Export and Import Practices

McGraw-Hill/IrwinInternational Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

chapter seventeen

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Learning Objectives

Explain why firms export and problem areas of exporting

Identify the sources of export counseling and support

Discuss the meaning of the various terms of sale

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Learning Objectives

Identify some sources of export financing

Describe the activities of a foreign freight forwarder

Understand the kinds of export documents required

Identify import sources

Explain the Harmonized Tariff Schedule of the United States (HTSUSA)

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Why Export?

• Reasons to export– To serve markets where the firm has no or

limited production facilities– To satisfy a host government’s requirement

that the local subsidiary have exports– To remain price-competitive in the home

market– To test foreign markets and foreign

competition inexpensively

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Reasons to export? cont’d.

– To offset domestic market’s cyclical sales – To achieve additional sales– To extend a product’s life cycle– To respond strategically to foreign

competitors– To achieve the success the firm’s

management has seen others achieve– To improve the efficiency of manufacturing

equipment

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Reasons not to Export

• Two major reasons– Preoccupation with the vast American

market – Reluctance to become involved in a new,

unknown and therefore risky operation

• Not active in international markets due to– Lack of knowledge

• Locating foreign markets• Payment and financing procedures• Export procedures

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Sources of Export Counseling

• Trade Information Center (TIC)– The federal government has to set this up as a first

stop for information– Visit http://www.ita.doc.gov/td/tic/

• International Trade Administration (ITA)– Offers a wide range of export promotion activities

that include• Market Access and Compliance (MAC)• Trade Development• U.S. and Foreign Commercial Services

(US&FCS)

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Sources of Export Counseling

• Small Business Administration (SBA)– The office of International Trade of the SBA

works through• Small Business Administration offices• Score Program• Small Business Development Centers• Centers for International Business

Education and Research (CIBERs)

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Show and Sell

• Trade events to facilitate international trade– U.S. pavilions– Trade missions– Product literature center– Reverse trade missions

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Export Marketing Plan

• Essentially same as domestic marketing plan

• Specific about– Markets to be developed– Marketing strategy for serving them– Tactics to make the strategy operational

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Terms of Sale

• INCOTERMS – Universal trade terminology developed by

the International Chamber of Commerce– Ex-Works

• Risk passes at factory door• US equivalent: FOB (free on board)

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Terms of Sale, cont’d.

– FAS• Free alongside ship, port of call

– CIF• Cost, insurance, freight, foreign port

– CFR• cost and freight, foreign port

– DAF• Delivered at frontier

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Payment Procedures

• Payment terms offered by exporters to foreign buyers– Cash in advance

• When credit standing of the buyer unknown or uncertain

– Open account• When sale is made on open account

– Seller assumes payment risk– Offered to reliable customers in economically

stable countries

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Payment Procedures, cont’d.

– Consignment • Goods shipped to buyer; payment made when

sold• Payment risk assumed by seller

– Letter of credit (L/C)• Document issued by buyer’s bank

–Promise to pay seller specified amount when bank has received documents stipulated in letter of credit

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Payment Procedures, cont’d.

• Letter of credit• Confirmed L/C

–Correspondent bank in seller’s country agrees to honor issuing bank’s L/C

• Irrevocable L/C–Once the seller has accepted L/C,

buyer cannot alter or cancel it without seller’s consent

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Sample Letter of Credit

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Letter of Credit Transaction

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Documents

• Air Waybill– A bill of lading issued by an air carrier

• Pro Forma Invoice– Exporter’s formal quotation: description of

the merchandise, price, delivery time, method of shipment, ports of exit and entry, and terms of sale

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Export Payment Documents

• Export draft– Unconditional order drawn by the seller that

instructs buyer to pay the draft’s amount on presentation (sight draft) or at an agreed future date (time draft) and that must be paid before buyer receives shipping documents

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Payment Risk/Cost Trade-Off

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Export Financing

• Private Source – Commercial Banks– Banker’s acceptance

•Time draft with maturity of less than 270 days that has been accepted by the bank on which the draft was drawn, thus becoming the accepting bank’s obligation; may be bought and sold at a discount in the financial markets like other commercial paper

– Factoring• Discounting an account receivable without

recourse

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Export Financing, cont’d

– Forfeiting• Purchasing without recourse an account

receivable whose credit terms are longer than the 90 to 180 days usual in factoring; unlike factoring, political and transfer risks are borne by the forfeiter

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Export Financing cont’d.

• Public Sources– Export-Import Bank (Ex-Imbank)

• Principal government agency that aids American exporters by means of loans, guarantees, and insurance programs

– Overseas Private Investment Corporation (OPIC)• U.S. government corporation that offers American

investors in developing countries insurance against expropriation, currency inconvertibility, and damages from wars and revolutions

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Other Public Incentives

• Foreign Trade Zone– Duty-free area designed to facilitate trade

by reducing the effect of customs restrictions

• Free Trade Zone– An area designated by the government as

outside its customs territory

• Customs drawback– Rebate on customs duties

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Export Procedures

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

• Markets• Regulations• Transportation• Packing

– Supply cargo insurance

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Official Procedures for Importing and Exporting

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Shipping Documents

• Shipper’s Export Declaration– U.S. Department of Commerce form to control

export shipments and record export statistics

• Validated export license– Document issued by the U.S. government

authorizing export of strategic commodity or shipment to unfriendly country

• General Export License– Covers export commodities for which validated

license not required; no formal application required

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Shipping Documents, cont’d.

• Export Bill of Lading– Contract of carriage between shipper and carrier:

straight bill of lading is nonnegotiable; endorsed “to order” bill gives holder claim on merchandise

• Insurance Certificate

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Collection Documents

• Commercial invoice• Include origin of goods, export packing marks,

and clause stating goods will not be transshipped

– Consular invoice• Purchased from the consul and prepared in local

language– Certificate of origin

• Issued by local Chamber of Commerce– Inspection certificate

• Frequently required for grain, food, live animals

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Export Shipments

ContainersReduce theft and handling costs

LASH (lighter aboard ship)Barges for shallow inland waterways

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

Air FreightCan arrive in one day

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Export Shipments

• Containers– Reduce theft and handling cost

• LASH (lighter aboard ship)– Barges for shallow inland waterways

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

• Air Freight– Can arrive in one day

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Sea-Air Total Cost Comparison, Shipment and Spare Parts

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Air Freight

• Total cost may decrease• Either the firm or the product may be air-

dependent• The market may be perishable• Competitive position may be

strengthened

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Importing

• Ways to identify import sources– If similar imported products are already in the

market, visit a retailer and examine the product label

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

– Use the electronic bulletin boards of the World Trade Centers

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Customhouse Broker

• Independent business that handles import shipments

• Acts as agent for importer– Customhouse broker brings goods through

customs– May arrange transportation for goods after they

leave customs– Need to know when imports are subject to import

quotas and how much of the quota has been filled

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Importing

• Bonded warehouse– Area authorized by customs for storage of goods on which

payment of import duties is deferred until goods are removed

• Automated Commercial System (ACS)– Used to track, control, and process all commercial goods

imported into U.S.

• Import Duties– Importer must know how U.S. calculates import duties

• The Harmonized Tariff Schedule of U.S. (HTSUSA)– American version of the Harmonized System used worldwide to

classify imported products

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Page from the HTSUSA