13 Export and Import

Editor's Notes

• #2: Chapter 13: Export and Import
• #3: The Learning Objectives for this chapter are To introduce the idea of exporting and profile its elements To introduce the idea of importing and profile its elements To identify the problems and pitfalls that challenge international traders To identify the resources and assistance that helps international traders To discuss the idea of an export plan To outline the practice of countertrade
• #4: Exporting and importing, the most common forms of international business, have seen substantial growth in recent years thanks in part to globalization, an increase in free trade agreements, and institutional development. Companies like exporting and importing because they allow them to capitalize on international opportunities without substantial risk, and with only a low commitment of resources.
• #5: This Figure shows the environmental factors that influence exporting and importing opportunities. Notice that exporting and importing are just one way to take advantage of opportunities in foreign markets.
• #6: Learning Objective 1: To introduce the idea of exporting and profile its elements.
• #7: Exporting involves sending products to other countries. Occasional exporters fill unsolicited orders, but don’t pursue additional opportunities. Regular exporters are experienced in exporting and aggressively pursue new opportunities. Non-exporters have no experience and do not have any intention of engaging in exporting.
• #8: Ownership, location, and internalization advantages all influence the choice of entry mode. For example, companies that have few ownership advantages are less likely to engage in exporting. Location advantages can attract companies to favorable business environments. Internalization advantages can encourage companies to export rather than engage in licensing.
• #9: What companies are most likely to export? Well, large companies account for most export activity. In the United States for example, the 500 biggest companies are responsible for 60 percent of total export value. However, even small and medium-sized companies called SMEs are active exporters. Two-thirds of exporters worldwide have fewer than 20 employees. Perhaps more important though, are other factors including production efficiency, firm competence, and a firm’s commitment to growth via exports.
• #10: Why export? Three dimensions drive the decision to export. First, firms export to increase profits by tapping new markets or selling products at premium prices. Second, exporting is also a way to boost productivity in a firm by increasing scale effects and improving knowledge flows. Finally, firms export in order to diversify their activities and lower their risk.
• #11: Some firms approach exporting in a deliberate sequential way targeting markets that are similar and closer first before moving on to more dissimilar and geographically distant markets. So, a U.S. company might target Canada first, followed by Mexico before moving on to Europe and Asia. In contrast, some companies engage in exports right from the start. These companies assume the domestic market is just one of many opportunities in the global market. The born global approach has been facilitated by advances in technology and lower barriers to trade.
• #12: This Table shows the top ten trade partners of the United States. Notice that it illustrates the interaction of the two perspectives on the export process. In the future, this interaction is likely to accelerate thanks to the opportunities that ecommerce provides and the easy access to information on dissimilar markets provided by the Internet. Keep in mind that serendipity can also explain a company’s export activity. responding to unsolicited orders can be the start of successful export activity.
• #13: In theory, exporting involves making a product, packing it, and then shipping it. In reality though, it’s a bit more involved. Some companies are direct exporters. They sell their product to independent intermediaries in foreign countries who then sell it to the end consumer. Companies that sell their product to independent intermediaries in the home country are indirect exporters. The intermediary resells the product to foreign agents who then sell it to the end consumer. Some companies simply passively fill orders from domestic buyers who then export the product, while others sell to domestic buyers who represent foreign end users or customers. In either of these cases, the company may not know that its product has been resold. Some companies use more than one approach depending on their particular ownership, location, and internalization advantages.
• #14: Learning Objective 2: To introduce the idea of importing and profile its elements.
• #15: Importing involves the purchase of a good or service by a buyer in one country from a seller in another. Note that it’s possible to import services in addition to products. A service import is any transaction that does not result in ownership or is rendered by nonresidents to residents. There are three general types of importers. Input optimizers search around the world for optimal inputs which are then used to produce the firm’s products. Opportunistic importers exploit gaps in the market by importing products that are available from foreign suppliers. Arbitrageurs capitalize on price and quality differences between markets.
• #16: Most importers are also exporters. Firm size is important as is efficiency, innovation, and commitment.
• #17: Companies can take advantage of the higher quality at lower prices that labor specialization provides. Apple pays workers in China just over a dollar an hour to produce its iPad2 for example. Similarly, global rivalry has forced companies to use foreign suppliers to keep the costs of inputs low and quality levels high. Sometimes because of the unavailability of products locally, companies have no choice but to import. Finally, like exporters, companies import as part of a diversification strategy.
• #18: Learning Objective 3: To identify the problems and pitfalls that challenge international traders.
• #19: Regular and occasional exporters face a host of problems and pitfalls that make international trade challenging. Some of the more common ones involve financial risks, especially a shortage of working capital to finance an export strategy. In fact, financial constraints are one of the biggest challenges for SMEs. In addition, exporters are hampered by their lack of international expertise, marketing barriers, and the challenges of meeting customer expectations in foreign markets. These demands can put significant pressure on managers. Finally, trade regulations and documentation requirements also make exporting a complex process.
• #20: This Table shows some of the different types of documentation used in international trade.
• #21: Learning Objective 4: To identify the resources and assistance that helps international traders.
• #22: Exporters can get a lot of assistance from both public agencies and private intermediaries to facilitate the export process. The U.S. Department of Commerce’s International Trade Administration offers assistance in more than 100 cities in the United States and also in 75 foreign countries. In addition, it offers online assistance. The Small Business Administration is another source of information for importers and exporters.
• #23: This Table shows information and assistance available to exporters from a variety of sources.
• #24: Export intermediaries work on behalf of exporters to manage the intricacies of international trade. Firms using export intermediaries must balance their cost along with the implied loss of control against the cost and challenges of managing the process in-house.
• #25: Customs agents enforce the rules of trade for a particular country while customs brokers help importers value their product, qualify for duty refunds, defer duties, and limit liability.
• #26: This Table shows where it’s easy to trade and where it’s more difficult.
• #27: Freight forwarders specialize in moving goods from the seller to the buyer. These fee based intermediaries can be especially helpful when the cost or timing of freight can make or break a deal.
• #28: Third party logistics are a growing force in international trade. Almost 80 percent of Fortune 500 companies use them.
• #29: Learning Objective 5: To discuss the idea of an export plan.
• #30: Export plans help companies stay on track with their export strategies.
• #31: This Table shows a sample export plan.
• #32: Learning Objective 6: To outline the practice of countertrade.
• #33: In situations where the home country currency is inconvertible or a lack of cash prevents a traditional transaction firms may turn to countertrade. According to the WTO, countertrade accounts for about 5 percent of world trade. Countertrade can be inefficient way to do business. It can also be risky especially if the products received are difficult to resell or are of poor quality. However, because it can allow for mutually beneficial relationships, it’s still used today.
• #34: This Table shows the common types of countertrade.
• #35: New technologies are helping to level the playing field for international trade. SMEs are likely to benefit the most from these advances.