American Winds Opportunities in Exporting the Companys Products Discussion please discuss the below (As discussion post NOT essay),and response to the atta

American Winds Opportunities in Exporting the Companys Products Discussion please discuss the below (As discussion post NOT essay),and response to the attached posts (as discussion post). Also, you will find a power point slides might be helpfulYou are the assistant to the CEO of a small textile firm that manufactures quality, premium-priced, stylish clothing. The CEO has decided to see what the opportunities are for exporting and has asked you for advice as to the steps the company should take. What advice would you give to the CEO? International Business
11e
By Charles W.L. Hill
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Chapter 16
Exporting, Importing,
and Countertrade
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Why Export?
➢ Exporting is a way to increase market size
and profits
➢ lower trade barriers under the WTO and
regional economic agreements, such as the
EU and NAFTA, make it easier than ever
➢ Large firms often proactively seek new
export opportunities, but many smaller
firms export reactively
➢ often intimidated by the complexities of
exporting
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Why Export?
➢ Exporting firms need to
➢
➢
➢
➢
identify market opportunities
deal with foreign-exchange risk
navigate import and export financing
understand the challenges of doing business
in a foreign market
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What Are the
Pitfalls of Exporting?
➢ Common pitfalls include
➢
➢
➢
➢
➢
➢
➢
poor market analysis
poor understanding of competitive conditions
a lack of customization for local markets
a poor distribution program
poorly executed promotional campaigns
problems securing financing
a general underestimation of the differences and
expertise required for foreign market penetration
➢ an underestimation of the amount of paperwork and
formalities involved
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How Can Firms Improve
Export Performance?
➢ Many firms are unaware of export opportunities
available
➢ Firms need to collect information
➢ Firms can get direct assistance from some
countries and/or use an export management
companies
➢both Germany and Japan have developed extensive
institutional structures for promoting exports
➢Japanese exporters can use knowledge and contacts
of sogo shosha – great trading houses
➢U.S. firms have far fewer resources available
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Where Can U.S. Firms Get
Export Information?
➢ The U.S. Department of Commerce
➢ the most comprehensive source of export information
for U.S. firms
➢ The International Trade Administration and the
United States and Foreign Commercial Service
➢ “best prospects” lists for firms
➢ The Department of Commerce
➢ organizes various trade events to help firms make
foreign contacts and explore export opportunities
➢ The Small Business Administration
➢ Local and state governments
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What Are Export
Management Companies?
➢ Export management companies (EMCs) are
export specialists that act as the export
marketing department or international
department for client firms
➢ Two types of assignments are common:
1. EMCs start export operations with the
understanding that the firm will take over after
they are established
➢ not all EMCs are equal—some do a better job than
others
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What Are Export
Management Companies?
2. EMCs start services with the
understanding that the EMC will have
continuing responsibility for selling the
firm’s products
➢ but, firms that use EMCs may not develop
their own export capabilities
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How Can Firms Reduce
the Risks of Exporting?
➢ To reduce the risks of exporting, firms should
➢ hire an EMC or export consultant to identify
opportunities and handle paperwork and regulations
➢ focus on one or a few markets at first
➢ enter a foreign market on a small scale in order to
reduce the costs of any subsequent failures
➢ recognize the time and managerial commitment
involved
➢ develop a good relationship with local distributors and
customers
➢ hire locals to help establish a presence in the market
➢ be proactive
➢ consider local production
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3M, a manufacturer of household and office products, bases its
export strategy on four principles: FIDO (First In Defeats
Others), enter on a small scale to reduce risks, add additional
product lines once the exporting operations start to become
successful, and hire locals to promote the firm’s products.
If you were competing with 3M for market share in a foreign
country, how might you counter their strategy? Would you
flood the market with similarly priced goods? Wait for 3M to
develop local demand and then export competing products at
a lower price point? Immediately establish local production
facilities? Launch a viral web campaign tailored to the target
market to promote your products?
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How Can Firms Overcome the Lack
of Trust in Export Financing?
➢ Because trade implies parties from different
countries exchanging goods and payment, the
issue of trust is important
➢ exporters prefer to receive payment prior to shipping
goods, but importers prefer to receive goods prior to
making payments
➢ To get around this difference of preference,
many international transactions are facilitated
by a third party – normally a reputable bank
➢ adds an element of trust to the relationship
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How Can Firms Overcome The Lack
Of Trust in Export Financing?
