Exporting is an integral part of all international business, whether the company is large or small, or whether it markets in one country or is a global marketer. Goods manufactured in one country and destined for another must be moved across borders to enter the distribution system of the target market. There are three kinds of barriers to exporting facing even the most enthusiastic international traders – managerial, organizational, and external. All are pertinent to our discussion here about the nuts-and-bolts of exporting and logistics. The rules and regulations that cover the exportation and importation of goods and their payment, and the physical movement of those goods between countries, are the special concerns of this chapter. Follow along with the slides (or open book) as we cover Chapter 15.
What you should learn from Chapter 15? •How the U.S. government helps exporters; •The steps necessary to move goods across country borders; •How various import restrictions are used politically; •Means of reducing import taxes to remain competitive;
The mechanics of export documents and their importance; •The main instruments of foreign commercial payments; •The logistics and problems of the physical movement of goods; and •The impact of antiterrorism regulations on the export-import process.
Specific export mechanics occur when goods are shipped from one country to another, and although they may be tedious, you cannot escape them. The good news is that assistance is available for the exporter from government and private sources. Fortunately, today, many of the steps can either be completed or sped up by using the Internet, but they cannot be eliminated . Most countries control the movement of goods crossing their borders, whether leaving (exports) or entering (imports). The international marketer must meet the legal requirements involved in moving goods from one country to another. Countries impose some form of regulation and restriction on the exporting and importing of goods for many reasons. Export regulations may be designed to conserve scarce goods for home consumption or to control the flow of strategic goods to actual or potential enemies. Import regulations may be imposed to protect health, conserve foreign exchange, serve as economic reprisals, protect home industry, provide revenue in the form of tariffs, and ensure national security.
The exporting process as shown in Exhibit 15.1 describes the licenses and documentation necessary to leave the country, an international carrier to transport the goods, and fulfillment of the import requirements necessary to get the shipment legally into another country. .
Although the United States requires no formal or special license to engage in exporting as a business, permission or a license to export may be required for certain commodities and certain destinations. Most items requiring special permission or a license for exportation are under the control of the Bureau of Industry and Security (BIS) of the Department of Commerce. The Department of Commerce has published a revised set of export regulations known as the Export Administration Regulations (EAR). They are intended to speed up the process of granting export licenses by removing a large number of items from specific export license control and by concentrating licensing on a specific list of items, most of which affect national security, nuclear nonproliferation, terrorism, or chemical and biological weapons. The EAR also includes some export controls to protect the United States from the adverse impact of the unrestricted export of commodities in short supply, such as Western cedar. Items that do not require a license for a specific destination can be shipped with the notation NLR (no license required) on the Shipper’s Export Declaration.
The first step when complying with export licensing regulations is to determine the appropriate license for your product. Products exported from the United States require a general or a validated export license, depending on the product, where it is going, the end use, and the final user. The general license permits exportation of certain products that are not subject to EAR control with nothing more than a declaration of the type of product, its value, and its destination. The validated license, issued only on formal application, is a specific document authorizing exportation within specific limitations designated under the EAR. The responsibility of determining if a license is required rests with the exporter. The exporter is responsible for selecting the proper classification number, known as the Export Control Classification Number (ECCN) , for the item to be exported. The ECCN leads to a description in the Commerce Control List (CCL) , which indicates the exportability status of the item. The exporter is responsible for determining the ultimate end customer and ultimate end uses of the product, regardless of the initial buyer. This step includes carefully screening end users and end uses of the product to determine if the final destination of the product is to an unapproved user or for an unapproved use. As is true of all the export mechanics that an exporter encounters, the details of exporting must be followed to the letter.
Exhibit 15.2 illustrates the Commerce Control List Requirements for ECCN 0A984 – shotguns. Consulting this list shows that the reasons for control are Crime Control (CC), Firearms Convention (FC), and UN sanctions (UN) and that there are different restrictions depending on the length of the shotgun barrel.
