16

Export and Import PracticesExport and Import Practices

International Businessby Ball, McCulloch, Frantz,

Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

This chapter covers:

•Why firms export and problem areas

•Sources of export counseling

•Terms of sale

•Sources of export financing

•Foreign freight forwarders

•Export documents

•Materials handling

•Import sources

•HTSUSA

Chapter ObjectivesChapter Objectives Explain why firms export and problem areas of

exporting Identify the sources of export counseling Describe the main elements of the export sales

assistance program of the US Department of Commerce

Discuss the meaning of the various terms of sale Identify some sources of export financing Describe the activities of a foreign freight

forwarder Understand the kinds of export documents

required Identify import sources Explain the Harmonized Tariff Schedule of the

United States (HTSUSA)16-2

Why Export?Why Export?

Reasons to export To serve markets where

the firm has no production facilities.

the local plant does not produce the firm’s complete product mix

To satisfy a host government’s requirement that the local subsidiary export

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To remain competitive in the home market

To test foreign markets and foreign competition inexpensively

To meet actual or prospective customers’ requests for the firm to export

To offset cyclical sales of the domestic market

Why Export?Why Export?

To achieve additional sales To extend a product’s life

cycle To distract foreign

competitors that are in the firm’s home market by entering their home markets

To partake in the kind of success the firm’s management has seen others achieve by exporting

To improve equipment utilization rates

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Most Common Mistakes Most Common Mistakes for New Exportersfor New Exporters

Failure to develop an international marketing plan

Insufficient commitment by top management

Insufficient care in selecting overseas distributors

Chasing orders from around the world

Neglecting export business when the home market booms

Failure to treat international distributors on an equal basis with domestic

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Assuming automatic success

Unwillingness to modify products

Failure to print service, sale and warranty messages in local language

Failure to consider use of an export management company

Failure to consider licensing or joint venture

Failure to provide readily available service for the product

Why not export?Why not export?

Two major reasons U.S. firms give for not exporting Preoccupation

with the vast American market

A reluctance to become involved in a new and unknown operation

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Problem AreasProblem Areas

Locating foreign markets Don’t know where to start

Payment and financing procedures Fear the complexity

Export procedures Don’t know that information and

government support are available Small Business Administration, Small

Business Development Centers, private consultants

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Sources of Export CounselingSources of Export Counseling

Trade Information Center (TIC) The federal

government has set this up as a first stop for information about all federal

export assistance programs as well as country and regional market information

Visit web site at www.ita.doc.gove/td/tic/.

16-9

International Trade Administration (ITA) Offers a wide range

of export promotion activities that include Market Access and

Compliance (MAC) Trade

Development U.S. and Foreign

Commercial Services (US&FCS)

Sources of Export CounselingSources of Export Counseling

Small Business Administration (SBA) The Office of

International Trade of the SBA works through SBA district offices SCORE programs SBDC/CIBER

programs US Export

Assistance Centers

16-10

Department of CommerceDepartment of Commerce Export Assistance Program Export Assistance Program

Foreign Market Research After learning about the company and its products,

the international trade specialist may advise the potential exporter to consult the National Trade Data Bank (NTDB)

The NTDB provides a comprehensive guide for new exporters a source of specific product and regional

information for experienced exporters searching for new markets

The Foreign Traders Index

16-11

Department of CommerceDepartment of Commerce Export Assistance Program Export Assistance Program

NTDB Available in University SBDCs Can subscribe at www.stat-usa.gov

Trade specialist may suggest using the Trade Opportunities Program (TOP) Provides current sales leads from overseas firms Leaders published in leading commercial

newspapers Can advertise in Commercial News at

www.cnewsusa.com Assistance available from Dept. of

Commerce at www.usatrade.gov/uscs16-12

Department of CommerceDepartment of Commerce Export Assistance Program Export Assistance Program

