Objective 1: Compare and Contrast Export Selling and

Export Marketing
To better understand importing and exporting, it is important to distinguish
between export selling and export marketing. First, export selling does
not involve tailoring the product, the price, or the promotional material to
suit the requirements of global markets.

1. Export Selling
 Definition:
Export selling involves selling the same product abroad as is sold
domestically, with little or no modification.
→ Focus is mainly on the transaction rather than understanding or
adapting to the foreign market.
 Marketing Mix Focus:
o Only the “Place” element changes — the country where the
product is sold.
o Product, Price, and Promotion remain the same as in the
domestic market.
 When it Works:
o Feasible for unique products or brands with little global
competition.
o Suitable for new exporters who are just testing foreign
markets.
 Limitations:
o Not sustainable as competition increases or as the firm grows
globally.
o Fails to consider customer preferences, cultural differences, or
local competition.
 Example:
o Rolex can sell the same luxury watches globally with minimal
changes because of its unique prestige and universal appeal.
o A small local coffee producer exporting the same beans
abroad without changing packaging or marketing message might
succeed temporarily.

2. Export Marketing
 Definition:
Export marketing involves adapting the marketing mix—product,
price, place, and promotion—to meet the specific needs and
preferences of foreign target markets.
→ It is customer- and market-oriented rather than transaction-oriented.
 Approach:
o The domestic product serves as a starting point, not the final
offering.
 o Requires market research, environmental understanding,
and strategic adaptation.
 Key Features:
o Product Adaptation: Modify design, size, or packaging to suit
local tastes.
o Pricing Strategy: Consider export costs—transportation, tariffs,
and financing.
o Promotion Adjustment: Create marketing materials
(brochures, ads) tailored to each market’s language, culture, and
media.
o Distribution: Partner with local agents or distributors; adjust
channels as needed.
 Research and Planning:
o Conduct market visits to confirm market potential and assess
distributors.
o Develop joint marketing plans with local partners, including
budgets for advertising and promotion.
o Attend trade shows and trade missions to find buyers, study
competitors, and gain insights into the market.
 Example:
o McDonald’s adapts its menu globally (e.g., McSpicy Chicken in
the Philippines, McPaneer Burger in India).
o Samsung adjusts smartphone pricing and marketing strategies
per country based on income levels and consumer preferences.
o IKEA China modifies furniture design (smaller sizes, brighter
colors) to match Chinese apartment living.
Objective 2: Identify the stages a company goes through,
and the problems it is likely to encounter, as it gains
experience as an exporter.

Exporting is becoming increasingly important as companies in all parts of the

world step up their efforts to supply and service markets outside their
national boundaries. Research has shown that exporting is essentially a
developmental process that can be divided into the following distinct stages

Stages of Export Development

1. Unwilling to Export
 The firm refuses to export or even fulfill unsolicited orders.
 Causes: lack of knowledge, fear of risk, or domestic focus.
 Example: A small bakery in the Philippines refuses a request from
Singapore to buy its pastries, thinking export paperwork is too
complicated.
2. Passive Exporter (Fills Unsolicited Orders Only)
 The company ships products abroad only when directly requested but
does not seek international business.
 Example: A local furniture maker receives an order from a hotel in
Japan but does not pursue other clients afterward.
 Problem: Missed opportunities due to lack of proactive marketing.
3. Exploring Export Feasibility
 The firm begins to research foreign market opportunities, costs, and
procedures.
 Example: An Indonesian coffee company studies export requirements
to Australia and consults trade agencies.
 Challenge: Limited expertise in foreign regulations and logistics.
4. Trial Exporting
 The company exports to one or two markets on a small scale to “test
the waters.”
 Example: A Filipino skincare brand sells to the UAE through small
online retailers.
 Common problems:
o Shipping and customs delays
o Poor understanding of foreign payment systems
o Unclear pricing strategy
5. Experienced Exporter
 The company now exports regularly and has established market
relationships.
 Example: A Thai electronics firm consistently exports to Southeast
Asian neighbors.
 Challenges: Managing multiple markets, currency fluctuations, and
distribution coordination.
6. Region- or Country-Focused Exporter
  The firm starts targeting regions or countries sharing common features
(language, trade blocs, logistics).
 Example: An Indian apparel brand exports mainly to English-speaking
countries (UK, USA, Australia).
 Problem: Over-reliance on limited markets can expose the firm to
regional economic risks.
7. Global/Geocentric Exporter (Mature Stage)
 The company views all markets—domestic and foreign—as equal
opportunities.
 It strategically allocates global resources to global opportunities.
 Example: Samsung (South Korea) designs, produces, and markets
products globally with a unified strategy.
 Challenge: Complex global coordination, compliance with multiple
trade laws, and cultural adaptation.

