EXPORTING

International Business II

BASIC TERMS

• Exports: – goods and services flowing out of a country

• Exporting: the sale and delivery of goods and services by a firm based in one country to customers residing in a different country– results in receipts from the customers– affords less control over the marketing function

Why do companiesExport?

REASONS FOR EXPORTINGProduction Surplus. (Expand Sales) Comparative advantages ($,Q,Quality,Avaliability). Product and Market Diversification

(Int Competence/Local MK situation)^ Competitiveness (New tech, Know How & Manag.

Performance) Int. Joint Ventures (Costs, Efficiency & Diversi). Less Risky than FDI. Reach Economies of ScaleEconomic Agreements – Get in Globalization

STRATEGIC ADVANTAGES OF EXPORTS • Increase revenues and profitability• Achieve economies of scale in production and

research• Alleviate excess capacity in domestic

operations• Minimize risk (as compared to licensing and

foreign direct investment)• Diversify markets

Exporting requires expertise in dealing with government institutions, particularly customs agencies, as well as the

documentation process.

EXPORT STRATEGY• Strategic factors affecting the choice of

exporting as a mode of entry include:– the ownership advantages of the firm

• The international experience of the firm• The firm’s ability to differentiate its products

– the location advantages of the market• Market potential

– the internalization advantages of specific assets• Specific skills or assets that are not licensed or sold

FOUR BIG QUESTIONS

What does the company want to gain from X?

Is X consistent with other company goals?

What demands will X place on its key resources?

Are the expected benefits worth the cost?

PHASES OF EXPORT DEVELOPMENT

Which are the problemsor limitations of

Exporting?

POTENTIAL PITFALLSLack of Q. Counseling & Master Int MK planLack of Commitment (Difficulties & Financial Req)Wrong Choice of Overseas Agents or DistributorsLack of ordery growth (Chasing worlwide orders)Wrong distributors treatment (Dom Counterpart)Unwillingness to adapt products (Regulat-Preferen)Languange Misuse (Service, Features &Warranties)Not using EMC´s when necessary. (Proper Staff)

STEPS FOR DESIGNING AN X STRATEGY

1. Assess Export Potential2. Get Expert Counseling

(Export Assistance Center – Proexport)3. Select a Market or Markets

(Request-Trade shows-Publications-Census)4. Formulate & Implement an X Strategy

(Short &Long Term Objectives-Tactics-Schedules & Deadlines-Resources Allocation-Tasks Assignation)

EXPORT PLAN1.TARGET MARKET RESEARCHCOUNTRIES PRE-CHOICE • Current Dest. of Colombian X(Your Product)• Cultural & Comercial Affinity• Tariff Preferences• Competitor Countries• Transportation Availability

MARKET CHOICE • Economic, Geographic & Political Review• Freight Estimated Cost• Product Entry Demands & Comercial Legislation

GETTING MK INFO • Product • Prices • Trading• Competitors• Promotion

2.FIRM’S SITUATION EVAL REFERRING THE CHOSEN MARKET• Structure• Production• Finance• Product • Marketing• Competitiveness

3.EXPORT PLANNING• Objectives• Strategies • Customers search • Checking List

4.X PLAN EXECUTION & FOLLOW UP • Int Quotation or valuation• X Logistics• X Paperwork• Exports Tax Legislation• Exports Incentives• Results Evaluation

ARANCEL

ARANCEL

Understood in 2 different ways:• As a Tariff• As a Custom Code

AS TARIFF

• Specific• Certain amount payment charged for each

imported good unit (volume, lenght or weight).• Ad Valorem

• Porcentage of good’s value. Mostly Used• Mixed

TARIFFS

Act 370/1994: Andean Community Countries rates:

• 5% • 10% • 15% • 20% • 35% (Vehicles)

Varies according to the level of process.

AS CUSTOM CODE

HARMONIZED SCHEDULE• System using a code for grouping and

classifying merchandise by cathegories for Int Trade.

HARMONIZED SYSTEM STRUCTURE 21 Sections

96 Chapters

1249 Custom Codes (Four Digits)

5018 Sub Custom Code (Six Digits)

Legal Notes

General Rules

MERCHANDISE GROUPING WITHIN THE NOMENCLATURE

By Nature Kingdom

• Animal (Section I)

• Vegetal (Section II)

• Mineral (Section III)

By two main chemistry branches

• Inorganic (Chapter 28)

• Organic (Chapter 29)

By Industrial Activity

• Pharmaceutic, Plastic, Rubber, Paper, Metal, Textile, Machinery and Electrical Material, Glass, etc.

NOMENCLATURE

• I. Animales vivos y productos del reino animal • II. Productos del reino vegetal • III. Grasas y aceites animal o vegetales... • IV. Productos de las industrias alimentarias... • V. Productos de las industrias químicas... • VI. Plásticos y sus manufacturas • VII. Caucho y sus manufacturas • VIII. Pieles, cueros, peletería y manufacturas de estas

materias...