When small number of potential markets identified Research using Country

Commercial Guides Must choose between

exporting indirectly and exporting directly Indirect way to test

market Direct need overseas

distribution Can use US

Commercial Service Gold Key Service

16-13

Show and SellShow and Sell

Four kinds of trade events that facilitate international trade U.S. pavilions

Organized by the Dept. of Commerce Trade missions

Focus on industry sector Product literature center

Trade specialists distribute at trade shows

Reverse trade missions Visits to U.S. by foreign governments

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Other Sources of AssistanceOther Sources of Assistance

World Trade Centers Association Nearly 300 worldwide Access to online trading system

District Export Councils Provided by Dept. of Commerce Assist in workshops and arrange for

consultants State Governments

All states have export development programs

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Export Marketing PlanExport Marketing Plan

Essentially the same as the domestic marketing plan

The plan should be specific about The markets to be

developed The marketing

strategy for serving them

The tactics required to make the strategy operational

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Marketing Mix Foreign customers

may insist on one of the following terms of sale FAS (free alongside

ship, port of call) CIF (cost, insurance,

freight, foreign port)

CFR (cost and freight, foreign port)

DAF (delivered at frontier)

Sales AgreementSales Agreement

Should specify the duties of the representative and the firm Designation of

responsibilities for patent and trademark registration

Designation of whose laws will govern contractual dispute

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Payment and Financing ProceduresPayment and Financing Procedures

Types of payment terms offered by exporters to foreign buyers Cash in advance Open account Consignment Letter of credit Documentary drafts

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Export Payment TermsExport Payment Terms

Cash in Advance When credit standing

of the buyer is not known or is uncertain

Open Account When a sale is made

on open account The seller assumes

all of the risk Terms should be

offered only to reliable customers in economically stable countries

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Consignment Goods are shipped to

the buyer and payment is not made until they have been sold

All the risk is assumed by the seller

Letters of Credit This document is issued

by the buyer’s bank which promises to

pay the seller a specified amount when the bank has received certain documents stipulated in the letter of credit

Export Payment TermsExport Payment Terms

Letters of CreditConfirmed

Act of a correspondent bank in the seller’s country by which it agrees to honor the issuing bank’s letter of credit

IrrevocableOnce the seller has

accepted the credit, the customer cannot alter or cancel it without the seller’s consent

Air Waybill Issued by carrier to

be presented as proof the shipment has been made

Pro Forma Invoice exporter’s formal

quotation containing a description of the merchandise, price, delivery time, proposed method of shipment, ports of exit and entry, and terms of sale

Export Payment TermsExport Payment Terms

Documentary Drafts An export draft

is an unconditional order drawn by the seller on the buyer instructing the buyer to pay the amount of the order on presentation (sight draft) or at an agreed future date (time draft)

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Export FinancingExport Financing

Private Source – Commercial Banks Banker’s acceptance Factoring

Provides working capital to manufacturers short of cash.

Is essentially discounting without recourse. Forfaiting

Denotes the purchase of obligations that arise from the sale of goods and services and fall due at some date beyond the 90 to 180 days that is customary of factoring

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Export FinancingExport Financing Export-Import Bank

The U.S. Export Import Bank (Eximbank) Government agency

responsible for aiding the export of American goods and services Variety of loan,

guarantee, and insurance programs

Available to any American export firm regardless of size

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Two types of loans available from the Eximbank Direct loans to

foreign buyers of American exports

Intermediary loans to responsible parties Foreign government

lending agency that relends to foreign buyers of capital goods and related services

Other Government IncentivesOther Government Incentives

Overseas Private Investment Corporation Offers investors insurance against

expropriation, currency inconvertibility, and damages from wars or revolutions

Also offers specialized insurance for American service contractors and exporters

operating in foreign countries Foreign Sales Corporation

Special corporate form authorized by the federal government that provides tax advantages for exporting firms

Free Trade Zones An area designated by the government of a country

for duty-free entry of any nonprohibited good16-24

Export ProceduresExport Procedures

Foreign freight forwarders act as agents for exporters Prepare documents Book space Offer advice about