⚙️Factors Influencing Export Progress

 Management Attitude & Commitment: Willingness to take risks
and invest in international markets.
 Managerial Vision: Strategic foresight in recognizing global potential.
 Corporate Resources: Sufficient finances, skilled personnel, and
logistical capacity.
 Procedural Expertise: Knowledge in shipping, payment, and
documentation.

🚧 Common Export Problems (Based on Table 8-1)

Illustration (International
Category Examples of Problems
Marketing)
Transport rates, A Philippine mango exporter
Logistics documentation, customs struggles with high shipping costs
duties to the U.S.
A Japanese car company faces
Servicing Parts availability, repair
delays in spare parts delivery to
Exports services
South America.
Financial A small exporter from Vietnam
Payment collection,
loses money due to a delayed
insurance
letter of credit.
Legal & An American cosmetics firm faces
Red tape, licensing,
Administrativ import bans in the EU for ingredient
trade restrictions
e compliance issues.
Advertising, market A Thai beverage company
Marketing intelligence, finding struggles to promote its brand in
distributors the competitive Korean market.
A Malaysian tech brand loses
Price undercutting and
Competition market share in Europe to Chinese
brand rivalry overseas
low-cost alternatives.
💡 Key Insights
 Exporting is a learning and developmental process — each stage
builds on the experience of the previous one.
 Commitment and knowledge are the main drivers of export
success.
 Even experienced exporters face ongoing challenges such as
logistics, finance, and compliance.
 A firm’s evolution from a local to a global mindset marks the transition
to becoming a geocentric enterprise.

Objective 3: Describe the various national policies that

pertain to exports and imports
National Policies Governing Exports and Imports
🔹 Overview
 Exporting and importing greatly influence national economies and
trade balances.
 Governments often pursue contradictory trade policies:
o Encourage exports to boost economic growth.
o Restrict imports to protect domestic industries.
 Example:
 o China reduced import tariffs after joining the World Trade
Organization (WTO) to promote trade compliance but
continues to protect local industries like textiles and furniture.

🇯🇵 Government Programs That Support Exports

1. Export Promotion Strategies
 Japan became an economic superpower through policies by the
Ministry for International Trade and Industry (MITI) that
promoted export-led growth.
 The Four Asian Tigers (Singapore, South Korea, Taiwan, Hong Kong)
adopted similar export-oriented models.
 China attracted foreign investors (e.g., GM, HP) by creating export-
oriented production hubs.
 Example: Tamil Nadu, India allowed Hyundai to operate 24/7,
encouraging foreign manufacturing for export.

2. Key Government Tools for Export Promotion

🏦 a. Tax Incentives
 Governments offer lower tax rates or refunds for export-related
income.
 Example: The U.S. Foreign Sales Corporation (FSC) law (1985–
2000) allowed firms like Boeing and Kodak to save millions in export
taxes.
 WTO later ruled FSC as an illegal subsidy, showing tension between
national and global trade rules.
💰 b. Subsidies
 Direct or indirect financial support to domestic producers to make
exports competitive.
 Example:
o The EU and U.S. both spend billions on farm subsidies, leading
to global disputes.
o Critics argue subsidies harm farmers in developing nations like
India and Africa.
o The EU’s Common Agricultural Policy (CAP) is seen as one of
the most protectionist systems worldwide.
📈 c. Export Assistance
 Governments provide market data, credit risk assessments, and
organize trade fairs/missions.
 Example: Agencies help exporters identify markets and connect with
foreign buyers (e.g., U.S. Commercial Service or Japan External
Trade Organization – JETRO).
🏭 d. Free Trade Zones (FTZ) / Special Economic Zones (SEZ)
 Designated areas with reduced customs duties, simplified
regulations, and logistical advantages.
 Example:
 o Shenzhen, China, became a global manufacturing hub due to
SEZ policies.
o Philippine Economic Zone Authority (PEZA) offers tax
holidays to export-oriented firms.

