Exporting:

- Firm’s first foreign entry strategy, it is low cost, low risk, highly flexible
- Mostly used by SMEs , small medium enterprises
- Trade deficits (imports more than exports)
- Trade surplus (exports more than imports)
- Export channel can either be independent agent or firm’s own
marketing subsidiary abroad
- Many services cannot be exported due to transportation issues
- Services require direct contact with customers so entry strategies like
FDI
- Advantages:
increase sales revenue, increase market share, economies of scale,
larger customer base, diversify customer base, low cost, low risk, high
flexibility, leverages capabilities of foreign distributors.
- Disadvantages:
exporting offers minimal opportunities to interact with customers and
better understand their needs, as well as competitors and other
elements of foreign market, must have new capabilities in international
sales contracts, international financing, logistics etc. which can strain
organizational resources, exposes firm to tariffs, trade barriers, and
fluctuating exchange rates.
- Systematic approach to exporting:
1. assesses global market opportunity
2. organize for exporting
3. acquire needed skills and competencies
4. implement exporting strategy
- Export intermediation options
• Direct exporting: export management company or trading
company or online intermediary in the firm’s home country
 • Indirect exporting: intermediaries in the foreign market like
distributors or agents or sales representative or broker who
perform downstream value chain activities in target market
• Company owned foreign subsidiary: the firm own’s the foreign
intermediary operation
- Export documentation (paperwork required to transport exported
goods and clear customs):
• Quotation or pro forma invoice: issued to advise potential buyer
about the price and description of the exporter’s product or service.
• Commercial invoice: demand for payment issued by exporter
when sale is concluded
• Bill of lading: basic contract between exporter and shipper,
authorizes the shipping company to transport goods to the buyer’s
destination.
• Shipper’s export declaration lists the contact information of
exporter and buyer, full description, value and shipment destination
(used by government)
• Certificate of origin: birth certificate of goods, showing which
country the products were made in
• Insurance certificate: protects the exported goods from being
damaged lost or stolen.
- Incoterms (international commerce terms): system of universal
standard terms of sale and delivery used in international sales
contracts

Example Meaning

EXW Exworks The seller delivers their product at their own destination
(the buyer handles all transportation, costs, and risks from the seller's
location onward)

FOB (free on The seller delivers their product at the agreed port of origin, once on
board) board, the responsibility shifts to the buyer

CIF (cost, The seller pays for transportation and insurance costs, and once
insurance, reaching the destination port the buyer handles the customs
freight)

- Methods of payment:

Cash in advance Best for seller Risky for buyer so

discourage sale

Open account: a Easy for the exporter Risky unless strong

payment method where because there’s no relationship between
the exporter ships the complicated paperwork exporter and buyer
goods first and sends a involved for payment
bill to the buyer later. only bills the buyer
The buyer agrees to
pay within a specific
time in the future.

Letter of credit: Risk free Strict protocol

contract between
Establishes instant So much paperwork
banks of buyer and
trust
seller

- Countertrade: international business transaction that involves all or

partial payments to be in any kind but cash, used when conventional
means of payment are difficult, costly, or non-existent
- Accounts for 10% and 1/3 of world trade, and common in large scale
government procurement
- However it is risky, its hard to price goods, its complex, and time
consuming
Type description

barter Goods directly exchange

Compensation deal Payments in both cash and goods

counter purchase Two contracts, first the seller agrees

to set a price for goods and gets
cash from buyer, second is
contingent where the seller
purchases goods from the buyer

Buyback agreement Seller supplies technology or

equipment to construct facility and
receives payment in form of goods
produced by it

- Sources of exporting finance:

1. Commercial banks
2. Export intermediaries
3. Suppliers
4. Buyers
5. Government assistance funds
- Types of exporting intermediaries:
1. Foreign distributor: based on foreign market and buys goods
from exporter
2. Trading company: imports and export various goods
3. manufacturer representative: sells goods in a specific country
4. Export management company: based in home country, acts
as export agent
- Criteria for evaluating export intermediaries:
1. Organizational strengths
 2. Product related factors
3. Marketing capabilities
4. Managerial commitment

- Global sourcing: global outsourcing/ global purchasing/ global

procurement/ importing/ a contract between a buyer and a foreign
supplier to do a certain part of value chain activities/ procurement of
GIS from suppliers abroad for consumption in home country
- Drivers of global sourcing: improved communications and technology,
falling cost of international business, entrepreneurship and fast
economic transformation in emerging markets
 - Two decisions regarding global sourcing: outsource or not? (inhouse or
by independent supplier so make or buy, usually make if its ur core
competency or there is intellectual property) and where in the world
should value chain activities be located? (to reduce costs, access
competitive advantage, ease transportation etc.)
- Contract Manufacturing: contract between focal firm and independent
supplier to manufacture goods based on well-defined specifications.

Value chain activity Value chain activity

Internalized externalized
(outsourced)

In home country Production is inhouse, Production by

in home country independent supplier in
home country

Abroad (global Captive sourcing (firm’s Independent supplier

sourcing) owned production located abroad
facility located abroad)

- Offshoring: relocating business process or manufacturing facility to a

foreign country.
- R&D, design, marketing, and branding most likely internalized business
processes of high importance.
- Advantages and disadvantages of global sourcing

adv disadv

Cost efficiency, lower wages abroad Lower than expected cost savings
so more profitability

Access to new markets External environmental factors like

trade barriers, exchange rate
fluctuations etc.

Faster corporate growth Weak legal environment effecting

 protection of intellectual property

Improved productivity and service Low skilled workers

Access to skilled employees Risk of creating competitors

Increased speed to market Loss of employee morale for home

country employees due to
outsourcing jobs

Technological flexibility

- Reshoring: returning entire business process or manufacturing facility

to home country / nearshoring: back to a nearby country
- How can global sourcing harm home country?
1. Job losses
2. Lowering standards of living
3. Reducing national competitiveness
- MNEs neglect environmental harm, labor standards, and protecting
human rights
- To minimize harms of global sourcing, governments should:
1. Keep the cost of doing business low
2. Ensure a strong educational system
3. Maximize worker flexibility so if they lose a job, they find other
positions
- Strategies to minimize risk of global sourcing:
1. Go offshore for right reasons
2. keep employees on board (informed)
3. choose carefully between captive operation or independent supplier
(right sourcing model)
4. choose suppliers carefully
5. emphasize communication and collaboration with suppliers
6. protect your company’s interests (reputation, have alternate suppliers,
trustwith suppliers, protect intellectual property)
- Global supply chain: The firm’s integrated network of sourcing,
production, and distribution, organized on a world scale, and located in
countries where competitive advantage can be maximized.

- Stages in global supply chain:

1. Supplier (provides raw materials)
2. Focal firms (inbound raw materials, outbound goods and services)
3. Retailer and intermediaries (Distribution to customers)
- Cost of delivering product to an export market can account for like 40%
of the total cost
- Firms use ICT technologies to streamline operations and reduce costs
- Transportation modes:

Land Ocean Air

Through highways and Through large Commercial or cargo

railroads container ships aircraft

More expensive than Cheapest Most expensive

ocean

Cheaper than air Most common Second most common

due to long distances

Last option exporters Slow Fast and predictable

opt for

Accounts for 90% of Accounts for 1% of

international international
shipments shipments

Revolutionized by the Used mostly for

development of 40 ft perishable products,
shipping containers products with high
value to weight ratio
(laptop etc.), urgently
needs goods