entry modes of international market

7/28/2019 entry modes of international market

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INTERNATIONAL MARKET ENTRY MODE [OR]

STRATEGIES

MODE/STRATEGY OF FOREIGN ENTRY

TRADE RELATED CONTRACTUAL MODE

INVESTMENT

ENTRY MODE [TRANSFER-RELATED MODE] MODE

Export Leasing Foreign

Direct Investment

Counter Trade Licensing Foreign

Portfolio Investment

* Barter Franchising

* Counter Purchase

* Offset

* Buyback Turnkey Project

The choice of entry mode for a business depends to a

large extent on the degree of involvement that it wants tohave.

A business firm has to take several important decisions,before entering into a foreign market.

International Entry Strategies concern

o Where[Selection of Location],


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o When [Timing of Entry], and

o How [Entry Mode Selection].

International Companies should enter and invest in aforeign territory during International expansion.

These Entry Strategies are much more important because

they determine an MNEs -

o Investment Environment,

o Operational Treatment,o Resource Commitment, and

o Evolutionary Path.

An MNE seeking to enter into a Foreign Market, must

make an important strategic decision concerning whichentry mode to use.

Entry modes are specific forms or ways of entering a

target country to achieve strategic goals underlyinginternational presence in that country.

Generally, Entry Mode/Strategy Choices fall into the

following THREE Categories:

[a] Trade-Related,[b] Transfer-Related; and[c] Investment-Related


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Along the above sequence, the levels of resource

commitment, organizational control, involved/hiddenrisks and expected returns all increase as well.

Within each category, these levels differ somewhat

between specific modes.

TRADE-RELATED ENTRY MODES

Trade Related Entry Modes include

[a] Exporting

[b] Sub-contracting; and

[c] Counter Trade.

[A] EXPORT/EXPORTING

WHAT IS EXPORT/EXPORTING?

History

The theory of international trade and commercial policy is

one of the oldest branches of economic thought. Exporting is a major component of international trade, and

the macroeconomic risks and benefits of exporting areregularly discussed and disputed by economists andothers.


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Two views concerning international trade present different

perspectives.

The first recognizes the benefits of international trade.

The second concerns itself with the possibly that certaindomestic industries (or laborers, or culture) could beharmed by foreign competition.

Origin/Meaning:

This term export is derived from the conceptual meaning as to

ship the goods and services out of the port of a country.

The seller of such goods and services is referred to as an "exporter"

who is based in the country of export whereas the overseas basedbuyer is referred to as an "importer".

In International Trade, "exports" refers to selling goods and services

produced in the home country to other markets.

Any good orcommodity, transported from one country to another

country in a legitimate fashion, typically for use in trade.

Export goods or services are provided to foreign consumers by

domestic producers.

Export of commercial quantities of goods normally requires

involvement of the customs authorities in both the country of exportand the country of import.

The advent of small trades over the internet such as

through Amazon and e-Bay have largely by-passed theinvolvement of Customs in many countries because of the low

individual values of these trades. None-the-less, these small exports are still subject to legal

restrictions applied by the country of export.

An export's counterpart is an import.
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Definition of Export

"Foreign demand for goods produced by home country"

In national accounts "exports" consist of transactions in

goods and services (sales, barter, gifts or grants)from residents to non-residents.

The exact definition of exports includes and excludes

specific "borderline" cases.

A general delimitation of exports in national accounts is

given below:

An export of a good occurs when there is a change of

ownership from a resident to a non-resident; this doesnot necessarily imply that the good in questionphysically crosses the frontier.

However, in specific cases national accounts impute

changes of ownership even though in legal terms nochange of ownership takes place (e.g. cross border

financial leasing, cross border deliveries betweenaffiliates of the same enterprise, goods crossing theborder for significant processing to order or repair).

Export of services consist of all services rendered by

residents to non-residents.

According to US Govt. Regulations:

In national accounts, any direct purchases by non-

residents in the economic territory of a country arerecorded as exports of services; therefore allexpenditure by foreign tourists in the economicterritory of a country is considered as part of theexports of services of that country.
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A small fraction of the smuggled goods and illegal

services may nevertheless be included in official tradestatistics through dummy shipments or dummydeclarations that serve to conceal the illegal nature of

the activities.

Data, in any country, on International Trade in goods are

mostly obtained through declarations to CustomsAuthorities. If a country applies the general trade system,all goods entering or leaving the country are recorded.

Process

Methods of export include a product or good or informationbeing mailed, hand-delivered, shipped by air, shipped by vessel,uploaded to an internet site, or downloaded from an internet site.Exports also include the distribution of information that can besent in the form of an email, an email attachment, a fax or canbe shared during a telephone conversation.

EXPORT-ENTRY-MODE/STRATEGY:

It is quite natural for most of the firms to get their start in

International Expansion through exporting, in which the firmmaintains its production facilities at Home and sells its productsabroad.

Through exporting, the firm gains valuable expertise aboutoperating internationally and specific knowledge concerning theindividual countries in which it operates.

Export offers the advantage of not requiring a very substantial

presence in foreign countries.


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Generally, exporting is a type of international entry open to virtually

any size or kind of firm, whereas other types of entry modes, asgiven above, tend to demand greater resources and involve morerisks.

Over a period of time, accumulated experience with exportingexpertise, often prompts a firm to become more aggressive inexploiting new international exporting opportunities or to considerFDI in the country to which it previously exported.

Visible Exports and Invisible Imports:

Firms may export or import either goods or services.

Goods are tangible products which can be seen hence

goods coming into the country are termed as VisibleImports and goods leaving the country are termed VisibleExports.

The difference between the exports and imports is termed

Trade Balance or Balance of Visible Items.

Services exports and imports generate intangible non-

product international earnings.

A company or an individual earns through the export and

import of services such as Banking, Insurance, Trade andTourism related Services which are intangible andpersonalized.

Countries such as Greece and Norway earn a significant

amount of foreign exchange from Foreign Cargo carried on

Ships owned by the Citizens of these countries.

Similarly, tourism is a major foreign exchange earner for

countries like Bahamas, India, China, Indonesia,Maruritius etc.


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Export Management Company [EMC]:

A firm can either export goods directly to foreign customers

or buyers or through export intermediaries.

Export intermediaries are third parties that specializeinfacilitating imports and exports.

These intermediaries may offer limited services such as

handling only transportation, documentation, and customsclaims, or they perform more extensive services, includingtaking ownership of foreign-bound goods and/or assumingtotal responsibility for marketing and financing exports.

Typical expert intermediaries such as Export ManagementCompany [EMC] are intermediaries that act as its clientsexport department.

Small firms may use an EMC to handle their foreign

shipments, prepare export documents, and deal withCustoms Office, Insurance Companies, and/or CommodityInspection Agencies like EIC/EIAs.

EMCs are generally knowledgeable about legal, financial,

and logistical details of exporting and importing and thusfree the exporter from having to develop such expertise in-house.

Terms of Sale by EMCs

Managers involving in exporting must know the terms of

sale or the terms of price.

Terms of sale are conditions stipulating rights/responsi-

bilities and costs/risks borne by the exporter and importer.

These terms have been harmonized and defined by the

International Chamber of Commerce as Standard, and thus


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are widely used in Export Transactions. Major Terms ofPrice include:

[a] FOB [Free on Board]

[b] FAS [Free Along Side / Sp][c] CIF [Cost, Insurance, and Freight]

[d] C&F[Cost and Freight]

F.O.B.:

FOB is an initialism which pertains to the shipping of goods. Depending on specific

usage, it may stand forFree On Board orFreight On Board. FOB specifies which

party (buyer or seller) pays for which shipment and loading costs, and/or where

responsibility for the goods is transferred. The last distinction is important for

determining liability for goods lost or damaged in transit from the seller to the

buyer.

