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Chapter 14
Learning Objectives
1. An overview of foreign market entry strategies
2. Internationalization of the firm
3. Exporting as a foreign market entry strategy
4. Managing export-import transactions
5. Payment methods in exporting and importing
6. Export-import financing
7. Identifying and working with foreign intermediaries
8. Countertrade: A popular approach for emerging
markets and developing economies
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Education
Overview on Exporting
Usually the firms first foreign entry strategy
Low risk, low cost, and flexible
Popular among SMEs
When we talk about trade, trade deficits, trade
surpluses, etc., were talking exporting.
Most exports involve merchandise.
Export channels:
o Independent distributor or agent; or
o Firms own marketing subsidiary abroad
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Education
Advantages of Exporting
Disadvantages of Exporting
Requires firm to acquire new capabilities and redirect
organizational resources;
Sensitive to tariffs and other trade barriers;
Sensitive to exchange rate fluctuations;
Compared to FDI, firm has fewer opportunities to learn
about customers, competitors, and the marketplace.
Alternative Organizational
Arrangements for Exporting
Country Realities
The performance of Germanys economy is impressive,
with exports leading the way.
Top export destinations include emerging markets such
as China, India, and Brazil.
In such markets, demand for German-made products is
at an all time high, especially for high-value goods such
as cars, heavy machinery, and power plants.
Exporting helps reduce German unemployment, which
recently declined to its lowest level in 20 years about
7% percent.
Exporting helps Germany weather poor economic
conditions in Europe.
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Education
Importing
The United States imports enormous amounts of goods from China. As one of the
largest U.S. importers, Walmart alone accounts for about 10% of the countrys
imports of toys and other products from China, worth more than $20 billion a year.
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Education
Export Documentation
The official forms and other paperwork required to
transport exported goods and clear customs.
Quotation or pro forma invoice: Issued on request
to advise a potential buyer about the price and
description of the exporters product or service.
Commercial invoice: Actual demand for payment
issued by the exporter when a sale is concluded.
Bill of lading: Basic contract between exporter and
shipper. Authorizes the shipping company to
transport the goodsCopyright
to the
buyers destination.
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Education
Exporting is the entry strategy responsible for global trade and generates enormous earnings
for nations. Exporting serves the internationalization goals of firms, both small and large.
Aircraft manufacturers such as Airbus
and Boeing
are
among the worlds leading exporters.
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2014
Pearson
Education
Examples of INCOTERMS
Export transactions generally ship products through seaports and other maritime
facilities. This container ship is Copyright
passingthrough
the Panama Canal.
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Education
Methods of Payment
METHOD
ADVANTAGES
DISADVANTAGES
Cash in
Advance
Open
Account
Letter of
Credit
Sources of Information to
Identify Potential Intermediaries
Country and regional business directories such as Kompass
(Europe), Bottin International (worldwide), Japanese Trade
Directory, as well as Foreign Yellow Pages.
Trade associations such as the National Furniture
Manufacturers Association or the National Association of
Automotive Parts Manufacturers.
Government ministries and agencies such as Austrade in
Australia, Export Development Canada, and the U.S.
Department of Commerce.
Commercial attachs in embassies and consulates abroad.
Branch offices of government agencies located in exporters
country, such as the Japan External Trade Organization
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Education
Countertrade
An international business transaction in which all or
partial payments are made in kind rather than cash.
Similar to barter.
Used when conventional means of payment are
difficult, costly, or nonexistent.
Accounts for between 10% and 1/3 of all world trade.
Common in large-scale government procurement.
Risky. May involve inferior or hard-to-price goods;
may lead to price padding; can be complex,
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cumbersome, and time-consuming.
Education
Types of Countertrade
Barter: Goods are directly exchanged without the
transfer of any money.
Compensation deal: Payment in goods and cash
Counterpurchase: Entails two distinct contracts. In
the first, the seller agrees to a set price for goods and
receives cash from the buyer, contingent on a
second contract in which the seller agrees to
purchase goods from the buyer.
Buy-back agreement: Seller supplies technology or
equipment to construct a facility and receives
payment in the form of goods produced by it.
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Education
Examples of Countertrade
Boeing traded aircraft for oil in Saudi Arabia.
Caterpillar received caskets in Colombia and wine in
Algeria in exchange for earth-moving equipment.
Goodyear traded tires for minerals, textiles, and
agricultural products.
Coca-Cola received tomato paste from Turkey, oranges
from Egypt, and beer from Poland in exchange for
Coke.
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Education
Overview on Countertrade