In combination with the Commodity Control List, the Commerce Country Chart (CCC), as shown in Exhibit 15.3, allows you to determine whether a license is required for items on the CCL exported to any country in the world. In checking the CCC, you find Argentina, Australia, and Sudan all listed. Looking at the Crime Control and Firearms Convention columns and referencing the product description in the Commodity Control List, you see that the Argentinean order for shotguns with 20-inch barrels falls into CC Column 1 and FC Column 1, where the x indicates that the order cannot be shipped without a special license. The Australian orders for 23-inch and 26-inch shotguns (CC Columns 1 and 2) do not require special licenses. Finally, an examination of the Sudanese order for 26-inch shotguns reveals in CC Column 2 that the product can be exported without a special license; however, CC Column 3 indicates that if the guns are for sale or resale to police or law enforcement, a special license is required. Because you are not sure if the shotguns are to be resold, more information will be needed before the order can be processed. If you determine that the guns will not be resold to police or law enforcement, they can be shipped without special license; otherwise, a license will have to be obtained before the shipment can take place.
The exporter has an important role to play in preventing exports and re-exports that might be contrary to the national security and foreign policy interests of the United States and to ensure that the shipment is not in violation of Bureau of Export Administration regulations. The Export Administration Regulations suggest looking for red flags as shown in Exhibit 15.4, which may give a clue that your customer is planning an unlawful diversion. To assist in determining the motives of a buyer, the BXA proposes the twelve indicators shown in this exhibit as possible signs that a customer is planning an unlawful diversion.
Good record keeping, as well as verifying the steps undertaken in establishing the proper ECCN and in evaluating the intentions of end users and end uses, is important should a disagreement arise between the exporter and the Bureau of Industry and Security. Penalties can entail denial of export privileges, fines, or both. Exhibit 15.5 shows examples of violations and penalties of BIS Export Controls. These include end use/user violations, facilitating export to denied persons, dual use products, violation of antiboycott provisions, and illegal transshipping.
Although the procedure for acquiring an export license may seem tedious on first reading, four electronic services facilitate the paperwork and reduce the time necessary to acquire export licenses. ELAIN (Export License Application and Information Network) enables exporters that have authorization to submit license applications via the Internet for all commodities except supercomputers to all free-world destinations. STELA (System for Tracking Export License Applications), an automated voice-response system for tracking applications, can be accessed using a touch-tone phone. It provides applicants with the status of their license and classification applications and is available 24 hours a day, seven days a week. ERIC (Electronic Request for Item Classification), a supplementary service to ELAIN, allows an exporter to submit commodity classification requests via the Internet to the Bureau of Export Administration. SNAP (Simplified Network Application Process), an alternative to paper license submissions, enables an exporter to submit export and re-export applications, high-performance computer notices, and commodity classification requests via the Internet. Acknowledgments of submissions will be received the same day, and electronic facsimiles of export licenses and other validations can be obtained online.
Besides import tariffs, many other trade restrictions are imposed by foreign countries – the most frequently encountered include such nontariff barriers (NTBs) as exchange permits, quotas, import licenses, standards, boycotts, voluntary agreements, and other restrictions. A few examples from the 30 basic barriers to exporting considered important by Business International include import licenses, quotas, and other quantitative restrictions; currency restrictions and allocation of exchange at unfavorable rates on payments for imports; devaluation; prohibitive prior import deposits, prohibition of collection-basis sales, and insistence on cash letters of credit; arbitrarily short periods in which to apply for import licenses; and delays resulting from pressure on overworked officials or from competitors’ influence on susceptible officials. Although sanitation certificates, content labeling, and similar regulations serve a legitimate purpose, countries can effectively limit imports by using such restrictions as additional trade barriers.