Precise meaning and usage of "FOB" can vary significantly. International shipments

typically use "FOB" as defined by the Incoterm [International Commercial Terms]

Standards, where it always stands for "Free On Board". Domestic shipments within

the US or Canada often use a different meaning, specific to North America, which is

inconsistent with the Incoterm standards.

OR

A term of price in which the seller covers all costs and risks upto the point whereby

the goods are delivered on board the ship in a designated shipment [export] port, and

the buyer bears all costs and risks from that point on.

This means that the buyer is responsible for the insurance and freight expenses in

transporting goods from the shipment port to the destination port.
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F.A.S.:

"Free Alongside Ship" means that the seller fulfils his obligation to deliver when the goods

have been placed alongside the vessel on the quay or in lighters [a flat-bottomed open cargo

boat or barge, used especially for taking goods to or from a larger vessel when it is being

loaded or unloaded] at the named port of shipment. This means that the buyer has to bear all

costs and risks of loss of or damage to the goods from that moment.

The FAS term requires the buyer to clear the goods for export. It should not be used when the

buyer cannot carry out the export formalities either directly or indirectly.

OR

A term of price in which the seller covers all costs and risks up to the side of

the ship in a designated shipment [export] port. The buyer bears all costs and

risks thereafter.

C.I.F.:

CIF is a term of price in which the seller covers costs of the goods, insurance, and alltransportation and miscellaneous charges to the named foreign port in the country of

final destination.

OR

"Cost, Insurance and Freight" means that the seller delivers when the goods pass the ships rail

in the port of shipment. In other words, the seller must pay the costs and freight necessary

to bring the goods to the named port of destination. BUT the risk of loss of or damage tothe goods, as well as any additional costs due to the events occurring after the time of

delivery, are transferred from the seller to the buyer.

However, in CIF the seller also has to procure marine insurance against the buyers risk

of loss of or damage to the goods during the carriage. Consequently, the seller contracts


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for insurance and pays the insurance premium. The buyer should note that under the

CIF term, the seller is required to obtain insurance only on minimum cover .

Should the buyer wish to have the protection of greater cover, he would either need to agree as

much expressly with the seller or to make his own extra insurance arrangements. The CIF term

requires the seller to clear the goods for export. This term can be used only for sea and inland

waterway transport. If the parties do not intend to deliver the goods across the ships rail, the

CIP term should be used.

Incoterms: CIP Carriage and Insurance Paid

ToCIP Carriage and Insurance Paid to is anincoterm that is commonly confused with CIF. Toomany companies are using CIF for air shipments andother modes of transport when what they reallyshould be using is CIP. CIP, unlike CIF, can be usedfor any kind of shipment. CIP is very similar to CIF in

that it includes insurance as well as cost and freight.

In CIP, the seller/exporter arranges for the goods tobe delivered to the named port of destination. Here,the sellers risks do not end until the moment thegoods have been delivered to the carrier, buttypically do not end until the carrier reaches theagreed destination.

Because this incoterm can be used for any mode oftransport, a carrier in this case could be a steamshipline, a trucker, a railroad, or a freight forwarder.


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The seller is responsible for all costs until the goodshave been delivered to the named port ofdestination.

In this case, the named port of destination isdomestic to the buyer, meaning that the named portmust be a port in the buyers country, howeverunlike other similar incoterms the named port ofdestination is not necessarily the final delivery point:it could be, but it could also be an agreed upon pointat the port of destination. So if you were selling

cherries to Thailand, for example, you would use theterm CIP, Carriage and Insurance Paid to LaemChabang Port, Thailand however Laem Chabangmight or might not be the final delivery point at theport of destination.

Under CIP terms, the sellers risks end the momentthe goods are delivered to the carrier, but typically

do not end until the carrier reaches the agreeddestination. The seller is responsible for all costs upto the named port of destination :

Sellers Responsibilities:

1) Produces the goods and commercial documentsas required by the sales contract.

2) Arranges for export clearance and all exportformalities.

3) Arranges and pays for all costs for the


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transportation including insurance of the goodsup to the agreed point in the named port ofdestination.

4) Assumes all risk to the goods (loss or damage)only up to the point they have been handed over tothe carrier, typically, but not always, ending whenthe carrier reaches the agreed destination.5) Seller must advise the buyer that the goods havebeen delivered to the carrier.

6) Seller has to provide the buyer with transportdocuments that will allow the buyer to takepossession of the goods at the agreed point in thenamed port of destination.

Buyers Responsibilities:

1) Buyer must pay for the goods as per the salescontract.

2) Buyer must obtain all commercial documentation,licenses, and authorizations required for import andarrange for import clearance and formalities at ownrisk and cost.

3) Buyer takes delivery of the goods after they havebeen delivered by the seller to the agreed point inthe named port of destination.


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4) Buyer must assume all risks for the goods fromthe time the goods have been handed over to thecarrier, typically, but not always, ending when thecarrier reaches the agreed destination.

SPECIAL NOTE: While the seller is obligated to insurethe goods, the buyer may have a vested interest inthe goods during the voyage. It may be a wisedecision for the buyer to purchase additionalinsurance coverage in the case of a loss.

5) Buyer pays for all costs of transportation, importcustoms formalities and duty fees, and all otherformalities and charges related to the transportationof the shipment from the time the goods have beendelivered to the agreed point in the named port ofdestination.

6) Buyer would accept the sellers transportdocuments provided they conform with the salescontract and will allow the buyer to take possessionof the goods after delivery to agreed point in thenamed port of destination.

C & F:

The seller/supplier agrees to contract the freight and pay cost and freight for

loading the goods, cleared for export, on board a vessel and the charges to ship

the goods to destination. The buyer bears the risk of goods from the time they


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pass the ships rail at the port of shipment and pay for the insurance coverage, and

for the unloading costs at the port of destination.

OR

C & F is similar to CIF, except that the buyer purchases and bears the insurance.

Key Documents in Exporting:

Export Managers should also be familiar with the key

documentation in exporting.

The universal key documents frequently used include

[a] L/C [Letter of Credit]

[b] B/L [Bill of Lading]

[c] Bank Draft

[d] Commercial Invoice

[e] Packing List[f] Insurance Certificate

[g] GSP [Generalized System of Preferences]

otherwise called as Certificate of Origin.

[a] Letter of Credit [L/C]:


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A Letter of Credit [L/C] is a contract between an importer and a bank that

transfers liability for paying the exporter from the importer through the

importers bank.

OR

A letter of credit is a document that a financial institution or similar party issues

to a seller of goods or services which provides that the issuer will pay the seller

for goods or services - the seller delivers to a third-party buyer. The issuer then

seeks reimbursement from the buyer or from the buyer's bank. The document

serves essentially as a guarantee to the seller that it will be paid by the issuer ofthe letter of credit regardless of whether the buyer ultimately fails to pay. In this

way, the risk that the buyer will fail to pay is transferred from the seller to the

Letter of Credit's issuer.

Letters of credit are used primarily in International Trade for large transactions

between a supplier in one country and a customer in another. In such cases, the

International Chamber of Commerce Uniform Customs and Practice forDocumentary Credits applies (UCP 600 being the latest version). The parties to a

Letter of Credit are the supplier, usually called the beneficiary, the issuing bank,

of whom the buyer is a client, and sometimes an advising bank, of whom the

beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be

amended or canceled without the consent of the beneficiary, issuing bank, and

confirming bank, if any. In executing a transaction, letters of credit incorporate

functions common to traveler's cheques.

