COLLEGE OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION – FINANCIAL MANAGEMENT
Chapter 8:
Exporting, Importing, and Global Sourcing
What is Importing and Exporting?
Exporting: The sale of products and services in foreign countries that
resourced or made in the home country
Importing: Buying goods and services from foreign sources and bringing them
back into the home country- Also known as global sourcing
Distributors: Export intermediaries who represent the company in the foreign
market
Why Do Companies Export?
It’s the easiest way to participate in global trade
It’s a less costly investment than the other entry strategies
It’s much easier to simply stop exporting than it is to extricate oneself from the
other entry modes
Export management company (EMC): An independent company that
performs for a fee or commission the duties a firm’s own export department would
execute such as handling the necessary documentation, finding buyers for the
export, and taking title of the goods for direct export
Risks of Exporting
If you merely export to a country, the distributor or buyer might switch to or at least
threaten to switch to a cheaper supplier in order to get a better price
Someone might start making the product locally and take the market from you
Local buyers believe that a company which only exports to them isn’t very
committed to providing long-term service and support once a sale is complete
They may prefer to buy from someone who’s producing directly within the country
Specialized Entry Modes: Contractual
Licensing: The granting of permission by the licenser to the licensee to use
intellectual property rights, such as trademarks, patents, brand names, or
technology, under defined conditions
Franchising: Granting rights on an intangible property, like technology or a brand
name, to a foreign company for a specified period of time and receiving royalty in
return
Specialized Entry Modes: Investment
Equity joint venture: A contractual strategic partnership between two or more
separate business entities to pursue a business opportunity together;
each partner contributes capital and resources in exchange for an equity stake and
share in any resulting profits
Risks of joint venture
- Finding the right partner
BUSINESS ANALYTICS BUSINESS AGREEMENTS
INTERNATIONAL Prepared by: Mr. Jhon Carlo B.
Gregorio
COLLEGE OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION – FINANCIAL MANAGEMENT
o Not just in terms of business focus but in terms of compatible cultural
perspectives and management practices
o The local partner may gain the know-how to produce its own
competitive product or service to rival the multinational firm
o Wholly owned subsidiaries
- Firms want to have a direct operating presence in the foreign
country, completely under their control
o Companies can establish a new, wholly owned subsidiary, from scratch,
or it can purchase an existing company in that country
o Companies may purchase a local supplier for direct control of the supply
–Vertical integration
- Establishing or purchasing a wholly owned subsidiary requires the highest
commitment on the part of the international firm
o The firm must assume all of the risk—financial, currency, economic,
and political
Cautions When Purchasing an Existing Foreign Enterprise
When making an acquisition, due diligence is important
Tax haven: A country that has very advantageous (low) corporate
income taxes
Building Long-Term Relationships
Developing a good relationship with regulators in target countries helps with the
long-term entry strategy
Keeping people in the countries long enough to form good ties
A deal negotiated with one person may fall apart if that person returns too quickly
to headquarters
Conclusion
When deciding which mode of entry to choose, companies should
ask themselves two key questions:
- How much of our resources are we willing to commit?
- How much control do we wish to retain?
Factors to be considered:
- Cultural and linguistic differences
- Quality and training of local contacts and/or employees
- Political and economic issue
- Experience of the partner company
Companies seeking to enter a foreign market need to do the following:
- Research the foreign market thoroughly and learn about the country and its
culture
- Understand the unique business and regulatory relationships that
impact their industry- Use the Internet to identify and communicate with
appropriate foreign trade corporations in the country or with their own
government’s embassy in that country
BUSINESS ANALYTICS BUSINESS AGREEMENTS
INTERNATIONAL Prepared by: Mr. Jhon Carlo B.
Gregorio
COLLEGE OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION – FINANCIAL MANAGEMENT
Countertrade
- The situation in which companies trade goods and services for other goods and
services; actual monies are only involved to a lesser degree, if at all
- Companies engage in countertrade because:
o Some governments mandate countertrade on very large-scale (over
$1million) deals or if the deal is in a certain industry
o Countertrade can mitigate the risk of price movements or currency-
exchange-rate fluctuations
o Countertrade offers a way for companies to repatriate profits
Structures in Countertrade
Barter: The direct exchange of one good for another, with no money involved
Counter purchase: The situation in which the seller receives cash contingent on
the seller buying local products or services in the amount of (or
percentage of) the cash
Disadvantages of Countertrade
The risk of receiving inferior goods continues
Most countertrade structures, except for barter, make sense only for very large
firms
What Is Global Sourcing?
Buying raw materials, components, or services from companies outside the home
country
Using ISO 9001:2008 certification to help ensure the quality of products
regardless of where they are produced
Considering not just the quality of products but also the environmental
practices of the company providing the products, through ISO
14000certification
Using service-level agreements to ensure the quality of services
Best Practices in Global Sourcing
Judging quality from afar: ISO 9000 certification
Trends in sourcing: considering carbon costs
- Carbon footprint: A measure of the impact that activities like transportation and
manufacturing have on the environment, especially on climate change
- The higher the carbon footprint, the worse the impact on the environment
Outsourcing versus Global Sourcing
Outsourcing: The company delegates an entire process (e.g., accounts
payable) to the outsource vendor
- The vendor takes control of the operations and runs the operations as they see
fit
- The company pays the outsource vendor for the end result; how the vendor
achieves the end result is up to the vendor Outsourcing versus Global Sourcing
Advantages of outsourcing:
BUSINESS ANALYTICS BUSINESS AGREEMENTS
INTERNATIONAL Prepared by: Mr. Jhon Carlo B.
