issue a letter of credit for the whole value of the import Pre-Shipment inspection inspection of the goods done by or on behalf of the importer before the shipment Export packing list a list in the export documents listing the packaging and items in each packing Insurance certificate issued by an insurer for the insurance of the export merchandise Export / Import registration required in various countries to allow firms to import or export goods Export / Import license a license needed in some countries for specific imports or exports Page 65 Freight forwarder a company involved in packing and shipment of export goods Customs / Clearing Agent company involved in dealing with the customs clearance of imported or exported goods Bonded warehouse a designated warehouse where imported goods may be stored prior to the payment of import duties. Importers pay customs duties when they take the goods out of the bonded warehouse Marking of the shipments markings on the outer packaging of the export consignment for the purpose of identification Marine cargo insurance (special one time / open policy) export goods insurance for the transportation Containers metal containers ( normally 20 or 40 feet long) for safe transportation of cargo by sea Bulk-break normally goods are transported by sea in large metal containers some exporters may not have enough cargo to fill a container then the cargo companies combine cargos from a number of exporters to fill a container for shipment to a destination