🚫 Governmental Actions to Discourage Imports and Block Market

Access
1. Tariffs
 Taxes imposed on imports to protect domestic industries.
 Known as the “Three Rs” — Rules, Rate schedules, and Regulations.
 Example:
o The U.S. secured tariff reductions in the GATT Uruguay Round
(1993), improving access for U.S. exports (e.g., pharmaceuticals,
steel).
o Under Donald Trump’s “America First” policy, tariffs on steel
and aluminum led to global retaliation and trade tensions.
2. Harmonized Tariff System (HTS)
 A global system for classifying traded goods.
 Ensures consistency in customs duties between countries.
 Example: The U.S. Customs Service case on X-Men action figures
—classified as toys instead of dolls to lower import duties.
3. Nontariff Barriers (NTBs)
 Hidden measures that restrict imports without formal tariffs.
⚖️a. Quotas
 Limit the number or value of goods imported.
 Example: EU quotas (2005–2007) on Chinese textiles protected
European producers.
🏠 b. Discriminatory Procurement Policies
 Governments favor domestic suppliers.
 Example:
o Buy American Act (1933) requires U.S. agencies to prefer U.S.-
made goods.
o Fly American Act mandates government employees to use U.S.
airlines.
📋 c. Restrictive Customs Procedures
 Complex rules delay imports and increase costs.
 Example: Disputes over product classification between U.S. and
Canadian customs can cause delays.
💱 d. Exchange Rate Policies
 Countries manipulate currency values to make exports cheaper.
 Example: Critics accuse China of maintaining an artificially weak yuan
to boost exports.
⚙️e. Administrative & Technical Regulations
 Product standards, safety, or health requirements that limit imports.
 Example:
 o U.S. automobile pollution and safety laws led Volkswagen
to withdraw some models.
o EU harmonization of standards (automobiles, food, drugs) under
the Single Market (1993) facilitated internal trade.

🌐 Regional Integration Efforts

 Many nations now remove restrictive barriers via regional trade
agreements.
 Example:
o European Union (EU) created a single market and introduced
the euro, easing cross-border trade.
o Trade blocs like ASEAN, NAFTA/USMCA, and MERCOSUR
promote freer regional commerce.

Importance of National Policies on Exports and Imports

Shapes a Country’s Economic Growth
 Export and import policies directly affect a nation’s trade balance,
employment, and GDP.
 Example: Japan’s export-led strategy after World War II transformed it
into a global economic power.

2. Protects Domestic Industries

 Import restrictions like tariffs and quotas shield local industries from
foreign competition.
  Example: The U.S. imposed tariffs on steel and aluminum to protect
its domestic manufacturing sector.
3. Promotes Global Competitiveness
 Export incentives, tax breaks, and subsidies help local firms compete
internationally.
 Example: South Korea’s government-supported export industries
made brands like Samsung and Hyundai globally competitive.
4. Attracts Foreign Investment
 Policies like Free Trade Zones (FTZs) or Special Economic Zones
(SEZs) draw multinational companies seeking favorable trade
conditions.
 Example: China’s Shenzhen SEZ attracted firms such as Apple and
Foxconn, boosting export production.
5. Ensures Fair and Regulated Trade
 National policies align with World Trade Organization (WTO) rules
to ensure fairness and reduce trade disputes.
 Example: The U.S. modified its Foreign Sales Corporation (FSC)
tax policy after WTO ruled it an illegal subsidy.
6. Balances Trade Relations
 Proper export–import policies prevent excessive dependence on
imports or trade deficits.
 Example: India encourages exports (e.g., IT services, automobiles) to
reduce reliance on imports.
7. Influences Consumer Access and Prices
 Import regulations affect the variety and cost of goods available in the
domestic market.
 Example: Reducing import tariffs on electronics makes gadgets more
affordable to consumers.
8. Supports Sustainable Development Goals
 Trade policies can promote environmentally friendly industries and
ethical sourcing.