Terms of sale, or trade terms , differ somewhat in international marketing from those used in the United States. In U.S. domestic trade, it is customary to ship FOB (free on board, meaning that the price is established at the door of the factory), freight collect, prepaid, or COD (cash, or collect, on delivery). International trade terms often sound similar to those used in domestic business but generally have different meanings. The most frequently used international trade terms include the following: CIF (cost, insurance, freight) to a named (that is, specified in writing) overseas port of import. A CIF quote is more meaningful to the overseas buyer because it includes the costs of goods, insurance, and all transportation and miscellaneous charges to the named place of debarkation. C&F (cost and freight) to a named overseas port. The price includes the cost of the goods and transportation costs to the named place of debarkation. The cost of insurance is borne by the buyer. FAS (free alongside) at a named U.S. port of export. The price includes cost of goods and charges for delivery of the goods alongside the shipping vessel. The buyer is responsible for the cost of loading onto the vessel, transportation, and insurance. FOB (free on board) at a named inland point, at a named port of exportation, or at a named vessel and port of export. The price includes the cost of the goods and delivery to the place named. EX (named port of origin). The price quoted covers costs only at the point of origin (for example, EX Factory). All other charges are the buyer’s concern.
It is important for the exporter to understand exactly the meanings of terms used in quotations. A simple misunderstanding regarding delivery terms may prevent the exporter from meeting contractual obligations or make that person responsible for shipping costs he or she did not intend to incur. Exhibit 15.6 indicates who is responsible for a variety of costs under various terms. Who absorbs export packing? This charge should be clearly agreed on. Charges are sometimes controversial. The seller has responsibility to arrange for consular invoices (and other documents requested by the buyer’s government). According to official definitions, the buyer pays fees, but sometimes as a matter of practice, the seller includes fees in quotations.
The sale of goods in other countries is further complicated by additional risks encountered when dealing with foreign customers. Risks from inadequate credit reports on customers, problems of currency exchange controls, distance, and different legal systems, as well as the cost and difficulty of collecting delinquent accounts, require a different emphasis on payment systems. Export letters of credit opened in favor of the seller by the buyer handle most American exports. Letters of credit shift the buyer’s credit risk to the bank issuing the letter of credit. When a letter of credit is employed, the seller ordinarily can draw a draft against the bank issuing the credit and receive dollars by presenting proper shipping documents. Letters of credit can be revocable or irrevocable. An irrevocable letter of credit means that once the seller has accepted the credit, the buyer cannot alter it in any way without permission of the seller. The international department of a major U.S. bank cautions that a letter of credit is not a guarantee of payment to the seller. Rather, payment is tendered only if the seller complies exactly with the terms of the letter of credit. Another important form of international commercial payment is bills of exchange drawn by sellers on foreign buyers. In letters of credit, the credit of one or more banks is involved, but with bills of exchange (also known as dollar drafts ), the seller assumes all risk until the actual dollars are received. A sight draft requires acceptance and payment on presentation of the draft and often before arrival of the goods. An arrival draft requires payment be made on arrival of the goods. Unlike the other two, a date draft has an exact date for payment and in no way is affected by the movement of the goods. Time designations may be placed on sight and arrival drafts to stipulate a fixed number of days after acceptance when the obligation must be paid. Usually this period is 30 to 120 days, thus providing a means of extending credit to the foreign buyer.
The procedure for a letter of credit begins with completion of the contract. Exhibit 15.7 shows the steps in a letter-of-credit transaction. The buyer then goes to a local bank and arranges for the issuance of a letter of credit; the buyer’s bank notifies its correspondent bank in the seller’s country that the letter has been issued. After meeting the requirements set forth in the letter of credit, the seller can draw a draft against the credit (in effect, the bank issuing the letter) for payment for the goods. The precise conditions of the letter of credit are detailed in it and usually also require presentation of certain documents along with the draft before the correspondent bank will honor it. The documents usually required are a commercial invoice, a consular invoice (when requested), a clean bill of lading, and an insurance policy or certificate.
