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WILEY IM CHAP 13
1) Exporting is important for Australian businesses, especially large businesses, as a way to enter international markets and achieve high growth potential. Successful exporters understand international customers and commit resources to exporting. 2) There are direct and indirect ways for companies to export. Direct exporting involves selling directly to overseas buyers, while indirect uses representatives or trading companies. 3) Importing involves considerations around regulations, payment terms, and risks from foreign exchange and counterparties. Governments provide support for exports and imports through trade agreements and development grants.
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WILEY IM CHAP 13
- 1. Chapter 13 EXPORTAND IMPORT MANAGEMENT Prepared by Robin Roberts Griffith University
- 2. Learning objectives Afterstudying this chapter you should be able to: Describe the importance of exporting for Australian organisations Identify the key internal factors and decision criteria that underpin successful exporting strategies Describe indirect and direct export strategies
- 3. Learning objectives Outlinethe mechanics of exporting and the risks involved Discuss the role of governments in exporting Outline the mechanics of importing Describe strategies for dealing with grey market activities
- 4. The role ofexporting for Australian organisations Exporting is the key international market entry strategy for Australian businesses historically more of a role for large businesses (32% of sales) than SMEs (4% of sales) high growth potential in traditional markets strong growth in commodities nearly 60% of the fastest growing companies in Australia are successful exporters
- 5. Snapshot of Australian exports and imports Figure 13.1
- 6. Snapshot of Australian exports and imports Figure 13.1 Continued
- 7. Snapshot of Australian exports and imports Figure 13.1 Continued
- 8. Organising for exportsAre companies ready for export? commitment and resources financial and time costs high long term products and Services consider international competition as a benchmark marketing comprehensive understanding of customers perhaps first gained from experience with domestic customers
- 9. Organising for exportsAre companies ready for export? management dedicate time to the export strategy supply capacity timeliness and availability finance making provision for adequate financial resources research accessing information applying the learning
- 10. Research for exportsMany elements to a successful export identification of key segmentation variables researching language and cultural differences One Chinese language does not ‘fit all’ many different dialects spoken throughout the Chinese world Hokien in Singapore Cantonese in south of China sub-dialects throughout the region
- 11. Indirect exporting optionsCombination export manager an export representative that acts as the export department to a small exporter or a large producer with small overseas sales Export merchants trading organisations that buy and resell goods Export commission houses export representative acts on behalf of a foreign buyer
- 12. Indirect exporting optionsExport trading organisations import and export from home markets, offering a large range of services Piggyback exporting cooperative agreement for one company to buy products of another and market them overseas
- 13. Direct exporting Whenan exporter sells directly to an importer or buyer located in a foreign market Export Department an internal department dedicated to exporting and operates independently of domestic operations Export sales subsidiary a separate legal entity that purchases and sells in overseas markets from its parent manufacturer Foreign sales branch a branch within an organisation that handles all sales, distribution and promotional work throughout a designated area
- 14. Direct and indirectexporting Figure 13.2 Comparison of direct and indirect exporting
- 15. Mechanics of exportingLegality of exports goods exported from any country are covered by the laws and regulations of that country many countries have restricted groups of products and services that come under special consideration explosives defense related production navigation and avionics
- 16. Mechanics of exportingExport transactions customs receipt a document of proof of delivery to the assigned party bill of lading contract between exporter and shipper shipper accepts responsibility of goods agrees to transport in return for payment commercial invoice a bill for the good stating basic information about the transaction
- 17. Terms of shipmentand sale The exporter, importer and logistics provider all have responsibilities to one another these are spelled out in the export contract INCOTERMS a universally recognised set of definitions of international terms of trade
- 18. Terms of shipmentand sale Figure 13.3 Terms of shipment
- 19. Payment terms Inaddition to shipping terms there are also terms of payment to consider When considering these terms, certain risks also need to be evaluated credit risk foreign exchange risk transfer risk political risks
- 20. Role of governmentsin promoting exports Governments across the world provide assistance to businesses interested in exporting Free Trade Agreements AUSFTA Australia-Japan Trade and Economic Framework
- 21. Role of governmentsin promoting exports Local government regulations favoured status for exporters DFAT working towards international security, national economic and trade performance Development Grants Austrade’s Export Market Development Grant (EMDG)
- 22. Managing imports Manyconsiderations inherent risks in managing imports counterparty foreign exchange sanctions Zimbabwe in 2008 different set of skills to exporting required regulations can be different e.g. quarantine regulations
- 23. Model of importer buyer behaviour Figure 13.5
- 24. Mechanics of importingSupport from a suitable bank has branches in the exporters country or a correspondent bank located in that country Establishing a letter of credit establishes terms of payment and how payment is made provides a certain ‘insurance’ in the transaction by having the bank involved
- 25. Deciding on themode of transfer how are the goods transferred from exporter to importer providing ‘proof’ to the exporter’s bank exporter presents the importer’s bank importer’s bank transfers funds Mechanics of importing
- 26. Mechanics of importingChecking compliance with national laws both importing and exporting country Making allowances for foreign exchange fluctuations Fixing liabilities for payment of import duties and demurrage and warehousing in case goods are delayed payment for delay is usually the responsibility of the importer
- 27. Import duties Majorimpact on importers usually designed to protect home industries reduction of these globally as countries open their doors to international trade WTO driven
- 28. Grey markets Legalexport/import transactions involving the importation of genuine products into a country by intermediaries other than the authorised distributors also known as ‘parallel imports’ Some countries regulate against it but most don’t Australia once protected its music industry from parallel imports but no longer
- 29. Grey markets Howdo they arise? currency fluctuations difference in prices is produced by movements in currency allows the parallel importer to take an ‘arbitrage’ advantage differences in market demand a product is in great demand in country A but not in country B parallel importer brings (now discounted) product from country B to country A
- 30. Grey markets Segmentationstrategy a product is priced differently in different countries to cater for different segments presents the parallel importer with an arbitrage opportunity Parallel importing can mean a loss of control of the brand by the company who owns the brand to the parallel importer no control over price or distribution
- 31. Summary You shouldnow have an understanding of: Describe the importance of exporting for Australian organisations Identify the key internal factors and decision criteria that underpin successful exporting strategies Describe indirect and direct export strategies
- 32. Summary Outline themechanics of exporting and the risks involved Discuss the role of governments in exporting Outline the mechanics of importing Describe strategies for dealing with grey market activities
- 33.
