16Export and Import PracticesInternational Businessby Ball, McCulloch, Frantz, Geringer, and Minor

This chapter covers:Why firms export and problem areasSources of export counselingTerms of saleSources of export financingForeign freight forwardersExport documentsMaterials handlingImport sourcesHTSUSA

Chapter ObjectivesExplain why firms export and problem areas of exportingIdentify the sources of export counselingDescribe the main elements of the export sales assistance program of the US Department of CommerceDiscuss the meaning of the various terms of saleIdentify some sources of export financingDescribe the activities of a foreign freight forwarderUnderstand the kinds of export documents requiredIdentify import sourcesExplain the Harmonized Tariff Schedule of the United States (HTSUSA)16-02

Why Export?Reasons to exportTo serve markets wherethe firm has no production facilities.the local plant does not produce the firms complete product mixTo satisfy a host governments requirement that the local subsidiary export

16-03To remain competitive in the home marketTo test foreign markets and foreign competition inexpensivelyTo meet actual or prospective customers requests for the firm to exportTo offset cyclical sales of the domestic market

Why Export?To achieve additional salesTo extend a products life cycleTo distract foreign competitors that are in the firms home market by entering their home marketsTo partake in the kind of success the firms management has seen others achieve by exportingTo improve equipment utilization rates16-04

Most Common Mistakes for New ExportersFailure to develop an international marketing planInsufficient commitment by top managementInsufficient care in selecting overseas distributorsChasing orders from around the worldNeglecting export business when the home market boomsFailure to treat international distributors on an equal basis with domestic16-05Assuming automatic successUnwillingness to modify productsFailure to print service, sale and warranty messages in local languageFailure to consider use of an export management companyFailure to consider licensing or joint ventureFailure to provide readily available service for the product

Why not export?Two major reasons U.S. firms give for not exportingPreoccupation with the vast American marketA reluctance to become involved in a new and unknown operation16-06

Problem AreasLocating foreign marketsDont know where to startPayment and financing proceduresFear the complexityExport proceduresDont know that information and government support are availableSmall Business Administration, Small Business Development Centers, private consultants

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Show and SellFour kinds of trade events that facilitate international tradeU.S. pavilionsOrganized by the Dept. of CommerceTrade missionsFocus on industry sectorProduct literature centerTrade specialists distribute at trade showsReverse trade missionsVisits to U.S. by foreign governments16-08

Export Marketing PlanEssentially the same as the domestic marketing planThe plan should be specific aboutThe markets to be developedThe marketing strategy for serving themThe tactics required to make the strategy operational16-09Marketing MixForeign customers may insist on one of the following terms of saleFAS (free alongside ship, port of call)CIF (cost, insurance, freight, foreign port)CFR (cost and freight, foreign port)DAF (delivered at frontier)

Sales AgreementShould specify the duties of the representative and the firmDesignation of responsibilities for patent and trademark registrationDesignation of whose laws will govern contractual dispute16-10

Payment and Financing ProceduresTypes of payment terms offered by exporters to foreign buyersCash in advanceOpen accountConsignmentLetter of creditDocumentary drafts

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Export Payment TermsCash in AdvanceWhen credit standing of the buyer is not known or is uncertainOpen AccountWhen a sale is made on open accountThe seller assumes all of the riskTerms should be offered only to reliable customers in economically stable countries16-12ConsignmentGoods are shipped to the buyer and payment is not made until they have been soldAll the risk is assumed by the sellerLetters of CreditThis document is issued by the buyers bankwhich promises to pay the seller a specified amount when the bank has received certain documents stipulated in the letter of credit

Export Payment TermsLetters of CreditConfirmedAct of a correspondent bank in the sellers country by which it agrees to honor the issuing banks letter of creditIrrevocableOnce the seller has accepted the credit, the customer cannot alter or cancel it without the sellers consent

Air WaybillIssued by carrier to be presented as proof the shipment has been madePro Forma Invoiceexporters 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 TermsDocumentary DraftsAn export draftis 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 FinancingPrivate Source Commercial BanksBankers acceptanceFactoringFactoringis afinancial transactionin which a businesssellsitsaccounts receivable(i.e.,invoices to a third party (called afactor) at adiscountProvides working capital to manufacturers short of cash.Is essentially discounting without recourse.ForfaitingDenotes 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 FinancingForfaitingForfaiting is a method of trade finance that allows exporters to obtain cash by selling their medium and long-term foreign accounts receivable at a discount on a without recourse basis. A forfaiter is a specialized finance firm or a department in a bank that performs non-recourse export financing through the purchase of medium and long-term trade receivables. Without recourse or non-recourse means that the forfaiter assumes and accepts the risk of non-payment.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-Import BankThe U.S. Export Import Bank (Eximbank)Government agency responsible for aiding the export of American goods and servicesVariety of loan, guarantee, and insurance programsAvailable to any American export firm regardless of size16-17

Two types of loans available from the EximbankDirect loans to foreign buyers of American exportsIntermediary loans to responsible partiesForeign government lending agency that relends to foreign buyers of capital goods and related services

Export ProceduresForeign freight forwarders act as agents for exportersPrepare documentsBook spaceOffer advice aboutMarketsRegulationsTransportationPackingSupply cargo insuranceAfter shipment, forward documents

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Shipping DocumentsShippers Export DeclarationThis document is required by the Department of Commerce to control exports and supply export statisticsExport LicenseGeneral for most productsValidated for scarce materials, strategic goods, technology, or war materials16-19Export bill of LadingServes three purposesa contract for carriage between the shopper and the carrier.a receipt from the carrier for the goods shipped.a certificate of ownershipInsurance CertificateEvidence shipment is insured

Collection DocumentsThe most common documents for collectionCommercial invoicesAdd origin of goods, export packing marks, and a clause stating good will not be divertedConsular invoicesPurchased from the consul and prepared in local languageCertificates of originIssued by local Chamber of CommerceInspection certificatesFrequently required for grain, food, live animals16-27

ImportingWays to identify import sourcesIf similar imported products are already in the market, visit a retailer and examine the product labelIf the product is not being imported, call the nearest consul or embassy of that countryUse the electronic bulletin boards of the World Trade CentersAccidental importing also takes place

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Import RulesDisclose fully to the US Customs Service all foreign and financial arrangementsAsk advice of a customhouse broker before making the transactionCalculate carefully the landed price in advance

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EXPORTS, IMPORTS, and TRADE BALANCE

ExIm BankEx-Im Bank Highlights: www.exim.gov/index.cfmRussia Portal: Ex-Im Bank Opportunities in RussiaMexico: web portals for U.S. exportersy los compradores de MexicoProtecting the environmentBusiness Opportunities in Southeast & Central Europe Recent NewsletterVideo - Product Overview News & Information by E-mail IraqEx-Im Bank Support for U.S. Exports to Iraq