Ch17 Import and Export Management

Chapter 17 Kotabe & Helsen's Global Marketing Management, Third Edition, 2004

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Global Marketing ManagementGlobal Marketing Management

Masaaki Kotabe & Kristiaan HelsenMasaaki Kotabe & Kristiaan Helsen Third EditionThird Edition

John Wiley & Sons, Inc., 2004John Wiley & Sons, Inc., 2004


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Chapter 17Chapter 17

Export and Import ManagementExport and Import Management


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Chapter OverviewChapter Overview

1. Organizing for Exports1. Organizing for Exports

2. Indirect Exporting2. Indirect Exporting

3. Direct Exporting3. Direct Exporting

4. Mechanics of Exporting4. Mechanics of Exporting

5. Role of the Government in Promoting Exports5. Role of the Government in Promoting Exports

6. Managing Imports—the Other Side of the Coin6. Managing Imports—the Other Side of the Coin

7. Mechanics of Importing7. Mechanics of Importing

8. Gray Markets8. Gray Markets


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IntroductionIntroduction Exporting is the most popular way for many Exporting is the most popular way for many

companies to become international.companies to become international. Exporting is usually the first mode of foreign entryExporting is usually the first mode of foreign entry used by companies.used by companies. Selling to foreign markets involves numerous high Selling to foreign markets involves numerous high

risks, arising from a lack of knowledge about and risks, arising from a lack of knowledge about and unfamiliarity with foreign environments, which unfamiliarity with foreign environments, which can be heterogeneous, sophisticated, and turbulent.can be heterogeneous, sophisticated, and turbulent.

Manufactured goods accounted for almost 60 Manufactured goods accounted for almost 60 percent of the exports of developing countries (see percent of the exports of developing countries (see Exhibit 17-1).Exhibit 17-1).


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Introduction (contd.)Introduction (contd.)

Because of every export transaction, there is, by Because of every export transaction, there is, by definition, an import transaction as well.definition, an import transaction as well.

Aside from differences between the procedure and Aside from differences between the procedure and rationale for exports and imports, both are largely rationale for exports and imports, both are largely the same the world over.the same the world over.

For successful development of export activities, For successful development of export activities, systematic collection of information is critical.systematic collection of information is critical.


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1. Organizing for Exports1. Organizing for Exports

Research for ExportsResearch for Exports: The first step is to use : The first step is to use available secondary data to research potential available secondary data to research potential markets.markets.– The identification of an appropriate overseas The identification of an appropriate overseas

market involves the following criteria:market involves the following criteria:1. Socioeconomic characteristics1. Socioeconomic characteristics2. Political and legal characteristics2. Political and legal characteristics3. Consumer variables (lifestyle, preferences, 3. Consumer variables (lifestyle, preferences, culture, taste, purchase behavior) culture, taste, purchase behavior)4. Financial conditions4. Financial conditions


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1. Organizing for Exports (contd.)1. Organizing for Exports (contd.)

Export Market SegmentsExport Market Segments– Homogeneous market segments and clustersHomogeneous market segments and clusters– Geographical and psychographic segmentsGeographical and psychographic segments– Issues of standardization vs. adaptationIssues of standardization vs. adaptation


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2. Indirect Exporting2. Indirect Exporting

Indirect exportingIndirect exporting involves the use of independent involves the use of independent middlemen to market the firm’s products overseas.middlemen to market the firm’s products overseas.

Combination Export Manager (CEM)Combination Export Manager (CEM) Export MerchantsExport Merchants Export BrokerExport Broker Export Commission HouseExport Commission House Trading Companies (Trading Companies (sogoshoshasogoshosha; ; see Exhibit see Exhibit 17-1)17-1) Piggyback ExportingPiggyback Exporting


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3. Direct Exporting3. Direct Exporting

Direct exportingDirect exporting occurs when a manufacturer or occurs when a manufacturer or exporter sells directly to an importer or buyer exporter sells directly to an importer or buyer located in a foreign market (see Exhibit 17-2).located in a foreign market (see Exhibit 17-2).

Export DepartmentExport Department Export Sales SubsidiaryExport Sales Subsidiary Foreign Sales BranchForeign Sales Branch


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4. Mechanics of Exporting4. Mechanics of Exporting

The Automated Export System (AES) on the The Automated Export System (AES) on the InternetInternet– In the U.S., the AES which was launched in In the U.S., the AES which was launched in

October 1999October 1999, enables exporters to file export , enables exporters to file export information at no cost over the Internet. AES is information at no cost over the Internet. AES is a nationwide system operational at all ports.a nationwide system operational at all ports.