The volume of international business handled on a cash-in-advance basis is not large. Cash places unpopular burdens on the customer and typically is used when credit is doubtful, when exchange restrictions within the country of destination are such that the return of funds from abroad may be delayed for an unreasonable period, or when the American exporter for any reason is unwilling to sell on credit terms. Sales on open accounts are not generally made in foreign trade except to customers of long standing with excellent credit reputations or to a subsidiary or branch of the exporter. Open accounts obviously leave sellers in a position where most of the problems of international commercial finance work to their disadvantage. Inconvertible currencies and cash-short customers can kill an international sale if the seller cannot offer long-term financing. Unless the company has large cash reserves to finance its customers, a deal may be lost. Forfaiting is a financing technique for such a situation where the seller makes a one-time arrangement with a bank or other financial institution to take over responsibility for collecting the account receivable. The exporter offers a long financing term to its buyer but intends to sell its account receivable, at a discount, for immediate cash. The forfaiter buys the debt, typically a promissory note or bill of exchange, on a nonrecourse basis. Once the exporter sells the paper, the forfaiter assumes the risk of collecting the importer’s payments. The forfaiting institution also assumes any political risk present in the importer’s country.
Each export shipment involves many documents, as described in Exhibit 15.8, to satisfy government regulations controlling exporting as well as to meet requirements for international commercial payment transactions. describes the principal export documents. Export Documents – presented at the port of exit, include the names and addresses of the principals involved, the destination of the goods, a full description of the goods, and their declared value. Consular Invoice or Certificate of Origin – obtained from the country’s consulate and returned with two to eight copies in the language of the country, along with copies of other required documents (e.g., import license, commercial invoice, and/or bill of lading), is required before certification is granted. Bill of Lading – the most important document is necessary for establishing legal ownership and facilitating financial transactions. Commercial Invoice – required by every international transaction, is a bill or statement for the goods sold. Insurance Policy or Certificate – is c onsidered a key document in export trade. Licenses – are additional documents frequently required in export trade. Other Documents – include Sanitary and health inspection certificates attesting to the absence of disease and pests may be required for certain agricultural products before a country allows goods to enter its borders. Packing lists with correct weights are also required in some cases.
In addition to completing all documentation, special packing and marking requirements must be considered for shipments destined to be transported over water, subject to excessive handling, or destined for parts of the world with extreme climates or unprotected outdoor storage. Protection against rough handling, moisture, temperature extremes, and pilferage may require heavy crating, which increases total packing costs as well as freight rates because of increased weight and size. Because some countries determine import duties on gross weight, packing can add a significant amount to import fees. To avoid the extremes of too much or too little packing, the marketer should consult export brokers, export freight forwarders, or other specialists. All countries regulate the marking of imported goods and containers, and noncompliance can result in severe penalties. The exporter must be careful that all markings on the container conform exactly to the data on the export documents because Customs officials often interpret discrepancies as an attempt to defraud. A basic source of information for American exporters is the Department of Commerce pamphlet series entitled Preparing Shipment to [Country], which details the necessary export documents and pertinent U.S. and foreign government regulations for labeling, marking, packing, and customs procedures.
To facilitate export trade, countries designate areas within their borders as customs-privileged facilities, that is, areas where goods can be imported for storage and/or processing with tariffs and quota limits postponed until the products leave the designated areas. Foreign trade zones (also known as free trade zones), free ports, and in-bond arrangements are all types of customs-privileged facilities that countries use to promote foreign trade The number of countries with foreign trade zones (FTZs) has increased as trade liberalization has spread through Africa, Latin America, eastern Europe, and other parts of Europe and Asia. Most FTZs function in a similar manner regardless of the host country. More than 300 foreign trade zones are located throughout the United States. Goods subject to U.S. customs duties and quota restrictions can be landed in these zones for storage or such processing as repackaging, cleaning, and grading before being brought into the United States or re-exported to another country. In situations in which goods are imported into the United States to be combined with American-made goods and re-exported, the importer or exporter can avoid payment of U.S. import duties on the foreign portion and eliminate the complications of applying for a drawback, that is, a request for a refund from the government of 99 percent of the duties paid on imports later re-exported. Maquiladoras, in-bond companies, or twin plants are names given to a special type of customs-privileged facility that originated in Mexico in the early 1970s. This type of facility has since expanded to other countries that have abundant, low-cost labor. The passage of NAFTA resulted in some changes in the rules governing maquiladoras. Preferential tariff treatment and all export performance requirements (for example, trade and foreign exchange balancing) have been eliminated for NAFTA countries.
