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MGT520 - International Business - Lecture Handout 44

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INTERNATIONAL MARKETING EXPORT & IMPORT

Learning Objectives:

  • To Look at the international marketing strategy
  • To identify the key elements of export and import strategies
  • To compare direct and indirect selling of exports
  • To discuss the role of several types of trading companies in exporting
  • To show how freight forwarders help exporters with the movement of goods
  • To identify the methods of receiving payment for exports and the financing of receivables
  • To discuss the role of counter trade in business

PRODUCT POLICY:

This section highlights the international application of common product policies.

Production Orientation:

With a production orientation, companies focus primarily on production—either efficiency or high quality—with little emphasis on marketing. Such an approach is used internationally in commodity sales, passive exports (surpluses of domestic production), and foreign market niches that resemble the market at which the good was originally aimed.

Sales Orientation:

Internationally, sales orientation means a company tries to sell abroad what it can sell domestically on the assumption that consumers are sufficiently similar globally. This orientation differs form the production orientation because of its active rather than passive approach to promoting sales. A sales orientation leads the manager to ask questions like: Where can the company sell more of product X?

Customer Orientation:

A customer orientation asks: What can the company sell in country X?

Strategic Marketing Orientation:

Most companies committed to continual rather than sporadic foreign sales adopt a strategy that combines production, sales, and consumer orientations. Such companies are adopting a strategic marketing orientation.

Societal Marketing Orientation:

Companies with societal marketing orientations seriously consider potential environmental, health, social, and work-related issues associated with selling or making products abroad.

Reasons for Product Alteration:

  • Legal reasons: Explicit legal product requirements vary widely country by country. Legal requirements may be intended to protect the consumer, protect the environment, or may exist for some other reason.
  • Cultural reasons: Cultural differences may require that products be altered to a form more pleasing to the culture. Color preferences, for example, often vary across countries.
  • Economic reasons: If foreigners lack sufficient income, they may not be able to buy the product as the MNE sells it domestically, and price-reducing alterations may be required.

Alteration Costs:

Some product alterations are cheap to make yet have an important influence on demand. One cost-saving strategy a company can use to compromise between uniformity and diversity is to standardize a great deal while altering some end characteristics.

Extent and Mix of Product Line:

Most companies produce multiple products, not all of which would be successful in the same foreign market. Usually the company starts in a foreign market with fewer products and increases the number over time.

Product Life-Cycle Considerations:

There may be differences among countries in either the shape or length of a product’s life cycle. A product facing declining sales in one country may have growing or sustained sales in another. International marketing decisions should consider the differences in life-cycle stages across countries.

EXPORT STRATEGY:

In general, small companies will use low-risk international business entry modes such as exporting. Exporting requires a lower level of investment than other modes (such as FDI), but it also offers a lower risk/return on sales. Exporting allows significant management operational control, but does not provide much marketing control, as the exporter is far from the consumer and must deal with independent distributors abroad.

Characteristics of Exporters:

Although the probability of being an exporter increases with company size (defined by revenues), the export intensity (% of total revenues coming from exports) is not associated with company size. That is, as firms grow, exporting as a percentage of revenues does not necessarily grow at the same pace.

Why Companies Export:

Companies export primarily to increase sales revenue—whether they are service firms or manufacturing firms.

Stages of Export Development:

Export development has three broad phases: pre-engagement, initial exporting, and advanced exporting. Companies seem to be exporting sooner in their life cycle in part because Internet surfers from all over the world can have instant access to the company’s product line directly.

Potential Pitfalls of Exporting:

  • Failure to obtain qualified export counseling and develops a plan.
  • Insufficient commitment by top management.
  • Poor choices for overseas agents or distributors.
  • Chasing orders instead of orderly growth plans.
  • Neglecting exports when domestic market booms.
  • Failure to treat international distributors as equals to domestic distributors.
  • Unwillingness to modify product to comply with other countries’ requirements.
  • Failure to print service, sales, and warranty messages in local languages.
  • Failure to use an intermediary when a company does not have the personnel to handle export functions.

Designing an Export Strategy:

To establish a successful export strategy, management must:

  • Assess the company’s export potential by examining its opportunities and resources.
  • Obtain expert counseling on exporting.
  • Select a market or markets.
  • Formulate and implement an export strategy.

