IB Chapter 13

• Producing products or service in one country, selling in another
• Popular because of limited risk and cost, and increased flexibility

• Increased sales volume
• Increased economies of scale
• Diversified customer base
• Stabilizes fluctuations in sales
• Minimizes foreign market entry costs and risks

• 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

• Step 1: Assess global market opportunity
• Step 2: Organize for exporting
• Step 3: Acquire needed skills and competencies
• Step 4: Implement exporting strategy

• Contract w/ intermediaries in home market
• Lower risk, less complexity, lower cost

• Contracting w/ intermediaries in foreign market
• Greater control of export process, closer relationship to market

In foreign market, handles marketing, distribution, customer service

Buying from foreign sources and bringing them home

Official forms and paperwork in export transaction and shipping

Info about price and description of product

Basic contract between exporter and shipper

Birth certificate of shipment

Protect goods against damage, loss, theft

Standard terms of sale and delivery (International Commerce Terms)

• Delivery of goods takes place at seller’s premises.
• Buyer arranges all shipping

• Free on Board
• Buyer bears all cost and risk of shipment

• Cost, insurance and freight
• Sellers pays for insurance and delivery, responsibility transfers to buyer at destination

• Pay before shipping.
• Not popular with buyer

• Contract between buyer and seller that ensures payment upon receipt of goods.
• Popular with experienced exporters

Cancelled only w/ permission of buyer and seller

Paying using other goods and services

Direct exchange of goods without money

Payment in goods and cash

Buyer and seller both agree to purchase certain products from each other

Seller agrees to supply tech, equipment, or facility receive payment in form of goods that facility produces

• Goods of inferior quality
• Placing market value on goods is difficult, prices padded
• Complex and cumbersome
• Government regulation

Exporter sells accounts receivable to financial institution

• Creditworthiness of exporter/importer
• Riskiness and timing of sale

• Foreign market-based intermediary that works for exporter.
• Purchase merchandise from exporters at discount and then resell it

• Represents and sells product of exporter in designated country or territory.
• Given great autonomy

• Intermediary that engages in import and export of various commodities and services.
• Assumes international marketing function

• Domestically based, serves as export agent on behalf of client.
• Negotiates terms of sale, shipping, and is often smaller than trading company

• Country and regional business directories
• Trade associations
• Government departments and agencies
• Commercial attaches
• Freight forwarders and trade consultants

• 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

• Organizational strength
• Product-related factors (knowledge, product quality, security, etc.)
• Marketing capability
• Managerial commitment

Procurement of value-adding activities from external suppliers

Procurement of services

Internal, upstream i.e. payroll and billing

Customer-related, downstream, i.e. marketing

• Internalize value-chain activities considered to be part of core competency
• Outsource non-core activities

Pattern or geographic arrangement where value-adding activities are carried out (labor cost advantage, resource location)

• Tech advances in communication (internet)
• Falling costs of international business
• Entrepreneurship and rapid economic growth in emerging markets

Focal firm sources from its own subsidiaries or affiliates

Arrangement in which focal firm contracts independent suppliers to manufacture well-defined, specified products

Relocation of business process to a foreign country

• Large-scale manufacturing
• High labor intensity
• Uniform customer needs
• Established products with predictable sales pattern
• Information intensity
• Outputs easily codified over the internet

• 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

• 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

Job losses in home country, reduced national competitiveness and declining standards of living

Destruction of mature jobs or products creates new opportunity

• Go offshore for the right reasons
• Get employees on board
• Choose between captive operation and contracting out
• Emphasize communication
• Safeguard own interests

• Firm’s integrated network of sourcing, production, distribution
• I.e. Dell and computers

Automatically passes orders from customers to suppliers

Physically moving product through supply chain

• Cost
• Time
• Predictability