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Exporting
- Producing products or service in one country, selling in another
- Popular because of limited risk and cost, and increased flexibility
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Exporting Advantages
- Increased sales volume
- Increased economies of scale
- Diversified customer base
- Stabilizes fluctuations in sales
- Minimizes foreign market entry costs and risks
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Exporting Disadvantages
- Fewer opportunities to learn about customers, competitors, market aspects
- Acquire and dedicate capabilities to conduct complex transactions
- Increased exposure to tariffs, trade barriers, exchange rates
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Systematic Approach to Exporting
- Step 1: Assess global market opportunity
- Step 2: Organize for exporting
- Step 3: Acquire needed skills and competencies
- Step 4: Implement exporting strategy
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Indirect Exporting
- Contract w/ intermediaries in home market
- Lower risk, less complexity, lower cost
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Direct Exporting
- Contracting w/ intermediaries in foreign market
- Greater control of export process, closer relationship to market
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Company-Owned Subsidiary
In foreign market, handles marketing, distribution, customer service
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Importing/Global Sourcing
Buying from foreign sources and bringing them home
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Documentation
Official forms and paperwork in export transaction and shipping
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Quotation/Pro Forma Invoice
Info about price and description of product
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Bill of Lading
Basic contract between exporter and shipper
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Certificate of Origin
Birth certificate of shipment
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Insurance Certificate
Protect goods against damage, loss, theft
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Incoterms
Standard terms of sale and delivery (International Commerce Terms)
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EXW
- Delivery of goods takes place at seller’s premises.
- Buyer arranges all shipping
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FOB
- Free on Board
- Buyer bears all cost and risk of shipment
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CIF
- Cost, insurance and freight
- Sellers pays for insurance and delivery, responsibility transfers to buyer at destination
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Cash In Advance
- Pay before shipping.
- Not popular with buyer
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Letter of Credit
- Contract between buyer and seller that ensures payment upon receipt of goods.
- Popular with experienced exporters
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Irrevocable Letter of Credit
Cancelled only w/ permission of buyer and seller
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Countertrade
Paying using other goods and services
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Barter
Direct exchange of goods without money
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Compensation deals
Payment in goods and cash
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Counterpurchase
Buyer and seller both agree to purchase certain products from each other
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Buy-Back Agreement
Seller agrees to supply tech, equipment, or facility receive payment in form of goods that facility produces
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Countertrade Risks
- Goods of inferior quality
- Placing market value on goods is difficult, prices padded
- Complex and cumbersome
- Government regulation
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Forfeiting
Exporter sells accounts receivable to financial institution
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Factors influencing ability to get credit
- Creditworthiness of exporter/importer
- Riskiness and timing of sale
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Foreign Distributor
- Foreign market-based intermediary that works for exporter.
- Purchase merchandise from exporters at discount and then resell it
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Manufacturer’s Representative
- Represents and sells product of exporter in designated country or territory.
- Given great autonomy
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Trading Company
- Intermediary that engages in import and export of various commodities and services.
- Assumes international marketing function
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Export Management Company
- Domestically based, serves as export agent on behalf of client.
- Negotiates terms of sale, shipping, and is often smaller than trading company
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Ways to Find Foreign Intermediaries
- Country and regional business directories
- Trade associations
- Government departments and agencies
- Commercial attaches
- Freight forwarders and trade consultants
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What do Intermediaries Expect
- Good, reliable, marketable and profitable products
- Opportunities to handle other product lines
- Support for marketing comm and advertising
- Efficient payment method
- Training
- Help in establishing after-sales facilities for repairs and other customer service
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Criteria to evaluate intermediary:
- Organizational strength
- Product-related factors (knowledge, product quality, security, etc.)
- Marketing capability
- Managerial commitment
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Outsourcing
Procurement of value-adding activities from external suppliers
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Business process outsourcing (BPO)
Procurement of services
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Back-Office Activities
Internal, upstream i.e. payroll and billing
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Front-Office Activities
Customer-related, downstream, i.e. marketing
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Decision 1: Outsource or no?
- Internalize value-chain activities considered to be part of core competency
- Outsource non-core activities
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Configuration of value-adding activities
Pattern or geographic arrangement where value-adding activities are carried out (labor cost advantage, resource location)
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Global sourcing is low control, can’t control market, has grown due to:
- Tech advances in communication (internet)
- Falling costs of international business
- Entrepreneurship and rapid economic growth in emerging markets
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Captive sourcing
Focal firm sources from its own subsidiaries or affiliates
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Contract manufacturing
Arrangement in which focal firm contracts independent suppliers to manufacture well-defined, specified products
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Offshoring
Relocation of business process to a foreign country
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Characteristics of those benefitted by global sourcing:
- Large-scale manufacturing
- High labor intensity
- Uniform customer needs
- Established products with predictable sales pattern
- Information intensity
- Outputs easily codified over the internet
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Benefits of Global Sourcing
- Cost efficiency (mostly via labor costs)Ability to achieve strategic goals (transformational outsourcing)
- Faster corporate growth, faster speed to market
- Access to qualified personnel abroad
- Improved productivity and service
- Business process redesign
- Access to new markets
- Technological flexibility
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Risks of Global Sourcing
- Lower than expected savingsEnvironmental factors (currency fluctuation, tariff, labor strike, weather)
- Weak legal environment
- Inadequate or low-skilled workers
- Over reliance on suppliers
- Risk of creating competitors
- Erosion of morale in home country
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Major concerns are of global sourcing
Job losses in home country, reduced national competitiveness and declining standards of living
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Creative destruction
Destruction of mature jobs or products creates new opportunity
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Guidelines for global sourcing
- Go offshore for the right reasons
- Get employees on board
- Choose between captive operation and contracting out
- Emphasize communication
- Safeguard own interests
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Global Supply Chain
- Firm’s integrated network of sourcing, production, distribution
- I.e. Dell and computers
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Electronic Data Interchange
Automatically passes orders from customers to suppliers
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Logistics
Physically moving product through supply chain
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Transportation considerations
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