When a company is primarily an exporter from a single country to a single market, the typical approach to the physical movement of goods is the selection of a dependable mode of transportation that ensures safe arrival of the goods within a reasonable time for a reasonable carrier cost. When an international marketer begins producing and selling in more than one country and becomes a global marketer, it is time to consider the concept of logistics management, a total systems approach to management of the distribution process that includes all activities involved in physically moving raw material, in-process inventory, and finished goods inventory from the point of origin to the point of use or consumption.
A physical distribution system involves more than the physical movement of goods. It includes location of plants and warehousing (storage), transportation mode, inventory quantities, and packing. The concept of physical distribution takes into account the interdependence of the costs of each activity; a decision involving one activity affects the cost and efficiency of one or all others. In fact, because of their interdependence, the sum of each of the different activity costs entails an infinite number of “total costs.” ( Total cost of the system is defined as the sum of the costs of all these activities.)
The idea of interdependence can be illustrated by the classic example of airfreight. Exhibit 15.9 is an illustration of an actual company’s costs of shipping 44,000 peripheral boards worth $7.7 million from a Singapore plant to the U.S. West Coast using two modes of transportation—ocean freight and the seemingly more expensive airfreight. When considering only rates for transportation and carrying costs for inventory in transit, air transportation costs were approximately $57,000 higher than ocean freight. But notice that when total costs are calculated, airfreight was actually less costly than ocean freight because of other costs involved in the total physical distribution system. For many commodities of high unit value and low weight and volume, international airfreight is a reasonable choice. Airfreight has shown the fastest growth rate for freight transportation even though it accounts for only a fraction of total international shipments. Although airfreight can cost two to five times the surface charges for general cargo, some cost reduction is realized through reduced packing requirements, paperwork, insurance, and the cost of money tied up in inventory. Although usually not enough to offset the higher rates charged for airfreight, it can, as illustrated in Exhibit 15.9, be a justifiable alternative if the commodity has high unit value or high inventory costs, or if delivery time is a concern. Many products moving to foreign markets meet these criteria.
A system of physical distribution offers more benefits than cost advantages. An effective physical distribution system can result in optimal inventory levels and, in multiplant operations, optimal production capacity, both of which can maximize the use of working capital. In making plant-location decisions, a company with a physical distribution system can readily assess operating costs of alternative locations to serve various markets. A physical distribution system may also result in better (more dependable) delivery service to the market; when production occurs at different locations, companies are able to determine quickly the most economical source for a particular customer. Finally, a physical distribution system can render the natural obstructions created by geography less economically critical for the multinational marketer. Getting the product to market can mean multiple transportation modes, such as canal boats in China, pedal power in Vietnam, and speed trains in Japan or Europe.
When transporting goods, the task is to match each order to the shipping modes best suited for swift, safe, and economical delivery. Ocean shipping, airfreight, air express, and parcel post are all possibilities. While ocean shipping is usually the least expensive and most frequently used method for heavy bulk shipment, for certain categories of goods, airfreight can be the most economical and certainly the speediest. Containerized shipments, in place of the traditional bulk handling of full loads or break-bulk operations, have resulted in intermodal transport between inland points, reduced costs, reduced losses from pilferage and damage, and simplified handling of international shipments. Intermodal services, uniting various modes of transportation into one seamless movement of goods from factory to the customer’s port of entry, have become more efficient as deregulation has allowed the coupling of various modes of transportation. In addition, intermodal marketing companies (IMCs) have evolved to broker transportation services where an exporter can make one transaction with an IMC and take care of the movement of goods from factory to customer. Rail transportation between the United States and Mexico has improved and furthermore, the proposed merger between Canadian National and Burlington Northern Santa Fe will establish a North American rail line from Canada into Mexico. Another innovation in transportation and logistics is the service provided by United Parcel Service (UPS), Federal Express (FedEx), and similar companies. In addition to providing air-express service for packages, these companies are offering complete logistics management services including support services for their clients. One solution to a company’s ability to physically move goods manufactured in one country and assembled in another is merge-in-transit, a distribution method in which goods shipped from several supply locations are consolidated into one final customer-delivery point. As distribution systems become more complex and costly, merge-in-transit is one system designed to increase customer value and decrease distribution costs.