Different types of Letter of Credit
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It is said to the credit which buyer assigns is so that he imports a product to his own

country and in general this credit is in another country and its value is export value.

Revocable Letter of Credit

In this type of credit buyer and the bank which has established the LC, are able to manipulate

the letter of credits or make any kinds of corrections without informing the seller and getting

permissions from him. This type of LC is not used a lot.

1. Irrevocable LC

In this type of LC, any kinds of change and manipulations from the buyer part and the

establisher bank require the permission and satisfaction of seller part.

2. Confirmed LC

They are the guaranties that buyer will be given so that, the buyer will give the guaranty from

his own bank to any other valid bank that the seller will desire it.

3. Unconfirmed LC

This type of letter of credit, does not acquire the other bank's confirmation.

4. Transferrable LC

It is said to the credit that the seller can give a part or parts of credit (Completely) to the person

or persons he decides. This type of credit is a benefit for seller.

5. Untransferable LC
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It is said to the credit that seller cannot give a part or completely right of assigned credit to

somebody or to the persons he wants. In international commerce, it is required that the credit

will be untransferable.

6. Usance LC

It is kind of credit that won't be paid and assigned immediately after checking the valid

documents but paying and assigning it requires an indicated duration which is accepted by

both of the buyer and seller. In reality, buyer will give an opportunity by the seller to pay the

required money after taking the related goods and selling them.

At Sight LC

It is a kind of credit that the announcer bank after observing the carriage documents from the

seller and checking all the documents immediately pays the required money.

Red Clause LC

In this kind of credit assignment seller before sending the products can take the pre-paid and

parts of the money from the bank. The first part of the credit is to attract the attention acceptor

bank. The reason why it named so, is that the first time this credit is established by the assigner

bank, to take the attention of the offered bank, the terms and conditions were written by redink, from that time it became famous with that name.

[b] Bill of Lading [B/L]:

A Bill of Lading [B/L] is a Document issued by a shipping

company or its agent as evidence of a contract for shipping the

merchandise and as a claim to ownership of the goods.

OR
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A bill of lading (sometimes abbreviated as B/L orBOL) is a document issued by

a carrierwhich details a shipment ofmerchandise and gives title of that shipment to a

specifiedparty. Bills of lading are one of three important documents used in international

trade to help guarantee that exporters receive payment and importers receive merchandise.

Astraight bill of ladingis used when payment has been made in advance of shipment and

requires a carrier to deliver the merchandise to the appropriate party. An order bill of ladingis

used when shipping merchandise prior to payment, requiring a carrier to deliver the

merchandise to the importer, and at the endorsement of the exporter the carrier may transfer

title to the importer. Endorsed order bills of lading can be traded as a security or serve

as collateral against debt obligations.

Bills of lading have a number of additional attributes, such as on board, received-for-shipment,

clean, and foul. An on-board bill of lading denotes that merchandise has been physically

loaded onto a shipping vessel, such as a freighter or cargo plane.

A received-for-shipment bill of lading denotes that merchandise has been received, but is not

guaranteed to have already been loaded onto a shipping vessel. Such bills can be converted

upon being loaded.

A clean bill of lading denotes that merchandise is in good condition upon being received by

the shipping carrier, while a foul bill of lading denotes that merchandise has incurred damage

prior to being received by the shipping carrier. Letters of credit usually will not allow for foul

bills of lading.

[c] Bank Draft:

A cashier's check(cashier's cheque, banker's cheque, bank cheque, official

cheque, demand draft, teller's cheque, bank draft ortreasurer's cheque) is

a checkguaranteed by a bank. They are treated as guaranteed funds and are usually cleared the

next day. It is the customer's right to request "next-day availability" when depositing a

cashier's check in person. Most banks do not clear them instantly. However, banks are

permitted to take back money from a "cleared" check one or two weeks later if subsequent
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processing finds it to be fraudulent. Because customers believe the checks have been found

valid and have been converted to cash in hand, customers are readily defrauded by schemes

that ask them to part with goods or a portion of the money if it is cleared in a timely manner.

Why might I need a bank draft?

If you intend to make a large purchase such as a car, the seller may ask for the purchase price

to be paid by bank draft. This can be useful because the person to whom it is made out has the

advantage of knowing that it will almost certainly be paid.

Provided the draft is genuine and has not been lost or stolen, payment will be guaranteed (if it

is fraudulent or conterfeit it will not be paid). This is important if you are selling valuable

goods or exchanging valuable documents e.g. cars or houses.

What is a bank draft?

It may look, at first glance, like a cheque but it is drawn on a banks head office. Be aware that:

It may require two signatories (but not always, some require only one). These will

generally be bank managers;

The bank issuing the draft will have its name and possibly a hologram printed on the front

or back of the draft;

It can be for any amount;

The customers name will not appear on the bank draft;

The bank draft will be made out to the person who is to receive the money, not the

customer.

How do I get a bank draft?

A bank will issue a bank draft when asked by a customer (there may be a written application

form which the customer will have to complete) and it will be used for pre-arranged

transactions, e.g. car purchase, house purchase. The customer will be charged a fee. The fee

can be found in the banks tariff of charges.


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The bank which issues the bank draft will check that the customer has the necessary funds

available to cover the amount of the bank draft. The customers account will be debited with

the amount of the draft.

The bank draft should not be altered or amended in any way.

The bank may ensure that draft is crossed and the words account payee not negotiable areadded.

If someone offers me a bank draft, what should I do?

Bank drafts are cheques drawn by a bank usually on its own Head Office. Payment is

guaranteed provided the draft is genuine and has not been lost or stolen. If it is fraudulent or

conterfeit it will not be paid.

Drafts go through the normal clearing process like any other cheque and if you are offered a

bank draft in payment, don't release the goods until you are sure the draft is genuine and has

been paid.

If you are selling a car or similar expensive item, beware of the who turns up without notice

after the banks have closed usually a Friday. If the "buyer" offers a bank draft, already made

out in your name for the full asking price and wants to take the item straight away (usually

he/she says that they live at the other end of the country and are travelling back home that

night or the next day), it is highly likely that you could be the potential victim of a fraud

attempt.

Ask yourself whether the situation seems logical would you for instance go to the trouble of

getting a bank draft to buy an item without even checking its condition or even whether it

was still for sale? Better to have lost a sale rather than the item itself.

There are alternative ways of transferring money, such as via CHAPS same-day electronictransfer of funds between UK banks. This may be more expensive though check with your

bank first about cut-off times for receiving value on the same day. For more details see the

information sheet on Understanding the Cheque Clearing Cycle (see link below).


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Be aware that not all banks use identical wording and there may be small variations. If in

doubt, check with your bank.

[d] Commercial Invoice:

A commercial invoice is a document used in foreign trade. It is used as a customs declaration

provided by the person or corporation that is exporting an item across international borders.

Although there is no standard format, the document must include a few specific pieces of

information such as the parties involved in the shipping transaction, the goods being

transported, the country of manufacture, and the Harmonized System codes for those goods. A

commercial invoice must also include a statement certifying that the invoice is true, and a

signature.

A commercial invoice is used to calculate tariffs, international commercial terms (like the Cost

in a CIF) and is commonly used for customs purposes.

Commercial invoices are in European countries not normally for payment. The

definitive invoice for payment usually has only the words "invoice". This invoice can also be

used as a commercial invoice if additional information is disclosed.