Objective 4: Explain the structure of the Harmonized Tariff

System

Tariff Systems
Tariff systems provide either a single rate of duty for each item, applicable to
all countries, or two or more rates, applicable to different countries or groups
of countries. Tariffs are usually grouped into two classifications

Understanding the Structure of the Harmonized Tariff System (HTS)

🔹 1. Purpose of Tariff Systems
 Tariffs are taxes imposed on imported goods to regulate trade and
protect domestic industries.
  They can be single-rate (same for all countries) or multi-rate
(different for specific countries).
o Example: The U.S. might impose the same rate on imports from
all countries (single-rate) or have lower tariffs for trade partners
like Mexico under USMCA (multi-rate).

🔹 2. Types of Tariff Classifications

 Single-Column Tariff:
o One uniform rate applies to all countries.
o Example: A flat 10% duty on imported textiles from any nation.
 Two-Column Tariff:
o Column 1: “General” and “Special” duties for countries with
Normal Trade Relations (NTR).
o Column 2: Higher rates for countries without NTR status.
o Example: U.S. imports from China (NTR) are taxed less than
those from North Korea (non-NTR).

🔹 3. WTO and Normal Trade Relations (NTR)

 WTO members apply the lowest possible tariff (Most-Favored-Nation
rate) to all members.
 NTR status ensures equal trading conditions among WTO nations.
 Example: China gained permanent NTR status in 2001, enabling
competitive pricing of Chinese goods in the U.S. market.

🔹 4. Structure of the Harmonized Tariff System (HTS)

 A standardized numerical system used globally to classify traded
goods for customs.
 Adopted by over 100 countries.
 Components:
o Heading level (4 digits): Broad product category (e.g., 8903 =
“Yachts and other vessels”).
o Subheading level (6 digits): Specific product type (e.g.,
8903.10 = “Inflatable boats”).
o Country-specific extensions (8–10 digits): Allow national
variations for tariff and data collection.
o Example: HTS 8903.91.00 might identify “Sailboats with or
without auxiliary motor” for U.S. imports.

🔹 5. Preferential Tariffs and Exceptions under GATT

 Preferential tariffs reduce duties for certain countries.
 Normally prohibited under GATT, except for:
1. Historical arrangements (e.g., British Commonwealth
preferences).
2. Economic unions (e.g., EU, ASEAN).
3. Developing country programs (e.g., Generalized System of
Preferences - GSP).
 o Example: The U.S. grants lower tariffs to imports from least-
developed countries under GSP.

🔹 6. Customs Valuation Principles

 “Transaction value” (actual price paid) is the main basis for customs
valuation.
 Authorities ensure prices reflect fair market value, especially for
related-party transactions.
o Example: When Toyota USA imports parts from Japan, customs
may review the declared price to prevent tax evasion.
 If no transaction value exists, customs use alternative valuation
methods, possibly increasing duties.

🔹 7. Types of Customs Duties

1. Ad Valorem Duty
o Based on a percentage of the product’s value (CIF).
o Example: 15% of the import value of Italian leather bags.
2. Specific Duty
o Fixed rate per unit (e.g., per kg, per piece).
o Example: ₱10 per kilogram of imported rice.
3. Compound/Mixed Duty
o Combines ad valorem and specific duties; usually the higher rate
applies.
o Example: 10% of value + ₱5 per item for imported sneakers.

🔹 8. Other Import Charges

 Antidumping Duties:
o Imposed when goods are sold below fair value, harming domestic
producers.
o Example: The U.S. imposed antidumping duties on Chinese steel
to protect American mills.
 Countervailing Duties (CVDs):
o Offset foreign subsidies that give exporters an unfair advantage.
o Example: U.S. duties on subsidized Canadian softwood lumber
(2001).
 Variable Import Levies:
o Adjusted to protect domestic agricultural prices.
o Example: EU levies on imported grains to maintain parity with EU
farmers.
 Temporary Surcharges:
o Used during economic crises to balance trade deficits.
o Example: The U.K. added temporary surcharges to imports
during financial downturns.

