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MODES OF ENTRY INTO INTERNATIONAL MARKETS
Exporting
Modes of entry into international markets:
• Exporting
• International
Licensing
• International
Franchising
• Specialized Modes
• Foreign Direct
Investment
• Countertrade
Exporting:
• Simple mode of
internationalizing a domestic business
• Advantages
– allows a firm to
quickly enter the foreign market
– often involves
less financial exposure
– permits a firm to
enter a foreign market gradually, and in this way allows it to assess local
conditions and fine-tune its products to better suit the needs
of the customers in the host country
• Disadvantages
– little control
over marketing and distribution in the host country
– can quickly lose
market to other firms
– in case of many
goods, transportation costs may be high rendering the exported products too
expensive for host markets
Forms of exporting:
Indirect exporting
– occurs when a
firm sells its products to a domestic customer, who in turn exports the product,
in
either its original form or a modified form
Direct exporting
– involves sales to
customers - either distributors or end-users - located outside the firm’s home
country
Intracorporate transfers
– is selling of
goods / services by a firm in one country to an affiliated firm in another
Export intermediaries:
•
Export
management companies
– a firm which acts
as a client’s export department - an EMC’s staff are typically knowledgeable
about the legal, financial and logistical details of exporting
and importing.
– can be commission
agents or may take title of goods by profiting from the difference between
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local buying price and selling price to the foreign customer
•
Enterprise
networks
– a group of
companies producing related or complementary products pooling resources together
to
form marketing companies
•
International
trading companies
– are firms which
are directly engaged in importing and exporting a wide variety of goods on their
own account
Export and import management:
Terms of Shipment
• Ex-works (EXW)
- at the point of origin
– The exporter
agrees to deliver the goods at the disposal of the buyer to the specified place
on the
specified date or within a fixed period. All other charges are
borne by the buyer.
• Free Alongside
Ship (FAS) - at a named port
of export
– The exporter
quotes a price for the goods, including charges for delivery of the goods
alongside a
vessel at a port. The seller covers the costs of unloading and
wharfage. Loading onto the ship,
ocean transportation, insurance, unloading and wharfage at a
port of destination and transport to
the site required by the buyer are on the importer’s account.
•
Free on Board
(FOB) - at a named port of
export
– In addition to
FAS, the exporter undertakes to load the goods on the vessel to be used for
ocean
transportation and the price quoted by the exporter reflects
this cost.
•
Cost and
Freight (CFR) - to a named
overseas port of disembarkation
– The exporter
quotes a price for the goods, including the cost of transportation to a named
overseas port of disembarkation. The cost of insurance and the
choice of the insurer are left to the
importer.
•
Cost,
Insurance and Freight (CIF) -
to a named overseas port of disembarkation
– The exporter
quotes a price including insurance and all transportation and miscellaneous
charges
to the port of disembarkation from the ship or aircraft. CIF
costs are influenced by port charges
(unloading, wharfage, storage, heavy lift, demurrage),
documentation charges (certification of
invoice, certification of origin, weight certificate) and other
miscellaneous charges (fees of freight
forwarder, insurance premiums).
•
Delivery Duty
Paid (DDP) - to an overseas
buyer’s premises
– The exporter
delivers the goods with import duties paid including inland transportation from
the
docks to the importer’s premises.
Terms of payment of an export transaction:
• Cash with order
– Cash payment when
order is placed
• Confirmed
irrevocable letter of credit
– A letter of
credit issued by the importer’s bank and confirmed by a bank, usually in the
exporter’s
country. The obligation of the second bank is added to the
obligation of the issuing bank to honor
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drafts presented in accordance with the terms of credit.
• Unconfirmed
irrevocable letter of credit
– A letter of
credit issued by the importer’s bank. The issuing bank still has an obligation
to pay.
• Revocable letter
of credit
– A letter of
credit that may be withdrawn from the beneficiary at any time without prior
notice to
the exporter. It does not carry a bank’s obligation to pay.
• Sight Draft
– A draft so drawn
as to be payable on presentation to the drawee (usually the buyer).
• Time Draft
– A draft maturing
at a certain fixed time after presentation or acceptance.
• Open Account
– No draft drawn;
transaction payable when specified on invoice.
• Consignment
– A shipment that
is held by the importer until the merchandise has been sold, at which time
payment is made to the exporter.
Other export documents / terms:
• A bill of lading
– is a contract
between the exporter and the shipper indicating that the shipper has accepted
responsibility for the goods and will provide transportation in
return for payment.
– A straight bill
of lading is non-negotiable.
– A shipper’s order
bill of lading is negotiable; it can be bought, sold or traded while the goods
are
still in transit, (title of goods can change hands) - normally
the original bill of lading is needed to
take possession of goods.
• Air way bill – a
contract between the exporter and the air-cargo company.
• Country of origin
certificate – certifying where the goods were manufactured
• Commercial
invoice / Consular invoice from
consulate office of importing country in importing
country language
• LC margin – a
percent of payment of the total import amount paid by the importer to his bank
for the
bank to issue a letter of credit for the whole value of the
import
• Pre-Shipment
inspection – inspection of the goods done by or on behalf of the importer before
the
shipment
• Export packing
list – a list in the export documents listing the packaging and items in each
packing
• Insurance
certificate – issued by an insurer for the insurance of the export merchandise
• Export / Import
registration – required in various countries to allow firms to import or export
goods
• Export / Import
license – a license needed in some countries for specific imports or exports
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• Freight forwarder
– a company involved in packing and shipment of export goods
• Customs /
Clearing Agent – company involved in dealing with the customs clearance of
imported or
exported goods
• Bonded warehouse
– a designated warehouse where imported goods may be stored prior to the
payment of import duties. Importers pay customs duties when they
take the goods out of the bonded
warehouse
• Marking of the
shipments – markings on the outer packaging of the export consignment for the
purpose of identification
• Marine cargo
insurance (special one time / open policy) – export goods’ insurance for the
transportation
• Containers –
metal containers ( normally 20 or 40 feet long) for safe transportation of cargo
by sea
• Bulk-break –
normally goods are transported by sea in large metal containers – some exporters
may
not have enough cargo to fill a container then the cargo
companies combine cargos from a number of
exporters to fill a container for shipment to a destination
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