[e] Packing List

A shipping list, packing list, waybill,packing slip (also known as a bill of parcel, unpacking

note,packaging slip, (delivery) docket, delivery list, manifest orcustomer receipt),[1][2][3]is

a shippingdocument that accompanies delivery packages, usually inside an attached shipping

pouch or inside the package itself. It commonly includes an itemized detail of the package

contents and does not include customer pricing. It serves to inform all parties, including

transport agencies, government authorities, and customers, about the contents of the package.

It helps them deal with the package accordingly.
http://en.wikipedia.org/wiki/Foreign_tradehttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Harmonized_Systemhttp://en.wikipedia.org/wiki/Tariffshttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Packing_listhttp://en.wikipedia.org/wiki/Waybillhttp://en.wikipedia.org/wiki/Packing_sliphttp://en.wikipedia.org/wiki/Packaging_sliphttp://en.wikipedia.org/wiki/Ship's_manifesthttp://en.wikipedia.org/wiki/Customer_receipthttp://en.wikipedia.org/wiki/Shipping_list#cite_note-0http://en.wikipedia.org/wiki/Shipping_list#cite_note-1http://en.wikipedia.org/wiki/Shipping_list#cite_note-1http://en.wikipedia.org/wiki/Shipping_list#cite_note-2http://en.wikipedia.org/wiki/Shippinghttp://en.wikipedia.org/wiki/Documenthttp://en.wikipedia.org/wiki/Package_deliveryhttp://en.wikipedia.org/wiki/Foreign_tradehttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Harmonized_Systemhttp://en.wikipedia.org/wiki/Tariffshttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Packing_listhttp://en.wikipedia.org/wiki/Waybillhttp://en.wikipedia.org/wiki/Packing_sliphttp://en.wikipedia.org/wiki/Packaging_sliphttp://en.wikipedia.org/wiki/Ship's_manifesthttp://en.wikipedia.org/wiki/Customer_receipthttp://en.wikipedia.org/wiki/Shipping_list#cite_note-0http://en.wikipedia.org/wiki/Shipping_list#cite_note-1http://en.wikipedia.org/wiki/Shipping_list#cite_note-2http://en.wikipedia.org/wiki/Shippinghttp://en.wikipedia.org/wiki/Documenthttp://en.wikipedia.org/wiki/Package_delivery


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A packing list accompanies the international shipment and is used to inform transportation

companies about what they are moving as well as to allow the customer and others involved in

the transaction to check what has been shipped against the proforma invoice. It is a good

safeguard against shipping incorrect cargo!

To prepare your packing list, delete all the prices on the invoice and double-check to see that

the number of cases, weight (net, gross, metric) and measurements appear on the invoice. Then

rename the document "PACKING LIST" in big, bold letters and you're all set. Never substitute

a packing list for a commercial invoice.

Your freight forwarder, customs broker, bank and customer should indicate how many copies

they will need, and where each copy will need to be attached and distributed, some weeks inadvance. I always make 3-4 extra copies for my file just in case.

If you take care of your shipment documentation online, select the packing list option todownload and, check with all parties involved in the international sale to determine if yourpacking list needs to be signed.

[f] Insurance Certificate:

Definition:

A document issued by an insurance company/broker that is used to verify the existence of

insurance coverage under specific conditions granted to listed individuals. More specifically,

the document lists the effective date of the policy, the type of insurance coverage purchased,

and the types and dollar amount of applicable liability.

A certificate of insurance is often demanded in situations where liability and large losses are a

concern. For example, a company wishes to hire a driver from a temp agency. The company

will most likely ask the agency to show them a certificate of insurance that proves that certain

liabilities will be covered by insurance in the event the driver causes problems, such as

incurring damages from driving the companys vehicles.
http://importexport.about.com/od/InternationalDocumentation/International-Documentation.htmhttp://importexport.about.com/od/InternationalDocumentation/International-Documentation.htm


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CERTIFICATE OF INSURANCE:

WHAT YOU SHOULD KNOW

1.Producer: The Producer is the insurance broker or agent representing the insured thatprocured the insurance coverage for the insured entity.

2. Insured: The Insured is the entity that has purchased the insurance coverages that arestated on the Certificate of Insurance and is considered the first named insured.

3. This Certificate is issued as a matter of information only and confers no rights upon the

Certificate Holder. This Certificate does not amend, extend or alter the coverage afforded bythe policies below: This statement expresses that the intent of a Certificate of Insurance ismerely to show the Certificate Holder that the insured has purchased the insurance coveragesstated on the Certificate. However, it also indicates that the Certificate Holder has no legalright to be covered by the insurance in place. The statement also indicates that regardless ofwhat the Certificate states, the only coverage terms and conditions that are applicable are thosestated on the actual insurance policies. The Certificate cannot legally change or alter the actualinsurance policy.

4. Companies/Insurers Affording Coverage: This section is used to identify the insurancecompanies issuing the polices stated below and put an alphabetical identification on each

insurance company to assist in determining what insurance company is issuing what policies.5. Coverages: This statement conveys that the insurance policies listed below were issued tothe insured and that all insurance provided to the insured is subject to the normal policyterms, exclusions and conditions. It also states that the limits of coverage shown may actuallybe lower due to claims already paid out during the stated policy period.

6. General Liability: General Liability is provided for protection from liability arising out ofthe insureds premises or operations, products and completed operations.

7.Commercial General Liability or CGL is the current proper name for General Liabilitycoverage exposures arising out of a business operation.

8. Claims-made and Occurrence are two types of general liability coverage forms. The

difference in the two forms is in the event that triggers coverage. In an occurrence formpolicy, coverage is provided for occurrences taking place during the policy period, regardlessof when an actual claim is made or reported. With a claims-made policy, the occurrence musthave taken place during the policy period and the claim must also be made or reported duringthe policy period for coverage to be afforded.

9. Policy Number should be stated to assist in accessing the needed coverage if a claim

should arise [will apply for all the policies]


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10. The Policy Effective and Expiration Dates inform you when a policy begins and ends.

It is important to be sure that performance on the contract be within the policy period.

11. Medical Expenses (any one person) is a no fault medical expense coverage provided to

third parties injured on premises you own, rent, or on ways next to these premises or

injured because of your operations.

12. The General Aggregate is the most an insurance policy will pay in a given policy period,regardless of the number of insured or claims.

13. Fire Damage (any one fire) is the most the liability policy will pay for a fire that you arelegally liable for in premises you lease or rent that are in your care, custody and control.

14. Automobile Liability: Coverage is provided for protection from liability arising out ofnegligent operation, maintenance or use of a covered auto, which results in bodily injury orproperty damage to a third party.

15. Garage Liability: Coverage provided to auto service facilities for damage to customer'svehicles in their care, custody and control.

16. Excess Liability: Liability coverage provided in addition to or on top of the primarygeneral liability policy as stated in number 6.

17. Workers Compensation and Employers Liability: Coverage is provided to coverliability arising out of employee injuries/diseases occurring in the course and scope of theiremployment.

18. Certificate Holder: Entity to which the Certificate of Coverage is issued.

To have access to the liability policies of the contractors, the Certificate Holder must also benamed as an additional insured on the actual insurance policy.

19. Cancellation: This clause states the amount of written notice that the insurance

companies will "endeavor" to provide to the Certificate Holder on cancellation of the policies.This section goes on to say that the insurance company will not be liable if the notice is notgiven.

20. Authorized Representative: The insurance company or producer/broker who has beenauthorized to sign the Certificate.

[g] Generalized System of Preferences [GSP]:

1. What is GSP?

The Generalised System of Preferences (known as GSP for short) is a scheme whereby a widerange of industrial and agricultural products originating in certain developing countries aregiven preferential access to the markets of the European Union.

Preferential treatment is given in the form of reduced or zero rates of customs duties.