Editor's Notes
- #5 Refer to header: The role of exporting for Australian organisations Whether organisation become exporters at start-up or gradually work their way into international markets, internal operations and domestic market considerations play a key role in the organisation’s success. For countries such as Australia and New Zealand and the organisations within them, exporting is a life blood. SME - small and medium sized enterprise
- #6 Refer to header: The role of exporting for Australian organisations Exporting is the key international market entry strategy of Australian businesses. (Refer Chapter 8) Since the 2003-04 financial year, Australia's exports of good and services have increased on average by 3.1 per cent per annum in terms of volume and by 13.4 per cent in terms of value per annum. Prices received for exports increased by 10 per cent per annum over the same period.
- #9 Refer to header: Organising for exports At Austrade, the senior economist Tim Harcourt says that there is a trend towards being ‘born global’. Webspy is an example of an organisation that was born global because the internet provides an effective support tool for entering international markets and cuts the costs of technology, communication and travel. Austrade suggests that exporters should carefully check their readiness for exporting. It suggests the following issues to consider: Commitment and resources Goods and services Marketing
- #10 Refer to header: Organising for exports Further issues to consider to consider export readiness are: Management Supply capacity Finance Research Chapter 8 discussed the nature of target market selection. Briefly, organisaitons should develop a method of determining the final set of target countries based on a clear set of criteria. After this, the organisation should select the export market segment and then develop a specific exporting strategy, based on either indirect or direct exporting.
- #11 Refer to header: Organising for exports Identification of an appropriate overseas market and an appropriate segment is discussed in Chapter 8. It involves considerations of at least the: Socioeconomic characteristics Political and legal characteristics Consumer variables Financial conditions
- #12 Refer to header: Indirect exporting Indirect exporting involves the use of independent intermediaries, known as export representatives, to market the organisation’s products overseas. There are several types of export representatives. The most common are the combination export manager, the export merchant, the export broker, the export commission house, the trading organisation and the piggyback exporter.
- #13 Refer to header: Indirect exporting
- #14 Refer to header: Direct exporting Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market. Export success requires export managers’ full commitment in both their attitudes and behaviours. Direct exporting can manifest itself in various organisation forms, depending on the scale of operations and the number of years that an organisation has been engaged in exporting.
- #15 Refer to header: Direct exporting Indirect exporting and direct exporting are compared in the table shown on the screen. Both have advantages and disadvantages, although over the long term – for an organisation desiring a permanent presence in international markets – direct export tend to be more useful. However, despite the additional costs and risks, the longer term even organisations that began as indirect exporters tend to migrate to direct exporting because of the added control that they have over the marketing of their products, and the potentially higher profits and strategic benefits.
- #16 Refer to header: Mechanics of exporting Global trade practices and the development of global export infrastructure have enabled relatively streamlined export procedures. Much of the global trading system operates on identical or at least similar practices and trading systems. Exporting starts with the search for a buyer overseas. It includes research to locate a potential market and a buyer and the process of closing a sale. The process of getting an order was covered earlier in this chapter.
- #17 Refer to header: Mechanics of exporting Once an export contract has been signed, the wheels are set in motion for the process that results in the export contract. The first stage has to do with the legality of the transaction. The exporter has to check to see that the goods can be imported by the importing party. Importing countries especially Japan, EU countries and the United States, standard specifications for good and services are particularly important. For some developing countries, conversion of foreign currency is an issue, so the importer may need to arrange hard currency.