Legality of ExportsLegality of Exports– Export license (general or validated license)Export license (general or validated license)

Export TransactionsExport Transactions– The terms of saleThe terms of sale


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4. Mechanics of Exporting (contd.)4. Mechanics of Exporting (contd.)– Monitoring the transportation and delivery of Monitoring the transportation and delivery of

the goods to the assigned partythe goods to the assigned party– Shipping and obtaining the bill of ladingShipping and obtaining the bill of lading

» Bill of lading Bill of lading A straight bill of ladingA straight bill of ladingA shipper’s order bill of ladingA shipper’s order bill of lading

– Commercial invoiceCommercial invoice– Freight forwardersFreight forwarders

Terms of Shipment and SaleTerms of Shipment and Sale– INCOTERMS 2000INCOTERMS 2000 (International Commercial (International Commercial

Terms)Terms)


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4. Mechanics of Exporting (contd.)4. Mechanics of Exporting (contd.)

– Terms of ShipmentTerms of Shipment (see Exhibit 17-5): (see Exhibit 17-5):» Ex-Works (EXW) at the point of originEx-Works (EXW) at the point of origin» Free Alongside Ship (FAS)Free Alongside Ship (FAS)» Free on Board (FOB)Free on Board (FOB)» Cost and Freight (CFR)Cost and Freight (CFR)» Carriage Paid To (CPT)Carriage Paid To (CPT)» Cost, Insurance and Freight (CIF)Cost, Insurance and Freight (CIF)

Payment TermsPayment Terms (see Exhibit 17-6) (see Exhibit 17-6)– Advanced PaymentAdvanced Payment


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4. Mechanics of Exporting (contd.)4. Mechanics of Exporting (contd.)

– Confirmed irrevocable letter of creditConfirmed irrevocable letter of credit– Unconfirmed irrevocable letter of creditUnconfirmed irrevocable letter of credit– Documents Against Payment (D/P)Documents Against Payment (D/P)– Documents Against Acceptance (D/A)Documents Against Acceptance (D/A)– Open accountOpen account– ConsignmentConsignment

Currency HedgingCurrency Hedging– It is done through a banker or the firm’s It is done through a banker or the firm’s

treasury in case there is a foreign risk in the treasury in case there is a foreign risk in the export transaction.export transaction.


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5. Role of the Government in 5. Role of the Government in Promoting ExportsPromoting Exports

Export promotion activities generally comprise:Export promotion activities generally comprise:1. Export service programs1. Export service programs2. Market development programs2. Market development programs

Export Enhancement Act of 1992Export Enhancement Act of 1992 Export - Import Bank (Ex-Im BankExport - Import Bank (Ex-Im Bank; see Exhibit ; see Exhibit

17-7)17-7) Tariff ConcessionsTariff Concessions

– Foreign Trade ZonesForeign Trade Zones– Foreign Sales Corporation (FSC)Foreign Sales Corporation (FSC)


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5. Role of the Government in 5. Role of the Government in Promoting Exports (contd.)Promoting Exports (contd.)

American Export Trading CompanyAmerican Export Trading Company– The Export Trading Company Act of 1982The Export Trading Company Act of 1982

Export RegulationsExport Regulations::– The Trade Act of 1974The Trade Act of 1974– The Foreign Corrupt Practices Act (FCPA) of The Foreign Corrupt Practices Act (FCPA) of

19771977– COCOM (Coordinating Committee for COCOM (Coordinating Committee for

Multilateral Exports)Multilateral Exports)– U.S. Antitrust LawsU.S. Antitrust Laws


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5. Role of the Government in 5. Role of the Government in Promoting Exports (contd.)Promoting Exports (contd.)

– Tariffs and local laws of foreign governments Tariffs and local laws of foreign governments which may include: tariffs, local laws relating which may include: tariffs, local laws relating to product standards and classification, and to product standards and classification, and taxes.taxes.


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6. Managing Imports – the Other 6. Managing Imports – the Other Side of the CoinSide of the Coin

For organizations in the United States, importing For organizations in the United States, importing is considerably easier than for most firms in the is considerably easier than for most firms in the rest of the world.rest of the world.

About About 60 percent60 percent of the world’s trade is still of the world’s trade is still denominated in U.S. dollars.denominated in U.S. dollars.

Most of the time, a U.S. importer does not have Most of the time, a U.S. importer does not have to bother with hedging foreign exchange to bother with hedging foreign exchange transactions or with trying to accumulate foreign transactions or with trying to accumulate foreign currency to pay for imports.currency to pay for imports.