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The GSP scheme is specifically designed to benefit certain developing countries and integratethem into the world economy.

2. What conditions must be met for obtaining preferential

treatment?Certain products on importation into the EU are eligible for reduced or zero rates of customsduties provided that they:

are eligible for preference under the GSP scheme;

qualify as originating products under the rules of origin set down in the Community

Customs Code Implementing Provisions. are accompanied by a valid Certificate of Origin Form A and relevant transport

documents are transported directly from the GSP country to the EU (commonly referred to as the

Direct Transport Rule).

3. What countries are eligible to benefit under GSP?

Three distinct categories of countries can benefit under the GSP scheme provided the goodsare produced in accordance with the relevant rule of origin

Developing countries/territories enjoy preferential access to EU markets

Least developed developing countries (LDDC) benefit from zero duty on import into

the EU for all products of Chapters 01- 97 with the exception of Chapter 93. Special incentive arrangement for sustainable development and good governance -

GSP+

4. What goods are eligible for preference?

Details of eligible products have been given in the EU legislation governing the GSP scheme.Regulation No. 732/2008 as amended by Regulation No. 512/2011 applies GSP to 31December 2013.

5. Where can I find out the preferential rates of duty

available under the GSP scheme?Rates of duty are available in the Taric database at:http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&Screen=0&redirectionDate=20110530

6. How do goods qualify as originating products?
http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&Screen=0&redirectionDate=20110530http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&Screen=0&redirectionDate=20110530http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&Screen=0&redirectionDate=20110530http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&Screen=0&redirectionDate=20110530


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The concept of "originating product" forms the basis upon which preferential access is grantedto products entering the EU under GSP. Products are considered as originating in two ways:

Products wholly obtained in a GSP country

Products considered to be originating in a GSP country when the raw materials used

are sufficiently worked or processed. The GSP scheme provides rules of origin toensure that this condition is satisfied. Each product has a specific origin rule which canbe found the Customs Code Implementing Provisions.

7. What is a Certificate of Origin Form A?

A Certificate of Origin Form A is the documentary evidence required to claim preferentialtreatment (reduced or zero rate of duty) on importation into the EU.

The Form A is issued by the competent governmental authority in the exporting country and isprovided by the exporter to the importer in the EU. It will normally accompany the goods.

The Form A can only be issued when the goods to which it relates are originating productswithin the meaning of the GSP scheme.

8. Has a Form A a specific validity period?

Yes, the Form A must be submitted, to the customs authority of the importing Member State,within 10 months of the date of issue.

However, the customs authority in the Member State may accept a Form A which has passed

its expiry date where failure to observe the time limit is due to forced or exceptionalcircumstances.

9. What if a Form A is not issued at the time of

exportation?

In exceptional circumstances, a Certificate of Origin Form A may be issued after the actualexportation of the goods to which it relates. In this case, the competent authority in theexporting country must endorse Box 4 of the Form A with the words "Issued Retrospectively".

10. What if a Form A is lost, destroyed or stolen?

In the event of theft, loss or destruction of a Form A, the exporter may apply to the competentauthority for a duplicate to be issued. In this case, Box 4 of the duplicate Form A must bear the


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endorsement "Duplicate", together with the date of issue and the serial number of the originalcertificate. The duplicate shall take effect from the date of the original.

11. When are Replacement Certificates of Origin Forms A

issued?On occasions where parts of a consignment of goods imported from a GSP country aredestined for different Member States, a replacement Form A may be issued by the customsauthority in the first Member State of entry into the EU.

12. What is the Direct Transport Rule/Non-Manipulation

Rule?

This requires that the products declared for release for free circulation in the EU must be the

same products as were exported from the GSP beneficiary country in which they areconsidered to originate. They must not have been altered, transformed in any way or subjectedto operations other than operations to preserve them in good condition, prior to being declaredfor release for free circulation. Storage of products or consignments may take place wherecarried out under the responsibility of the exporter or of a subsequent holder of the goods andon the condition that the products remain under customs supervision in the country(ies) oftransit.

13. What documentary evidence may be required to show

Direct Transport/Non-Manipulation?

Goods will automatically be deemed to have met the non-manipulation requirement unlesscustoms has reasonable doubts about compliance with the requirement. In such cases importerswill be required to produce evidence of compliance. This may be given by any documentationwhich shows that the imported goods left the GSP country in which they are considered tooriginate and that they are the same goods as left that country.

Customs will only ask for evidence of compliance with the non-manipulation requirementwhere they have doubts as to whether the goods are the same as those which left the GSPbeneficiary country concerned, or doubts as to whether the goods left that country in the firstplace.

The evidence which will be required must demonstrate that the goods imported are the same asthose which left the GSP beneficiary country. It can for example, take the form of:

a purchase order/contract with the supplier in the GSP beneficiary country together

with a transport/shipping document/contract - bill of lading - showing that the goods were

loaded in and transported from the GSP beneficiary country concerned. If the goods


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were transported from the beneficiary on for example, a feeder vessel and thenconsolidated with other consignments in a seaport en route to the EU there should be atransport document (bill of lading) for each leg of the journey. A document whichsimply covers the leg from the consolidating port to the EU will not suffice as it willnot show that the goods left the GSP beneficiary country for which preference is being

or has been claimed.

14. What evidence is required to comply with the direct

transport rule for Chinese goods transiting through

Hong Kong ?

Any of the following may be regarded as evidence of compliance with the direct transport rulewhere Chinese goods are transhipped via Hong Kong:

a Bill of Lading issued in China, which covers the transport through Hong Kong

accompanied by a certificate of origin, Form A or a Form A endorsed by the China Inspection Company Limited (CICL) stamp in box

4,or a certificate of non-manipulation issued by the CICL when the Form A is sent directly

to the EU by mail.

15. Are any countries excluded from GSP?

Certain countries have been excluded from the scheme due to trade developments. Theseinclude Singapore, Hong Kong and South Korea.

16. Are there any opportunities for EU exporters under

GSP?

The scheme only provides preferential access on importation into the EU. It does not provide

for preferential access into third country markets. However, it is possible for exporters to sendraw materials and semi-finished products which originate in the EU to GSP countries undercumulation provisions.

The cumulation provisions of the GSP enable originating materials exported from the EU to beregarded as materials originating in GSP countries when incorporated into a finished productthere. The EU materials must be produced in accordance with the rules of origin laid down inthe GSP scheme and must be accompanied by an EUR.1 certificate when exported.


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The cumulation provisions encourage GSP countries to source raw materials in the EU as itmakes it easier to satisfy origin criteria.

17. Is there any provision for regional cumulation in the

GSP arrangements?In certain circumstances, various beneficiary countries have been grouped together for thepurposes of cumulation of origin under GSP. Cumulation is a term used to indicate the basisupon which a product may enjoy originating status, even though the normal origin rules wouldnot confer origin on the basis of the work done in the country of last processing. Productsmanufactured in a beneficiary country which is a member of a regional group, may be furtherprocessed in another beneficiary country of the same group and will be treated as if theyoriginate in the country of further manufacture.

GSP Regional Groups:

Group I - Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Philippines,

Singapore, Thailand, Vietnam. Group 2 - Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala,

Honduras, Nicaragua, Panama, Peru, Venezuela. Group 3 - Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka.

Group 4 - Argentina, Brazil, Paraguay, Uruguay.

INDIRECT EXPORT [OR] INDIRECT EXPORTING

Indirect export occurs when the exporting manufacturer usesindependent organizations located in the producers country.

In addition, the producer may have a dependent exportorganization (for example an Export Department) that works with theindependent marketing organizations and co-ordinates the entire exporteffort.