Markets Regulations Transportation Packing

Supply cargo insurance

After shipment, forward documents16-25

Shipping DocumentsShipping Documents Shipper’s Export

Declaration This document is

required by the Department of Commerce to control exports and supply export statistics

Export License General for most

products Validated for scarce

materials, strategic goods, technology, or war materials

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Export bill of Lading Serves three

purposes a contract for

carriage between the shopper and the carrier.

a receipt from the carrier for the goods shipped.

a certificate of ownership

Insurance Certificate Evidence shipment is

insured

Collection DocumentsCollection Documents

The most common documents for collection Commercial invoices

Add origin of goods, export packing marks, and a clause stating good will not be diverted

Consular invoices Purchased from the consul and prepared in

local language Certificates of origin

Issued by local Chamber of Commerce Inspection certificates

Frequently required for grain, food, live animals

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Export ShipmentsExport Shipments

ContainersReduce theft and

handling costs

LASH (lighter aboard ship)Barges for shallow

inland waterways

RO-RO (roll on-roll off)Can drive onto vessel

Air FreightCan arrive in one day

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Air FreightAir Freight

Total cost components that may be lower for air freight include Insurance rates Packing Custom duties Replacement costs

for damaged goods Inventory costs

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When the total cost are high for air freight, it may still be advantageous to ship by air when other factors are considered Production and

opportunity costs The firm may be air-

dependent The products may be

air-dependent Spare parts and

technical personnel available within a few hours

ImportingImporting

Ways to identify import sourcesIf similar imported products are already

in the market, visit a retailer and examine the product label

If the product is not being imported, call the nearest consul or embassy of that country

Use the electronic bulletin boards of the World Trade Centers

Accidental importing also takes place

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Customhouse BrokersCustomhouse Brokers

Independent businesses that handle import shipments for compensation

Acting as the agent for the importer Customhouse brokers bring the

imported goods through customs They can arrange transportation for

goods after they leave Customs They also need to know when imports

are subject to import quotas and how much of the quota has been already filled

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ImportingImporting

If the Quota fills the importer must Put goods in a bonded

warehouse or a foreign trade zone

Abandon the goods Send the goods to

another country Automated Commercial

System (ACS) Used to track, control,

and process all commercial goods imported into the U.S.

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Import Duties Importer must know

How U.S. calculates import duties

The importance of product classification

The Harmonized System Used by all developed

nations Determines how goods

will be classified Each product has its

own HTSUSA number

Import RulesImport Rules

Disclose fully to the US Customs Service all foreign and financial arrangements

Ask advice of a customhouse broker before making the transaction

Calculate carefully the landed price in advance

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EXPORTS, IMPORTS,EXPORTS, IMPORTS, and TRADE BALANCE and TRADE BALANCE

KEY ECONOMIC EVENTSKEY ECONOMIC EVENTS

Economic activity improved for the United States and many of its trading partners, contributing to increased U.S. exports and imports in 2003.

U.S. exports grew for most manufacturing industry sectors, recording an overall $21.8 billion increase during 2003, to $651.4 billion.

U.S. imports grew for all manufacturing industry sectors, recording an overall increase of $95.3 billion to reach $1.3 trillion in 2003.

The U.S. trade deficit expanded for most industry sectors, for an overall increase of $73.5 billion in 2003 to $598.7 billion. Agriculture was the exception, recording an increased trade surplus of $1.1 billion to reach $3.8 billion in 2003.

KEY TRENDSKEY TRENDS in U.S. Trade with Japan in U.S. Trade with Japan

The narrowing of the U.S. bilateral trade deficit with Japan was augmented by a 9.8-percent appreciation of the yen against the dollar.

Japan has been experiencing an economic upturn since March 2003, after more than a decade of deflation. This upturn appears to be more broadly based than previous ones, with increased consumer and corporate spending.

U.S. beef exports rebounded after incidences of “mad cow disease” in Japanese herds and mislabeling of imported beef in late 2001 and early 2002.

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