The foreign freight forwarder, licensed by the Federal Maritime Commission, arranges for the shipment of goods as the agent for an exporter. The forwarder is an indispensable agent for an exporting firm that cannot afford an in-house specialist to handle paperwork and other export trade mechanics. Even in large companies with active export departments capable of handling documentation, a forwarder is useful as a shipment coordinator at the port of export or at the destination port. Besides arranging for complete shipping documentation, the full-service foreign freight forwarder provides information and advice on routing and scheduling, rates and related charges, consular and licensing requirements, labeling requirements, and export restrictions. Further, the agent offers shipping insurance, warehouse storage, packing and containerization, and ocean cargo or airfreight space.
The essence of international logistics is to integrate all the steps necessary to move goods from supplier to manufacturer to customer. This means that a logistics system has to deal with an often disparate set of agents and activities—carriers, warehouses, export regulations, import regulations, customs agents, freight forwarders, and so on—each of which must be accessed individually by the logistics manager. The advent of information technology has allowed communication with the participants in real time via a single connection point. Integrated software application systems like NextLinx, in conjunction with the Internet, have enabled large companies such as Cisco Systems to manage their imports and exports more efficiently. When a computer manufacturer has to coordinate supply chains that reach into China and Malaysia and Mexico and Portugal, software such as that provided by NextLinx, Descartes, and others is used to fully automate its supply chain systems. For companies not wishing to maintain a fully automated supply chain system in-house, 3PL providers or integrators such as UPS Logistics Group can process and store all inventory and then ship it within two hours to the precise plant location where it is needed. They can also handle such tasks as customs clearance and return and repair of certain merchandise. Manufacturers can shift their supply chain structures much more rapidly and with less pain than is the case with vertically integrated operations.
After the terrorist attack on New York’s World Trade Center (9/11), Homeland Security added a crucial step in logistics management—vigilance at each point in the export/import process. Before 9/11, “security” referred to prevention of theft or pilferage. Today, the Cargo and Container Security Initiative (CSI) 24-hour rule requires sea carriers and NVOCC (Non-Vessel Operating Common Carriers) to provide U.S. Customs with detailed descriptions (manifests) of the contents of containers bound for the United States 24 hours before a container is loaded on board a vessel. Trucking companies are also bound by the 24-hour rule and are expected to provide a manifest four hours before trucks are loaded with products entering the United States and 24 hours in advance when leaving the United States. The Customs–Trade Partnership against Terrorism (C-TPAT) is a joint initiative between government and business designed to augment the 24-hour rule by extending security procedures throughout the supply chain. C-TPAT requires importers to establish a documented program for security-risk assessment of overseas suppliers. To further strengthen C-TPAT, U.S. Customs and Border Protection (CBP) announced plans for electronic container tracking as an integral part of the process. C-TPAT-Plus, as it is called, offers shippers immediate turnaround with no inspection upon arrival in exchange for including technologies that can electronically track incoming containers, monitor them for tampering from the point of origin, and provide a record of events while in transit. Such tracking can include RFID (radio frequency identification), GPS (global positioning systems), cellular, satellite, ultra-wide-band, “Bluetooth,” bar codes, and optical character recognition. Although numerous technological devices are available, none has been more widely implemented than bar codes and RFID.
For nearly 10 years, the U.S. Department of Defense has been using RFID tags on freight containers as described in Exhibit 15.10. The Defense Department asks its suppliers to affix RFID tags on cases and pallets they ship to key receiving sites. RFID tags provide different monitoring capabilities, but all track a container or pallet while in transit and in some cases communicate with a receiver at the border or elsewhere. Substantial disruptions in transit are avoided if security questions relating to a cargo shipment have been addressed prior to a vessel being loaded and sailing and then monitored while in transit. An RFID network consists of two primary components—a transponder and a reader. The transponder, commonly referred to as the tag, is a device that generates electrical signals interpreted by the reader. Transponders can be active (self-powered by internal battery) or passive (powered by magnetic field). Transponders can be read only or they can be read/write for applications that require data to be updated dynamically and stored in the transponder. Read–write tags allow identification data to be changed during normal operations when variable data are more important than a unique identity.