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In this situation the dependent organization does not activelyengage in any international sales activates.

There are two broad alternatives available to the manufacturer

wanting to export indirectly:

(1) Using International Marketing Organizations, and

(2) Exporting through a Co-operative Organization.

MARKETING ORGANIZATIONS:

In export marketing, there are two basic types of independentwholesale marketing intermediaries:

I. MERCHANTS, ANDII. AGENT

The basic distinction between the two is that the Merchant takesownership of the products to be sold, while the Agent does not.

HOME-COUNTRY BASED MERCHANTS:

A] EXPORT MERCHNTS:

The domestic-based export merchant buys and sells on its ownaccount. Generally engaged in both exporting and importing, it operates in amanner similar to a regular domestic wholesaler.

When this type of marketing organization is used in an export marketingchannel, the marketing job for the manufacturer is reduced to essentiallydomestic marketing.


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All aspects of the international marketing task are handled by thismerchant, except for any needed modifications in such things as the productitself, its package, or in the quantity included in the unit package to meet anyspecial needs of individual overseas markets.

This also includes selecting the channels within foreign markets as well asactivates relating to sales, marketing, merchandising, advertising, delivery, andservices.

The Export Merchant Company is free to choose what it will buy, where itwill buy, and at what prices. The same freedom exists for sales.

This type of company may have a far-flung organization that may include

Branch Houses, Warehouses, Branch Offices, Docks, Transportation Facilities,Retail Establishments, and even Industrial Enterprises in Foreign Markets served.

As a consequence, the Export Merchant is likely to be a powerfulCommercial Organization, well able to exist without the co-operation of the

products of any one manufacturer or any one group of manufacturers.

In some instances this type of enterprise dominates the trade of certainlocalities or even certain nations.

Limitations:

There are some potential limitations to using export merchants.

Firstly, they may not be available for all markets. Export Merchants are

principally interested in staple [main, principal] commodities, which aregenerally open-market items not subject to a high degree of identification by the

producer; and they are reluctant to undertake the development details andexpense of the introduction and sale of any article that approaches the status of aspecialty and which might require a considerable amount of sales effort.


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The Export Merchant, occupying so commanding a position, is usuallyunwilling to allow the manufacturer much more than a manufacturing profit onany merchandise.

The Export Merchant feels that he or she meets any terms of payment themanufacturer demands; that he or she performs every function connected withmarketing and selling; and,

Finally, that he or she has all the manufacturers of a given line to choosefrom, since their importance in the market gives them command of the outlets forany products that they may care to sponsor.

B] TRADING COMPANY

In many countries Export Merchants known as Trading Companies arequite common.

Different types of trading companies have been identified, as shownbelow:

DIFFERENT TYPES OF TRADING COMPANIES:

Although international trading companies based in Brazil, Hong Kong,South Korea, Taiwan, Thailand, Turkey, and other countries, including some inEurope, have been active throughout the world, it is in Japan that the TradingCompany concept has been applied most effectively and perhaps most uniquely.

There are thousands of trading companies in Japan that are involved inexporting and importing, and the largest firms (varying in number from 9 to 17depending upon source of estimate) are referred to as general trading companiesor sogo shosha.

This group of companies, which includes Mitsui & Co., Ltd., MitsubishiShoji Kaisha, Ltd., and Marubeni, handle a large share of Japans Exports andImports.


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While the Smaller Trading Companies usually limit their activities toForeign Trade, the Larger General Trading Companies are also heavily involvedin domestic distribution and other activities.

The Japanese General Trading Companies are engaged in a far wider rangeof Commercial and Financial activities than simply trade and distribution. Theyalso play a central role in such diverse areas as shipping, warehousing, finance,technology transfer, planning, resource development, construction and regionaldevelopment (e.g., Turnky Projects), insurance, consulting, real estate, and dealmaking in general (including facilitating investment and joint venture of others).

In fact, it is the range of Financial Services offered that is a major factordistinguishing General Trading Companies from others.

These services include the guaranteeing of loans, the financing of bothaccounts receivable and payable, the issuing of promissory notes, major foreignexchange transactions, equity investment, and even direct loans.

The sogo shosha differ from multinational corporations chiefly in that theirwider-ranging investments are all in some way directly connected with trade,with the broad aim of stimulating international business.

They also differ from other companies in that they are not necessarily useror manufacturer oriented.

Rather, they are for supply/demand for goods or services, the sogo shoshalook for ways to supply it, either taking the intermediary role in trade deals

between a numbers of parties or independently directing the flow of trade.

To an extent, these actions have been in response to the increased directexport activities of Japanese Manufacturers such as Toyota, Hitachi, and Sony.

Some of the general trading companies, including C. Itoh & Co.,

Mitsubishi International Corporation, and Mitsui & Co., have established GlobalSales Networks consisting of branch offices overseas or wholly ownedsubsidiaries.

For example, in Canada and the United States, the subsidiary approachhas often been used. C. Itoh America itself has more than 20 subsidiaries and


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affiliates in the United States it imports Mazada and Isuzu automobiles,exports Beechcraft airplanes, and manufactures chain link fence and piping.

As another example of the far-reaching impact of trading companiesconsider Jardine Matheson, the oldest trading company, or Hong, based in HongKong (but legally domiciled in Bermuda).

The group of companies is all over Asia, engaging in such activites astrading per se [by itself, for itself], retailing, hotel development andmanagement, vehicle distribution, merchant banking, and mutual fundmanagement. Unlike Japan, in the past trading companies in Hong Kong havenot been directly influenced by government policy.

With Hong Kong now a Special Administrative Region (SAR) of China,

Hong Kong-based trading companies, particularly the now foreign-owned onessuch as Jardine Matheson, have to be sensitive to the effects that their decisionsmight have on the PRC government in Beijing. Operations in Hong Kong as wellas China itself might be affected.

China was upset by such actions prior to the handover on 30 June 1997as Jardines moving its legal home to Bermuda and its delisting of its stock fromthe Hong Kong Stock Exchange and move to Singapore.

One result has been the delays in projects. The situation for Jardine hasimproved since the Managing Director made a public apology in early 1997 thatJardine regretted any offense caused in China by its actions.

Trading companies, whether the very largest from Japan or thoseincreasingly emerging from such countries as South Korea, Brazil, countrieswithin Europe or the United States, should be of concern to all export marketers.

First, they may be necessary for market entry. This would include directexport by the export marketer as well as indirect export. It may be that in order to

penetrate, say, the Japanese Market - the direct exporter would have to dobusiness with a Japanese Importing Trading Company.

Second, since trading companies appear throughout the world they may becompetitors to the export marketer. It is quite obvious that a trading company can

be a very formidable competitor.


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Consequently, strategies may have to be changed in those markets wheretrading companies are major competitors.

Ellis (2003) discusses how Trading Companies or what he callsInternational Trading Intermediaries contribute to the economic development ofhost countries. This applies to both new foreign markets and offshore sources ofsupply.

Three distinct contributions are identified:

The efficiency of distribution in an economy is improved by minimizing

costs incurred in overcoming barriers to trade i.e., transaction costs are

lowered.

Productivity may be increased by opening new markets and finding new

sources of supply. This creates international exchanges where none existed

before.

Marketing technology and credit may be introduced into local distribution

a channel, which is known as a catalytic contribution.

C] EXPORT DESK JOBBER:

One type of Export Merchant often helpful to manufacturers deservesspecial note. This is the Export Desk Jobber, who, because of the method ofoperation, is also known as an Export Drop Shipper, and may be called aCable Merchant.