Gregorio
COLLEGE OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION – FINANCIAL MANAGEMENT
- Reducing costs by moving labor to a lower-cost country
- Speeding up the pace of innovation by hiring engineers in a
developing market at much lower cost
- Funding development projects that would otherwise be unaffordable
- Liberating expensive home-country-based engineers and salespeople from
routines tasks, so that they can focus on higher value-added work
or interacting with customers- Putting a standard business practice out to bid,
in order to lower costs and let the company respond with flexibility.
The Hidden Costs of Outsourcing
Outsourcing’s costs savings, such as labor costs, are easy to see, some of the
hidden costs aren’t as visible\
Contract manufacturing: The outsourcing of manufacturing
Managing Outsourced Services
Service-level agreement (SLA): A contract that specifies the service levels that an
outsourcer must meet when performing the service to ensure quality and
performance when outsourcing services
Scope of services
- Frequency of service
- Quality expected
- Timing required
- Cost of service
Communications
- Dispute-resolution procedures
- Reporting and governance
- Key contacts
Performance
- Improvement objectives
Entrepreneurial Opportunities from Outsourcing
Entrepreneurs benefit from outsourcing because they can acquire services
as needed, without having to build those capabilities internally
Who Are the Main Actors in Export and Import?
Documentation: The official forms that must be presented to satisfy
the import and export regulations of countries and for payment to be processed
Exporter: A person or organization that sells products and services in foreign
countries that are sourced from the home country
Importer: A person or organization that sells products and services that are
sourced from other countries
Carrier: The entity handling the physical transportation of the goods, such as UPS,
FedEx, and DHL
Customs: A governmental agency that monitors import and collects import duties
on goods coming into the country
Role of Intermediaries
Intermediaries can get involved at the discretion of the importer or exporter
Entrepreneurs and small and midsize businesses make use of intermediaries,
rather than expending their resources to build these capabilities in-house
BUSINESS ANALYTICS BUSINESS AGREEMENTS
INTERNATIONAL Prepared by: Mr. Jhon Carlo B.
Gregorio
COLLEGE OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION – FINANCIAL MANAGEMENT
Freight forwarder: Entity that typically prepares the documentation, suggests
shipping methods, navigates trade regulations, and assists with details like packing
and labeling
What’s Needed for Import and Export Transactions?
Bill of lading: The contract between the exporter and the carrier authorizing the
carrier to transport the goods to the buyer’s destination
Commercial or customs invoice: The bill for the goods shipped from the
exporter to the importer or buyer
Export declaration: Documentation that provides the contact information of both
the exporter and the importer (i.e., buyer) as well as a full description, declared
value, and destination of the products being shipped
Certificate of origin: Documentation that declares the country from which the
product originates
Insurance certificate: Documentation that shows the amount of insurance
coverage on the goods and identifies the merchandise
License: Purchased permission to export goods from a country
Letter of credit: A legal document issued by a bank at the importer’s (or buyer’s)
request in which the importer promises to pay a specified amount of money when
the bank receives documents about the shipment
What Options do Companies have for Export and Import Financing?
Draft (or bill of exchange): The document by which the exporter tells the importer
to pay a specified amount at a specified time
- It is a written order for a certain amount of money to be transferred on a certain
date from the person who owes the money or agrees to make the payment
Sight draft: A bill that is due to be paid upon receipt (i.e., when it is “seen”)
Time draft: A bill that is payable 30, 60, 90 or 120 days in the future
Factoring: The situation in which an exporter sells a time draft at a discount to an
intermediary (often a bank) that will pay the exporter immediately and then collect
the full amount from the importer at the later date
Cash in advance: An arrangement in which the exporter requires payment from
the importer before shipping the goods
Open account: An arrangement in which the exporter ships the goods and then
bills the importer
Basics of Export Financing
Secured financing: Financing granted against collateral, which can be the
imported/exported goods
Common sources of financing:
- A loan from a commercial bank
- A loan from an intermediary, such as an export management company that
provides short-term financing
- A loan from a supplier, for which the buyer can make a down payment and ask
to make further payments incrementally
- A loan from the corporate parent
- Governmental or other organizational financing
BUSINESS ANALYTICS BUSINESS AGREEMENTS
INTERNATIONAL Prepared by: Mr. Jhon Carlo B.
Gregorio
COLLEGE OF ACCOUNTANCY, BUSINESS AND MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION – FINANCIAL MANAGEMENT
Success Tips for Entrepreneurs
Entrepreneurs and small businesses can look to the US Small Business
Administration (SBA) for help with their import or export businesses- Export
Express loan program
Export Working Capital Program (EWCP)
Automated Export System (AES)
The Role of Organizations in Providing Financing
Japan External Trade Organization (JETRO): An organization that assists
foreign companies in exporting their products to Japan by providing free-market
entry information and business-partner matching as well as some subsidies
- Works to attract foreign direct investment into Japan
Overseas Private Investment Corporation (OPIC): An organization that helps US
businesses invest overseas, particularly in developing countries, by providing
direct loans and loan guarantees to projects that meet its guidelines
- Provides exporters’ insurance
Export-Import Bank of the United States (Ex-Im Bank): An organization that helps
exporters who have found a buyer, yet the buyer is unable to get financing
for the purchase in their own country
- Can provide credit support (i.e., loans, guarantees, and insurance for small
businesses) that cover up to 85 percent of the transaction’s export value.
BUSINESS ANALYTICS BUSINESS AGREEMENTS
INTERNATIONAL Prepared by: Mr. Jhon Carlo B.
Gregorio