Let’s summarize what we learned in Chapter 15. An awareness of the mechanics of export trade is indispensable to the foreign marketer who engages in exporting goods from one country to another. Although most marketing techniques are open to interpretation and creative application, the mechanics of exporting are exact; they offer little room for interpretation or improvisation with the requirements of export licenses, quotas, tariffs, export documents, packing, marking, and the various uses of commercial payments. The very nature of the regulations and restrictions surrounding importing and exporting can lead to frequent and rapid change. In handling the mechanics of export trade successfully, the manufacturer must keep abreast of all foreign and domestic changes in requirements and regulations pertaining to the product involved. For firms unable to maintain their own export staffs, foreign freight forwarders can handle many details for a nominal fee.
With paperwork completed, the physical movement of goods must be considered. Transportation mode affects total product cost because of the varying requirements of packing, inventory levels, time requirements, perishability, unit cost, damage and pilfering losses, and customer service. Transportation for each product must be assessed in view of the interdependent nature of all these factors. To ensure optimum distribution at minimal cost, a physical distribution system determines everything from plant location to final customer delivery in terms of the most efficient use of capital investment, resources, production, inventory, packing, and transportation. The seemingly endless rules, regulations of exporting, the demands of efficient global logistics and the absolute necessity to comply with national security regulations can be daunting. Fortunately, the continuous innovations in information technology, the Internet, and software programs can minimize much of the burden associated with global marketing.
2. What Should You Learn?• How the U.S. government helps exporters• The steps necessary to move good across country borders• How various import restrictions are used politically• Means of reducing import taxes to remain competitive 15-2
3. What Should You Learn?• The mechanics of export documents and their importance• The main instruments of foreign commercial payments• The logistics and problems of the physical movement of goods• The impact of antiterrorism regulations on the export-import process 15-3
4. Global Perspective An Export Sale: From Trade Show to Installation• Specific export mechanics occur when goods are shipped from one country to another• The Internet has helped speed up process• Most countries control the movement of goods crossing their borders – imports and exports• The international marketer must meet the legal requirements involved in moving goods from one country to another – Export regulations – Import regulations 15-4
5. The Exporting ProcessExhibit 15.1 15-5
6. Export Restrictions• Controlled by the Bureau of Industry and Security (BIS) of the Department of Commerce• Export Administration Regulations – Serve the national security, foreign policy, and nonproliferation interests – Includes some export controls to protect the U.S. from the adverse impact of the unrestricted export of commodities in short supply• NLR (no license required) 15-6
7. Determining Export Requirements• Exporter must determine the appropriate license for the product (general or validated) – Export Control Classification Number (ECCN) – Commerce Control List (CCL) – End-use restrictions – Determination of ultimate end customer and ultimate end uses of the product• Details of exporting must be followed to the letter 15-7
8. Illustration of Commerce Control List Requirements for ECCN 0A984Exhibit 15.2 15-8
9. Commerce Country Chart – Reasons for Control (Selected Countries)Exhibit 15.3 15-9
10. Red FlagsExhibit 15.4 15-10
11. Examples of Violationsand Penalties of BIS Export ControlsExhibit 15.5 15-11
12. ELAIN, STELA, ERIC, and SNAP• ELAIN ( Export License Application and Information Network)• STELA (System for Tracking Export License Applications)• ERIC (Electronic Request for Item Classification)• SNAP (Simplified Network Application Process) 15-12
14. Terms of Sale• CIF (cost, insurance, freight)• C&F (cost and freight)• FAS (free alongside)• FOB (free on board)• EX (named port of origin) 15-14
15. Whose Responsible for Costs under Various Terms?Exhibit 15.6 15-15