Used primarily in the international sales of raw materials, the Desk

Jobbers never see or physically acquire the goods that they buy and sell.

In all other respects, however, the Desk Jobber operates as a regular exportmerchant, except that goods are typically owned for a very short time.

The manufacturer using this type of export merchant comes a little closerto direct export in that he or she is responsible for the physical movement


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(including documentations requirements) of his or her products to the DeskJobbers Customer.

For example, a company in the United States may negotiate a sale ofmercury to a buyer in Japan from a supplier in Spain. Title moves from theSpanish supplier to the US firm and then to the Japaneses buyer.

Actual shipment will be directly from Spain to Japan.

Export Desk Jobbers are Specialists in knowing sources of supply andmarkets. They relieve the producer of the problem and risk of determining thereliability of the purchaser.

However, they are not conducive to the establishment of continuous

markets for a manufacturers product. They simply conduct business too quicklyfor there to be any permanent market relationship.

HOME-COUNTRY BASED AGENTS:

There are several distinct types of Wholesaler Agents located in theCountry of Export who are potentially available as Members of a ManufacturersExport Marketing Channel. When such an agent is used, the manufacturergenerally assumes all financial risks.

A] Export Commission House:

The Export Commission House (Export Buying Agent) is a representativeof foreign buyers who resides in the exporters home country.

As such, this type of agent is essentially the overseas customers hiredpurchasing agent in the exporters domestic market, operating on the basis of

orders or indents (offers to purchase under conditions stipulated by theprospective buyer, including the price to be paid) received form these buyers.

Since the Export Commission House acts in the interests of the buyer,

it is the buyer who pays a commission.


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The exporting manufacturer is not directly involved in determining

the terms of purchase; these are worked out between the commission house

and the overseas buyer.

The Export Commission House essentially becomes a domestic buyer .It scans the market for the particular merchandise that it has been requested to

buy.

It sends out specifications to manufacturers inviting bids. Otherconditions being equal, the lowest price gets the order and there is nosentimentality, friendship, or sales talk involved.

From the exporters point of view, selling to Export Commission

Houses represents an easy way to export.

Prompt payment is usually guaranteed in the exporters home

country, and the problem of physical movement of the goods is generally

taken completely off its hands.

There is very little credit risk and the exporter has only to fill the

order, according to specifications.

A major problem is that the exporter has little direct control over the

international marketing of products.

B] Confirming House:

The basic function of a Confirming House is to assist the Overseas

Buyer by confirming, as a principal, orders already placed, so the exporter

may receive payment from the confirming house when the goods are

shipped.


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Some exporters may believe that Confirming Houses should be

classified as Financial Institutions and not as a type of Marketing

Organizations. However, the Confirming House, even if it does, still

performs all the functions.

The Confirming House is not a common type of export enterprise

everywhere in the world, but it is in Europe, particularly in the United

Kingdom.

The confirming house interposes its credit between the buyer in the

importing country and the exporter or manufacturer in the exporting

country. It finds its greatest usefulness in those markets where credit

conditions are uncertain or where the cost of money is high.

In addition to the payment aspects, the Confirming House may also beinvolved in making arrangements for the shipper.

Typically, all contacts between buyer and exporter would go through

the Confirming House.

Due to the functions that it performs, its greatest users would be small andmedium-sized companies.

C] Resident Buyer:

Similar in operation to the Export Commission House are resident buyers.Resident buyers represent all types of overseas buyers and are domiciled[resided]in the exporters home market.


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These buyers represent foreign concerns that want to have close andcontinuous contact with their overseas source of supply, and are either sent to themarket or are local people appointed as representative.

Large retailers utilize this type of intermediary extensively.

Thus, retailers such as Galeries Lafayette (France), Harrods (UK), andNordstrom (US) do have Resident Buyers in the clothing centers of Italy, HongKong, China, and whereverelse clothing is produced.

Although the Resident Buyer operates almost exactly like the

Commission House, that is, the buyer places an order, specifies the terms of

sales, handles all shipping matters and other details of the exporting process,

and either pays cash or furnishes the manufacturer with a low-risk means of

financing.

Because Resident Buyers are permanently employed representatives

of foreign buyers, the exporting manufacturer has a good chance to build up

a steady and continuous business with foreign markets.

One advantage of an importer utilizing a Resident Buyer and of theexporter dealing with such a buyer is that any problems that might arise due tolanguage difficulties and cultural and business customs differences areminimized, if not eliminated.

It is especially important for the buyers to be fluent in the language of theexporters country (or have translation help, which is not as desirable as first hand knowledge) and be familiar with the local culture and customs. A residentof the exporters country would have this knowledge.

APT EXAMPLE:

To illustrate what can happen when language is not understood, a

buyer from Italy, who felt she knew English fairly well, was sent to Britain

to purchase clothing. She found some appropriate Sweaters at Bourne &

Hollingsworth, and attempted to order four to five thousand pounds

worth.


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Upon her return to Italy, it became clear that a major

misunderstanding had occurred that delivery of goods was made for forty-

five thousand pounds worth that which she had not actually ordered.

D] Broker:

Another type of home-country based agent is the export/import broker.The chief function of a broker is to bring a buyer and seller together.

Thus the broker is a specialist in performing the contractual function, anddoes not actually handle the products sold or bought. For its services the broker

is paid a commission by the principal.

The broker commonly specializes in particular products or classes ofproducts, usually staple primary commodities such as grains, lumber, rubber,fibers.

Being a commodity specialist, there is a tendency to concentrate on justone many potential export marketers.

This type of agent does not represent a practical alternative channel of

distribution.

The distinguishing characteristic of export brokers is that they may act asthe agent for either the seller or the buyer.

For example, an export broker in the lumber [heavy wood/timber] businessmay be contacted by a saw mill and asked if he or she can dispose of a quantityof lumber of a size and grade not readily salable domestically.

The broker will then get in touch with potential foreign buyers with whomhe or she is acquainted and either offer the lumber to them at a predetermined

price or ask them to make an offer.

When several foreign offers are received, the broker accepts the best offeror relays the information to the saw mill to ascertain whether the price is


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acceptable. When the transaction is successfully concluded the saw mill pays thebrokers fee.

Alternatively, the broker may be contacted by a foreign buyer and asked tosecure quotations on a quantity of a certain size and grade of lumber. Quotationsare then sought from saw mills or any other suppliers based on the category of

products, with which he or she is also acquainted.

If the broker is not authorized to place the order with the mill making thebest quotation, the prices are sent to the foreign buyer for determination whetherthe price is acceptable. When the transaction is concluded successfully, theforeign buyer pays the brokers fee.

Export Management Company [EMC]

Simply defined, an Export Management Company (EMC) is an

International Sales Specialist who functions as the Exclusive ExportDepartment for several allied but non-competing manufacturers.

That is to say, an EMC may serve five sailboat parts manufacturers,

each making a different part.

For the individual manufacturer the EMC is to exporting what

the sales agent is to domestic marketing.

Being the Export Department of several manufacturers, the EMC

conducts business in the name of each manufacturer that itrepresents. All correspondence with buyers and orders are subject toconfirmation by the manufacturer. Different contractualarrangements with principals may be used.

In actual operation, the EMC, in many instances, is perhaps more aManufacturers Distributor or an Export Merchant than aCommission Representative since Export Managers often operate ona buy-and-sell rather than a commission basis.


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Many still work on a straight commission basis, but the majority

today do their own financing, assuming all credit risks abroad andpaying the manufacturer cash for every order.

Thus the EMC often takes over all the risks and problems of exportand the manufacturer just fills the orders.

BENEFITS:

The possible benefits to a manufacturer of using an export managementfirm in the channel of distribution are many.