The Use of a Third Party
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What Is a Letter of Credit?
➢ A letter of credit is issued by a bank at the
request of an importer
➢ states the bank will pay a specified sum of
money to a beneficiary, normally the exporter,
on presentation of particular, specified
documents
➢ main advantage is that both parties are likely
to trust a reputable bank even if they do not
trust each other
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What Is a Draft?
➢ A draft
➢ an order written by an exporter instructing an
importer, or an importer’s agent, to pay a
specified amount of money at a specified time
➢ the instrument normally used in international
commerce for payment
➢ also called a bill of exchange
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What Is a Draft?
➢ A sight draft is payable on presentation to
the drawee
➢ A time draft allows for a delay in payment
➢ normally 30, 60, 90, or 120 days
➢ once a time draft has been “accepted” it
becomes a negotiable instrument that can be
sold at a discount from its face value
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What Is a Bill of Lading?
➢ The bill of lading is issued to the exporter by
the common carrier transporting the
merchandise
➢ It serves three purposes
1. It is a receipt – merchandise described on document
has been received by carrier
2. It is a contract – carrier is obligated to provide
transportation service in return for a certain charge
3. It is a document of title – can be used to obtain
payment or a written promise before the
merchandise is released to the importer
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How Does an International
Trade Transaction Work?
A Typical International Trade Transaction
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Where Can U.S. Firms
Get Export Assistance?
1. Financing aid is available from the
Export-Import Bank (Ex-Im Bank)
➢ an independent agency of the U.S.
government
➢ provides financing aid to facilitate exports,
imports, and the exchange of commodities
between the U.S. and other countries
➢ achieves its goals though loan and loan
guarantee programs
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Where Can U.S. Firms
Get Export Assistance?
2. Export credit insurance is available from
the Foreign Credit Insurance Association
(FCIA)
➢ provides coverage against commercial risks
and political risks
➢ protects exporters against the risk that the
importer will default on payment
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What Is Countertrade?
➢ Countertrade – a range of barter-like
agreements that facilitate the trade of goods
and services for other goods and services when
they cannot be traded for money
➢ emerged as a means purchasing imports during
the1960s when the USSR and the Communist states
of Eastern Europe had nonconvertible currencies
➢ grew in popularity in the 1980s among many
developing nations that lacked the foreign exchange
reserves required to purchase necessary imports
➢ notable increase after the 1997 Asian financial crisis
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What Are the Forms
of Countertrade?
➢ There are five distinct versions of
countertrade
1. Barter – a direct exchange of goods
and/or services between two parties
without a cash transaction
➢ the most restrictive countertrade
arrangement
➢ used primarily for one-time-only deals in
transactions with trading partners who are
not creditworthy or trustworthy
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What Are the Forms
of Countertrade?
2. Counterpurchase – a reciprocal buying
agreement
➢ occurs when a firm agrees to purchase a certain
amount of materials back from a country to which a
sale is made
3. Offset – similar to counterpurchase – one party
agrees to purchase goods and services with a
specified percentage of the proceeds from the
original sale
➢ difference is that this party can fulfill the obligation
with any firm in the country to which the sale is being
made
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What Are the Forms
of Countertrade?
4. A buyback occurs when a firm builds a
plant in a country or supplies technology,
equipment, training, or other services to
the country
➢ agrees to take a certain percentage of the
plant’s output as a partial payment for the
contract
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What Are the Forms
of Countertrade?
5. Switch trading – the use of a specialized thirdparty trading house in a countertrade
arrangement
➢ when a firm enters a counterpurchase or offset
agreement with a country, it often ends up with
counterpurchase credits which can be used to
purchase goods from that country
➢ switch trading occurs when a third-party trading
house buys the firm’s counterpurchase credits and
sells them to another firm that can better use them
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What Are the
Pros of Countertrade?
➢ Countertrade is attractive because
➢ it gives a firm a way to finance an export deal
when other means are not available
➢ it give a firm a competitive edge over a firm
that is unwilling to enter a countertrade
agreement
➢ Countertrade arrangements may be
required by the government of a country to
which a firm is exporting goods or services
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What Are the
Cons of Countertrade?