NOMENCLATURE• IX. Madera, carbón vegetal y manufacturas de

madera... • X. Pastas de madera o de las demás fibras • XI. Materias textiles y sus manufacturas. • XII. Calzado; sombreros y demás tocados... • XIII. Manufacturas de piedra, yeso fraguable... • XIV. Perlas finas ( naturales) o cultivadas, piedras

preciosas o semipreciosas... • XV. Maquinas y aparatos, material eléctrico y sus

partes...

NOMENCLATURE

• XVII. Material de transporte

• XVIII. Instrumentos y aparatos de óptica, fotografía o cinematografía...

• XIX. Armas, municiones y sus partes y accesorios...

• XX. Mercancías y productos diversos.

• XXI. Objetos de arte o colección y antigüedades.

LEGAL NOTES

Including Excluding Defining Precisioning Complement

From Section From Chapter From Subcode

DECLEARERS

CUSTOM AGENTS

If X is more than U$10.000If M is more than U$1.000

It is compulsory to contract the services of a CA (SIA)

CUSTOM INTERMEDIARY AGENCIES – Agentes Aduaneros

( Formerly SIA)

• Do errands & Papework refering to X/M/In Transit

• Act on behalf of the Importer or Exporter

HIGHLY EXPORTER USERS (ALTEX)• Req: (12 last months FOB US2 m)(X=60% Total Sales

They can be through Electronic Trade Confirmation)

Benefits:• No Physical Inspection (May Be Random)• Custom Insp at their facilities• May do M (Temporary Import for Ind Processing)

PERMANENT CUSTOM USERS

• 12 last m X or M U$ 8m OR 8U$m as an average during last 3 years

• If not, 2000 M or X Declarations last 12m.

Benefits: • Global Shipping Authorization (Partial Shipments)• No Physical Inspection (May Be Random)• Custom Inspection at their facilities• May do M (Temporary Import for Ind Processing)

OTHER DECLEARERSLegal Entities & Common people doing X or M not

higher than U$10.000 or U$1.000Travelers (Baggage)Turists (Vehicles)National Post Office (Post Traffic & Urgent Deliveries)Urgent Delivery Consignees (Catastrophes)The State, Territorial Entites, DiplomatsTransporting Companies. (Cabotage)San Andres Business Men

EXPORTING PROCESS1. Get the Exporter National Register/RUT2. Market Research: Potential Buyers3. MINCOMEX Paperwork: National Producer

Register-Certificate of origin Aplication (2 Years)

4. Get the required approvals (INVIMA –ICA)VUCE

5. Get the product ready /Approvals/Costing & Pricing.

EXPORTING PROCESS6. Identify The tariff subsection7. Negotiation (Get in touch with a buyer)

(INCOTERM)8. Insurance and Freight Contracting (If

applicable)9. Send Pro-Forma Invoice acceptance and

Stablishment of Method of Payment (INCOTERMS)

IDENTIFICATION OF THE TARIFF SUBSECTION

It is the number of international identification of products and it is divided in the following way:

Capitulo 06 Plantas vivas y productos de floricultura

Partida Arancelaria 0603

Flores y capullos, cortados para ramos o adornos, frescos, secos, blanqueados, teñidos, impregnados o preparados de otra forma.

Subpartida Arancelaria 0603.12

Claveles

Posición Arancelaria

0603.12.10.00Miniatura

Claveles miniatura

10. Shipping Documents

• Shipping Authorization• DEX (Export Declaration)• Pro-Forma Invoice• Commercial Invoice• Export Packing List• Certificate of Origin• Bill of Lading, Airway Bill, Consignment Note,

Multimodal Transport Document• Licenses, Permissions or Approval

11. DIAN/SIA ERRANDS (DIAN is gonna Check out the following info):

There are two different types of inspection, Physical (Merchandise) and Documentary

• Export Mode• Tariff Subsector• Description of the Merchandise• Quantity• Weight• FOB Value in U$• Country of destination

12. VAT payback Inquiry (If it applies)13. Exporter gets the currencies and

Reintegrates them.(Exchange Declaration #2) (More than 12 months BR) U$10.000

(Advanced Draft - 4 Months- Ext Debt)Resident External Debt Info (6) B. Rep

FINANCIAL ISSUES OF EXPORTING

• Product Price (Exchange Rts, Insurance, Transportation, Duties, Wholesale Channels, Banking, Antidumping)

• Method of Payment (Cash In Advance, Letter of Credit, Draft or Bill of Exchange & Open Account)

• Financing Recievables (Factoring & Forfeiting)• Insurance (Transportation Risk – Political,

Comercial & Foreign Exchange Risk)

INTERMEDIARIES

• DIRECT EXPORTING• INDIRECT EXPORTING

EXPORT MANAGEMENT COMPANIES

• Export arm of the manufacturer (agent)• Deal with X and M• Take care of Documents• Make Transportation arrangements• Give advise • Commission or Take title

EXPORT TRADING COMPANIES

• Register IND & COM (Duty free purchases)• Furnisher Certificate (6Mths/ 1year / 6M)• Work on Demand rather than Supply (Match)• Identify suppliers who can fill orders from

abroad

FOREIGN FREIGHT FORWARDERS

• Import or Export specialist dealing with movement of goods.

• “Travel Agents of Cargo”• Provide best routing and means of

transportation (Space availability, cost and speed) Close relation with carriers

• % of the shipment value + charge/# of services