In the first place, a tailor-made export department is obtained

without adding any extra selling expense. Since this exportdepartment is fully functioning at the time that it is obtained, usingthe EMC is one of the quickest ways for a manufacturer to enterforeign markets, chooses the best type of channel within a noverseas market and usually does its own advertising and

promotion.

Also, the EMC may serve as a shipping and forwarding agent, and

may furnish its principals with legal advice such as patent and

trademark situations.

Second, where a buyandsell arrangement is involved, the

manufacturer receives financing assistance.

Even without buy-and-sell, an EMC is able to collect and furnish

credit information on foreign customers to their principals.

Third, the EMC offers experience, which is important in export

marketing since no two foreign markets are alike.

Being in daily contact with varying conditions in different foreign

markets, the EMC knows which markets are receptive to amanufacturers products and how to sell them in those markets.


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Fourth, specialization can lead to significant benefits. Handling a

wide line of related, but non-competing products can help the salesof each individual product.

If a buyer is interested in buying one product there may also be aneed for other related products. Since many buyers prefer to workwith as few suppliers as possible, the buyer expects that a suppliercan offer a line of products, where EMC plays vital role.

Specialization, of course, exists in degrees.

Thus, if an EMC represents too many manufacturers, selling efforts

may, of necessity, be extensive rather than intensive.

Another potential benefit may be derived through savings on

shipping expenses.

By consolidating orders from different manufacturers into one

shipment, the EMC is a good way for a manufacturer to overcomeany obstacle/barriers.

In-a-nut-shell, it is very clear that using an Export Management

Firm will perhaps be most advantageous to the Small and Medium-Sized Manufacturers / Enterprises.

But, in general, however, these independent agents can provide

valuable export marketing services to any manufacturer that eithercannot afford to set up its own export marketing organization, thatdoes not want to get involved in the more or less unique problemsfound in export marketing, or that wants to let someone help break itinto the business.

There are reasons for the small or inexperienced firm producing abranded or specialized product to seriously consider utilizing anEMC. Because, Export Sales Activities are handled by an expert.


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Since expenses of export promotion are shared with other

producers, they are not unduly burdensome to anyone,especially in the developmental stages of export business.

Representing only a limited number of accounts, the EMC paysadequate attention to each account. Since they accept accounts onlyfrom producers of related types of products, the danger of

promotion of competitors products is obviated.

Small producers gain the prestige of association with related

products.

The experience and knowledge of the top officials of EMC provides

the producer with immediate access to established foreign markets.

It is also quite possible that often the EMC will assist their

Principals in setting up such an export department.

Manufacturers Export Agent:

In contrast to an EMC, the Manufacturers Export Agent retains

its own identity by operating in its own name.

Also, the Manufacturers Export Agent is paid a straight

commission and does not engage in buy-and-sell arrangementswith the manufacturers represented.

Because of these basic differences, the Manufacturers Export

Agent does not offer a manufacturer all the services that an EMC

does.

Most notable in this case is the lack of advertising and

financial assistance.


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However, there are occasions when the Manufacturers Export

Agent assumes foreign credit risks and charges a del credere

commission [An extra commission is allowed forundertaking the risk of bad debts arising out of credit sales.

This extra commission is termed del Credere Commissionin

addition to the regular commission].

With a del credere arrangement the export agent either

guarantees payment for all orders sent to the manufacturer orfinances the transaction.

The manufacturers export agent may be most effectively usedwhen the firm wants to sell small orders to overseas buyers, entera new overseas market, or sell a product that is relatively new toconsumers in overseas markets.

Because this type of export agent retains its own identity, it

usually desires to keep the foreign sales representative on apermanent basis.

Thus producers are seldom encouraged to establish their own

export departments.


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COOPERATIVE ORGANIZATIONS:

Cooperative Exporting Organizations [CEO]represent a cross between indirect and directexport.

There are two distinct types of CooperativeInternational Marketing Organizations:

(1) Piggyback Marketing; and(2) Exporting Combinations.

PIGGYBACK MARKETING

PIGGYBACK MARKETING, also known asMOTHER HENNING, occurs when onemanufacturer uses its foreign distributionfacilities to sell another companys productsalongside its own.

There are alternative ways in which this canbe handled.

All types of products have been exported by

this technique including textiles, industrialand electrical machinery and equipment,chemicals, consumer soft goods, and books.

Piggyback Marketing is used for productsfrom different companies that are non-competitive (but related), complementary(allied), or unrelated.


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The particular relationship depends to a largeextent upon the motives of the large, alreadyexporting companies.

In the past, some companies such as GeneralElectric and Borg-Warner in the United Stateshave viewed piggybacking as a way ofbroadening the product lines that they canoffer to foreign markets.

They feel that marketing allied products helps

them to market their own products.

Other companies engage in this type ofoperation in order to bolster decreasingexport sales.

Pillsbury Company, for instance, first beganto sell the products of other companies packaged foods, farm machinery whenexport sales of its flour began to decline.

Finally, some companies actively seek outsmaller manufacturers because piggybackingcan be profitable.

In general, the carriers compensation takesthe form of a discount from the suppliersdomestic distributor list price plus a markup.


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The discount varies widely depending uponthe product and the services provided by thecarrier.

Although the usual arrangement is for thelarger company to buy the products-outrightof the smaller company, the larger companymay prefer to act as an agent and becompensated by a commission.

Some companies engage in this practice,

because of governments encouragement orregulations.

For example, in the late 1980s, Rhone -Poulenc, a French Chemical Company sold theproducts of hundreds of other companiesthrough its extensive Global Sales Network.

The French government encouraged this toassist smaller exporters that lacked abilitiesto do extensive exporting.

Another example is Polymark LaundrySystems, which in the late 1980s marketedthe products of many other companies inPoland.

Polymark was licensed by the government

and other firms did not find it worth the effortat the time to get the required governmentapprovals.


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There may be differences concerning whichcompanys name the product will be soldunder.

Some companies have a policy of using eitherthe actual manufacturers name or creating aprivate label but never their own name.

Other exporting companies have the policy ofusing the corporate name that is best known,whether its own name or that of its supplier.

Piggyback marketing provides an easy, low-risk way for a company to begin exportmarketing operations. It is especially wellsuited to manufacturers that are either too

small to go directly into exports or which donot want to invest heavily in foreignmarketing.

As far as the smaller manufacturer isconcerned, its transactions are domestic innature. The larger firm can provide a well-established export department and export

marketing channels geared to the needs ofthe smaller firm.

EXPORTING COMBINATIONS


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A manufacturer can export cooperatively bybecoming a member of some type ofexporting combination, which can be defined

as a more or less formal association ofindependent and competitive business firms,with membership being voluntary, organizedfor purposes of selling to foreign markets.

There are TWO basic general types ofExporting Combinations:

1. Marketing Cooperative Associations ofproducers

or merchandisers that engage inexporting

members products;

2. Export cartels.

MARKETING CO-OPERATIVE ASSOCIATIONS:

The first type of exporting combination is the

normal Domestic Marketing Cooperative as is

commonly found in certain primary productindustries.

Take for example - citrus fruits, nuts, andother types of agricultural products.


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The export operations such organizations areessentially the same as the export operationsof manufacturers and intermediaries.

A producer normally cannot join thecooperative for the sole purpose of enteringforeign markets.

CARETLS:

Out of more interest evinced by the

manufacturer, there will be the possibility ofbecoming a member of an Export Cartel orcartel-type arrangement.

A cartel is said to exist when two or more

independent business firms in the same oraffiliated fields of economic activity jointogether for the purpose of exerting control

over a market.

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