16. Getting Paid – Foreign Commercial Payments• Letter of credit – Afford the greatest degree of protection for the seller – Can be revocable or irrevocable – Not a guarantee of payment to the seller• Bills of exchange – Also known as dollar drafts ► The seller assumes all risk until the actual dollars are received – Sight draft – Arrival draft – Date draft 15-16
17. A Letter-of-Credit TransactionExhibit 15.7 15-17
18. Getting Paid – Foreign Commercial Payments• Cash in advance – Places unpopular burdens on the customer• Open accounts – Not generally made in foreign trade – Leaves sellers at a disadvantage• Forfaiting – Seller makes a one-time arrangement with a financial institution to take over responsibility for collecting the account receivable 15-18
19. Principal Export DocumentsExhibit 15.8 15-19
20. Packing and Marking• Export packaging must consider: – Protection against rough handling, climate, pilferage – Effect of gross weight on import fees• All countries regulate the marking of imported goods and containers – All markings must conform exactly to the data on the export documents• Preparing shipment to (Country) details: – Necessary export documents – Regulations for labeling, marking, packing, and customs procedures 15-20
21. Customs-Privileged Facilities• Customs-privileged facilities – Areas where goods can be imported for storage and/or processing with tariffs and quota limits postponed until the products leave the designated areas• Foreign trade zones (FTZs) – Drawback• Offshore assembly (Maquiladoras) – Originated in Mexico in the early 1970’s – NAFTA 15-21
22. Logistics• Logistics management – Total systems approach to management of the distribution process ► Physically moving raw material ► In-process inventory ► Finished goods inventory from the point of origin to the point of use or consumption 15-22
23. Interdependence of Physical Distribution Activities• Physical distribution system – Physical movement of goods – Location of plants and warehousing (storage) – Transportation mode – Inventory quantities – Packing• Interdependence of the costs of each activity – A decision involving one activity affects the cost and efficiency of one or all others – Sum of each of the different activity costs entails an infinite number of “total costs” 15-23
24. Real Physical Distribution Costs between Air and Ocean Freight – Singapore to the United StatesExhibit 15.9 15-24
25. Benefits of a Physical Distribution System• Cost advantages• Optimal inventory levels• Optimal production capacity• More dependable delivery service to the market• Can render natural obstructions created by geography less economically critical for multinational marketer 15-25
27. Foreign Freight Forwarder• Licensed by the Federal Maritime Commission• Arranges for the shipment of goods as the agent for an exporter – Arranges for complete shipping documentation – Provides information and advice on routing and scheduling, rates and related charges, consular and licensing requirements, labeling requirements, and export restrictions – Offers shipping insurance, warehouse storage, packing and containerization, and ocean cargo or airfreight space 15-27
28. International Logistics and Supply Chain Management• Information technology now allows communication with participants in real time via a single connection point• NetLinx• Descartes• 3PL providers or integrators – UPS Logistics Group 15-28
29. Terrorism and Logistics• Cargo and Container Security Initiative (CSI) – 24-hour rule• Customs-Trade Partnership against Terrorism (C-TPAT) – Augments the 24-hour rule by extending security procedures throughout the supply chain – Only applies to U.S. importers• Electronic tracking (C-TPAT-Plus) – RFID – GPS – Cellular – Satellite – Ultra-wide-band – Bluetooth – Bar codes – Optical character recognition 15-29
30. Radio frequency IdentificationExhibit 15.10 15-30
31. Summary• The mechanics of exporting require little room for interpretation or improvisation• Nature of regulations and restrictions surrounding importing and exporting can lead to frequent and rapid change – The manufacturer must keep abreast of all foreign and domestic changes in requirements and regulations• Foreign-freight-forwarders can handle many details for a nominal fee 15-31
32. Summary• Transportation mode affects total product cost• Physical distribution system – Determines everything from plant location to final customer delivery in terms of most efficient use ► Capital investment ► Resources ► Production ► Inventory ► Packaging ► Transportation• Continuous innovations in IT, the Internet, and software programs can minimize much of the burden associated with global marketing 15-32