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6. Managing Imports – the Other 6. Managing Imports – the Other Side of the Coin (contd.)Side of the Coin (contd.)

– Model of Importer Buyer BehaviorModel of Importer Buyer Behavior (see Exhibit (see Exhibit 17-8):17-8):

Stage 1Stage 1. Need recognition and problem . Need recognition and problem formulation (triggered by competition andformulation (triggered by competition andunavailability)unavailability)Stage 2Stage 2. Search (guided by country . Search (guided by country

characteristics, vendor characteristics, and characteristics, vendor characteristics, and information sources)information sources)

Stage 3Stage 3. Choice (vendors evaluation and . Choice (vendors evaluation and selection)selection)


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7. Mechanics of Importing7. Mechanics of Importing

Steps in ImportingSteps in Importing::– Finding a bank that either has a branch in the Finding a bank that either has a branch in the

exporter’s country or has a correspondent bankexporter’s country or has a correspondent bank– Establishing a letter of credit with the bankEstablishing a letter of credit with the bank– Deciding on the mode of transfer of goods from Deciding on the mode of transfer of goods from

exporter to importerexporter to importer– Checking compliance with national laws of the Checking compliance with national laws of the

importing countryimporting country– Making allowances for foreign exchange Making allowances for foreign exchange

fluctuationsfluctuations


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7. Mechanics of Importing (contd.)7. Mechanics of Importing (contd.)

– Fixing liability of payment of import Fixing liability of payment of import transactions and warehousingtransactions and warehousing

Import Documents and DeliveryImport Documents and Delivery– Entry documents filed by the consignee:Entry documents filed by the consignee:

» The bill of ladingThe bill of lading» Customs form 7533Customs form 7533» Customs form 3461Customs form 3461» Packing listPacking list» Commercial invoiceCommercial invoice


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» Also accompanied by evidence that a bond is Also accompanied by evidence that a bond is posted with customs to cover any potential posted with customs to cover any potential duties, penalties, and taxesduties, penalties, and taxes

– For Special Permit for Immediate Delivery, use For Special Permit for Immediate Delivery, use Customs form 3461Customs form 3461 for fast release after for fast release after arrival.arrival.

Import Duties in the United States:Import Duties in the United States:– Ad valorem dutyAd valorem duty– Specific dutySpecific duty– Compound dutyCompound duty


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– Antidumping import dutyAntidumping import duty– Countervailing dutyCountervailing duty– Duty drawback:Duty drawback:

» Direct identification drawbackDirect identification drawback» Substitution drawbackSubstitution drawback


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8. Gray Markets8. Gray Markets Gray marketGray market channel refers to the legal channel refers to the legal

export/import transaction involving genuine export/import transaction involving genuine products into a country by intermediaries other than products into a country by intermediaries other than the authorized distributors.the authorized distributors.

From the importer side, it is also known as “From the importer side, it is also known as “parallel parallel importsimports.”.”

Three conditions are necessary for gray markets to Three conditions are necessary for gray markets to develop:develop:

1. Products must be available in other markets.1. Products must be available in other markets.2. Trade barriers must be low enough for 2. Trade barriers must be low enough for

parallel importers. parallel importers.


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8. Gray Markets (contd.)8. Gray Markets (contd.)

3. Price differentials among various markets 3. Price differentials among various markets must be great enough to provide the basic must be great enough to provide the basic motivation for gray marketers. Such price motivation for gray marketers. Such price differences arise for various reasons:differences arise for various reasons:

Currency fluctuationsCurrency fluctuations Differences in market demandDifferences in market demandLegal differencesLegal differencesOpportunistic behaviorOpportunistic behavior Segmentation strategySegmentation strategy


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How to Combat Gray Market ActivityHow to Combat Gray Market Activity (see Exhibit (see Exhibit 17-9):17-9):– Reactive StrategiesReactive Strategies::

» Strategic ConfrontationStrategic Confrontation» ParticipationParticipation» Price cuttingPrice cutting» Supply interferenceSupply interference» Promotion of gray market product Promotion of gray market product

limitationslimitations» CollaborationCollaboration


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» AcquisitionsAcquisitions Proactive Strategies:Proactive Strategies:

» Product/service differentiation and Product/service differentiation and availabilityavailability

» Strategic pricingStrategic pricing» Dealer developmentDealer development» Marketing information systemsMarketing information systems» Long-term image reinforcementLong-term image reinforcement


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» Establishing legal precedenceEstablishing legal precedence» LobbyingLobbying


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Copyright © John Wiley & Sons, Inc., 2004Copyright © John Wiley & Sons, Inc., 2004