➢ Countertrade is unattractive because
➢ it may involve the exchange of unusable or poorquality goods that the firm cannot dispose of profitably
➢ it requires the firm to establish an in-house trading
department to handle countertrade deals
➢ Countertrade is most attractive to large, diverse
multinational enterprises that can use their
worldwide network of contacts to dispose of
goods acquired in countertrade deals
➢ sogo shosha
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Post 1
Hey Guys,
So this is something I actually have real world experience with. I apologize if i write
too much.
The first step to any exporting venture is to determine if the organization is ready
to export. Many small businesses are eager to enter a lucrative foreign market, but
do not have the internal processes and resources necessary to actualize these
goals. Assuming that the CEO has determined that their operations are running
well, the firm is turning a profit domestically, and has the free capital for the
necessary export expenditures they can begin the export process.
Step two is to identify a target market. If you have designated/hired an employee to
handle the expansion then they should use the globaledge, UNComtrade, and
export.gov websites to conduct a market research study. However, for most first
time exporters the financially prudent decision is to employ the services of the local
DOC trade office (Sue Whitney locally), or your state’s SBA. They offer services such
as partner searches to identify international distributors. Trade missions, where
they take a group of individuals from an industry into foreign markets to meet
directly with interested distributors/customers. Most importantly, they can conduct
a market analysis for the firm. These can either be done using your determined
target markets or to suggest lucrative markets to those unsure of international
demand. All State and federal export assistance is available at low cost and
sometimes free if the firm meets certain criteria.
Upon identifying a target market, a plan for exporting must be developed. As we
discussed last week a large reason that export operations fail is due to the every
market is the same mentality. You will need a custom export strategy for each
market you intend to enter. All employees that will be involved in exporting must be
trained to this plan. Then you must draft the necessary documents for exporting.
Each country will likely require at least nine basic export documents. But some
trade agreements such as NAFTA, and the EU will request additional documents. If
you are opting for a distributor, which is recommended for most SME’s and
required in some markets, they may offer services for filing these documents. You
will also need to employ an export attorney to verify that you are in legal
compliance when making international sales. It is best practice to draft sales
agreements clearly outlining what role each party plays in the export process, the
attorney can also assist with this process.
I recommend as the book does that a first time exporter insist on a letter of credit
when exporting, especially with a new customer. While considerable capital is
needed to export, the company should not halt an expansion because of a cash
shortage. If they have done their research and determined that an opportunity is
too good to pass, then they should check with the EX-IM Bank to see what financial
assistance they qualify for. After reading this, many will think exporting should be
left to large multinationals. This common assumption is false. If the firm is
committed to exporting, the U.S. government has a wealth of resources to make
this goal more attainable.
Post 2:
The first step of export is to make sure if company has recourses for it. To know that, company
must have some requirements. If CEO is sure about the internal ability of Company and know
about its competitors, then the first step is knowing about target market. How to choose market
and what size the markets are. differences of the markets and if needs to change in design or
colors (based on customer tastes and different cultures). Second, I would recommend gaining
market and export information and has a deep research on export laws, tariffs, foreign currency
exchange risk exposure and if there is any sanction or specific limited for exporting. For
example, according to WTO agreements some countries have limited on amount of importing.
(Quantitative Restrictions). Also, I would recommend to study about the politics and stability in
target countries. Choosing a route to market is another important key for exporting. Knowing
distributors or if any sales agent is involved.
After all previse steps, I would go through INCOTRMS (International Commercial Terms are a
series of pre-defined commercial terms published by the International Chamber of Commerce
relating to international commercial law.) Firm should know according to the distance, products
and contracts which kind of shipping system would be good for the firm and has less cost and
liability for the company. I strongly recommend the company to open LC (Letter of Credit)
because its first time to export and customers are new. Finally, I would go through contract ‘s
advices and ask to choose arbitration for any future issues comes up.
Post 3:
I would advise the CEO that the firm needs to do its homework regarding the process of
exporting. Utilizing resources and those with the knowledge and experience of exporting are a
necessity in the decision to export. There are multiple facets in exporting from determining the
market of entry, shipping, and financing. Governmental agencies such as The Department of
Commerce and the SBA provide data and analysis to assist in identifying firm’s readiness or
capabilities of exporting. These agencies also provide guidance as to if the product would be
attractive in an international market and players in those markets that provide needed services for
exporting. With the use of globalEDGE website, a firm is able to obtain free analysis of their
readiness or capabilities of exporting and whether product would be accepted as is or if local
customization is required for the international market. The CEO should be informed that resources
will be needed to facilitate an export venture, perhaps internally and/or the cont…
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