IMPORT STRATEGY:

There are two basic types of imports: Intra-company imports (these provide intermediate goods and services to companies that are part of the firm’s global supply chain) and imports that provide industrial and consumer goods and services to individuals and companies that are not related to the exporter. There are three basic types of importers:

  • Those that are looking for any product around the world that they can import and sell domestically.
  • Those that are looking at foreign sourcing to get their products at the cheapest price.
  • Those that use foreign sourcing as part of their global supply chain.

The Role of Customs Agencies:

When importing goods into any country, a company must be totally familiar with the customs operations of the importing country. A broker or other import consultant can help an importer minimize costs and delays.

Documentation:

The importer must possess and file specific documents in order to take possession of imported goods when they arrive at their destination country. The specific documents customs require vary by country, but include an entry manifest, commercial invoice, and packing list.

THIRD-PARTY INTERMEDIARIES:

Third-party intermediaries are used by both exporters and importers. They are companies unrelated to the importer or exporter whose purpose is to facilitate trade.

Direct Selling:

Direct selling is when an exporter sells through sales representatives, to distributors, to foreign retailers, or to final end users.

Direct Exporting through the Internet and Electronic Commerce:

Electronic commerce is an important way for companies to export their products to end users. It is especially important for small and medium-sized enterprises (SMEs). Internet marketing is a direct form of marketing that is exploding in importance.

Indirect Selling:

In indirect selling, the exporter sells goods directly through an independent domestic intermediary in the exporter’s home country that exports the products to foreign markets. The major types of indirect intermediaries are the export management company (EMC), the export trading company (ECT), export agents, merchants, remarket, and piggyback marketers.

Export Management Companies:

The EMC primarily obtains orders for its clients’ products through the selection of appropriate markets, distribution channels, and promotion campaigns. The EMC may also take care of export documents, arrange transportation, set up patent and trademark protection in foreign countries, and assist in establishing alternative forms of doing business, such as licensing or joint ventures.

Export Trading Companies:

ETCs resemble EMCs, and the terms are often used interchangeably. ETCs are like independent distributors that match up buyers and sellers. Rather than representing a manufacturer, an ETC looks for as many manufacturers as it can find to supply overseas customers.

Non-U.S. Trading Companies:

Japan has the largest trading companies in the world. The sogo sosha (the Japanese equivalent of a trading company) can trace its roots back to the late nineteenth century. The Japanese trading companies are big in commodities.

Piggyback Exports:

Sometimes an exporter can use another exporter as an intermediary. For example, a company may agree to supply products to a foreign distributor even though it does not produce the entire range of products. Then it might look for other manufacturers to fill the gaps in the product line. In this way, the second manufacturer becomes an exporter indirectly by using the first exporter’s distribution channels.

Foreign Freight Forwarders:

To assist in the transport of goods from one country to another, companies usually employ the services of a freight forwarder. A freight forwarder is an agent for the exporter in moving cargo to an overseas destination. Even export management companies and other types of trading companies often use the specialized services of foreign freight forwarders.

Documentation:

Freight forwarders also can help exporters fill out exporting documents. Of the many documents required, some of the most important are: pro forma invoice, commercial invoice, bill of lading, consular invoice, certificate of origin, shipper’s export declaration, and export packing list.

EXPORT FINANCING:

From the exporter’s point of view, there are four major issues that relate to the financial aspects of exporting: the price of the product, the methods of payment, the financing of receivables, and insurance.

Product Price:

Internationally, pricing must take into account foreign exchange rate fluctuations, transportation costs, and duties, as well as antidumping laws.

Methods of Payment:

Basic payment methods, from most secure to less secure are:

  • Cash in advance
  • Letter of credit
  • Draft or bill of exchange
  • Open account
  • Other payment mechanisms, such as consignment or counter trade

Financing Receivables:

Because exporting is risky, banks are often unwilling to provide funding for it. However, exporters can get access to funds through factoring (discounting of a foreign account receivable) and forfeiting (when a forfeiter buys from an exporter the debt due from its customer). In addition, exporters can apply for guarantees from government agencies (such as the State Bank) in order to get banks to loan them money while waiting for receivables.

Insurance:

Insurance is used to cover the transportation of goods, as well as to cover political, commercial, and foreign exchange risk. Some private sector insurers cover these types of risks (for established exporters with a proven track record), but government agencies tend to be the most important insurers for political risk.

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