- #18 Refer to header: Mechanics of exporting The responsibilities of the exporter, the importer and the logistics provider should be spelled out in the export contract in terms of what is and what is not included in the price quotation, and who owns title to the goods while in transit. INCOTERMS (international commercial terms) was developed by the international Chamber of Commerce (ICC) based in France and is universally recognised set of definitions of international terms of trade.
- #19 Refer to header: Mechanics of exporting There are 13 INCOTERMS. The commonly used terms are summarised in the figure shown on the slide.
- #20 Refer to header: Mechanics of exporting Credit risk – the risk that an importer will not pay or will fail to pay on the agreed terms. Foreign exchange risk – the risk when a sale is in an importer’s currency that the currency depreciates in relation to the home currency, leaving the exporter with less in the home currency. Transfer risk – the risk that payment will not be made due to an importer’s inability to obtain foreign currency and transfer it to the exporter. Political risk – the risks associated with war, confiscation of an importer’s business and other unexpected political events.
- #21 Refer to header: Role of governments in promoting exports Successive Australian governments have worked to establish and facilitate Australian exports, including creating the legislative, administrative and financial framework that enables them. Of major importance to Australia is the Australia-United States free trade agreement (AUSFTA), discussed previously in Chapter 2. The Australia-Japan Trade and Economic Framework was signed on 6 th July 2003. This agreement consolidates the long-term ties with Australia’s second largest export market, Japan, and the strong commitment to developing further trade and investment links between the two countries.
- #22 Refer to header: Role of governments in promoting exports Other important initiatives include those made by DFAT, the Export Finance and Insurance Corporation (EFIC) and the export market development grants (EMDG) scheme. DFAT works towards international security, national economic and trade performance and global cooperation. It does so by developing regional and bilateral relationships, promoting international market liberalisation and exercising diplomacy. The EMDG is Austrade’s program to provide financial assistance to encourage Australian SMEs to develop export markets.
- #23 Refer to header: Managing imp orts Countries such as New Zealand and Australia are subject to the risk inherent in importing goods that are largely traded with values in US dollars. Sales of oil are in US dollars, for example, oil importers are subject to both the fluctuations in the price of oil and changes in the exchange rate. With rising important of the euro and the regional strength and importance of the Japanese Yen, New Zealand and Australia must develop careful strategies regarding paying for imports where the trade is denominated in another currency. This entails hedging foreign exchange transactions and accumulating hard currency. As well as those consideration there are UN Security Council sanctions on trade with countries such as Cuba, Iraq, Iran, Cote d’Ivoire, the Democratic Republic of Congo, North Korea, Liberia and Sudan.
- #24 Refer to header: Managing imp orts Importer buyer behaviour is a relatively under-researched area in the field of international trade, partly because most nations are more interested in maximising exports than imports, and restricting important is relatively simple compared with being a successful exporter. The most important of the organisation buying modes is the BuyGrid model.
- #25 Refer to header: Mechanics of importing Looking at an import transaction is like looking at an export transaction from the other end. Instead of an exporter looking for a prospective buyer, an importer looks for an overseas organisation that can supply it with the raw materials, components or finished products that it needs for its business. Once an importer locates a suitable overseas exporter, it has to negotiate the terms of the sale with the exporter, including but not restricted to: Finding a bank Establishing a letter of credit
- #26 Refer to header: Mechanics of importing Once an importer locates a suitable overseas exporter, it has to negotiate the terms of the sale with the exporter (continued): - Deciding on the mode of transfer of goods from exporter to importer
- #27 Refer to header: Mechanics of importing Once an importer locates a suitable overseas exporter, it has to negotiate the terms of the sale with the exporter (continued): Checking compliance with national laws Making allowances for foreign exchange fluctuations fixing liability for payment of import duties and demurrage and warehousing in case goods are delayed
- #28 Refer to header: Mechanics of importing The impact of import duties is a major consideration for importers. Many of the duties are designed to protect home market industries. Clearly, these duties increase prices for end consumer and can make the business of importing more challenging for the importer. Australia is experiencing a period of declining import duties, as successive government have sought to open Australian manufacturers to global competition and, at the same time, work towards increased access to other markets for Australian goods and services by lobbying for reduced or abolished import duties.
- #29 Refer to header: G rey markets Grey market channels refer to legal export/import transactions involving the import of genuine products into a country by intermediaries other than the authorised distributors. Three conditions are necessary for grey markets to develop. First, the products must be available in other markets. Second, trade barriers such as tariffs, transportation costs and legal restrictions must be low enough for parallel importers to move the products from one market to another. Third, price differentials among various markets must be great enough to provide the basic motivation for grey marketers.
- #30 Refer to header: G rey markets Differentials arise for various reason, including currency exchange rate fluctuations, differences in demand and segmentation strategies employed by international marketing managers.
- #31 Refer to header: G rey markets Different prices across different markets motivate grey marketers to exploit the price differences among the markets. Alternatively, the product may be modified to address the specific needs of different markets. Although common sense would dictate otherwise, adapting individual products for specific markets also leads to substantially more grey marketing.
- #32 Refer to header: Summary
- #33 Refer to header: Summary