🔹 9. Importance to International Marketing

 Marketers must understand HTS codes to:
 o Estimate landing costs and set competitive prices.
o Comply with trade laws and avoid penalties.
o Leverage trade agreements for tariff reductions.
o Example: A Philippine exporter of furniture must use correct HTS
codes to access preferential rates under ASEAN Trade in Goods
Agreement (ATIGA).

Objective 5:
Describe the various organizations that participate in the
export process.

Key Export Participants in the Export Process

1. Foreign Purchasing Agents
 Also known as buyers for export, export commission houses, or
export confirming houses.
  Act on behalf of foreign clients (principals) such as governments
or large organizations.
 Match manufacturers with buyers based on price and quality
specifications.
 May handle export packing and shipping themselves or leave it to the
manufacturer.
 Example: A Philippine coconut oil producer works with a foreign
purchasing agent representing a Japanese food manufacturer to
meet quality standards and coordinate shipment.

2. Export Brokers
 Earn a fee for connecting exporters (sellers) and foreign buyers.
 Do not take title to goods or assume financial risk.
 Often specialize in specific commodities like grains, sugar, or cotton.
 Example: A U.S. export broker links an Australian wheat supplier
with a bread manufacturer in Egypt for bulk orders.

3. Export Merchants (Jobbers)

 Identify market opportunities abroad and purchase goods to meet
demand.
 Buy unbranded goods, rebrand them, and handle marketing,
distribution, and sales.
 Take full ownership and risk of the goods.
 Example: A Hong Kong export merchant buys unbranded leather
bags from India, brands them under its own label, and sells them in
Europe.

4. Export Management Companies (EMCs)

 Independent firms that act as the export department for multiple
manufacturers.
 Can sell under the manufacturer’s or their own name.
 May function as:
o Distributors (buying and reselling goods for profit), or
o Commissioned representatives (earning commission without
taking title).
 Handle market research, pricing, communication, logistics, and
risk assessment.
 Example: A U.S.-based EMC manages exports for small machinery
producers, selling their products to Latin America.

5. Manufacturer’s Export Agent (MEA)

 Similar to EMCs but operate on a smaller scale and usually cover
limited countries.
 Acts as export distributor or export commission representative,
but not as a full export department.
  Example: A Korean MEA sells electronics from a few small
manufacturers to retailers in Southeast Asia.

6. Export Distributors
 Purchase goods outright from manufacturers and resell them
abroad.
 Assume financial risk and often have exclusive rights to sell in
certain territories.
 Handle pricing, shipping, and marketing abroad.
 Example: A Canadian distributor buys coffee from Colombia and
resells it in Japan under its own brand.

7. Export Commission Representatives

 Handle sales for manufacturers but do not take ownership of goods.
 Work on commission and manage credit checks, financing, and
market development.
 Often manage multiple product lines from non-competing
manufacturers.
 Example: A European export representative promotes Asian
automotive parts across EU markets.

8. Cooperative Exporters (Piggyback Exporters)

 Also known as mother hens or export vendors.
 Larger manufacturers that allow smaller firms to use their export
channels and expertise.
 Can act as export distributors or commission representatives for
partner firms.
 Example: Procter & Gamble (P&G) distributes smaller local brand
products in its global network, helping them enter new markets.

9. Freight Forwarders
 Licensed experts in shipping logistics, customs clearance, and
tariff management.
 Function like travel agents for freight — arrange transport from
factory to final port.
 Help exporters with documentation, insurance, and route
optimization.
 Example: C.H. Robinson Worldwide (USA) consolidates cargo from
multiple small exporters for cost-efficient shipment to Asia.

Importance of Understanding Key Export Participants

1. Ensures Smooth International Trade Operations
 Exporting involves many complex steps — from finding buyers to
handling logistics.
 Knowing the roles of agents, brokers, distributors, and freight
forwarders helps exporters navigate these processes efficiently.
  ✅ Example: A small Filipino furniture company can rely on a freight
forwarder to manage customs and shipping to the U.S., ensuring timely
delivery.

2. Expands Market Reach for Manufacturers

 With the help of export management companies (EMCs) or
cooperative exporters, even small firms can sell internationally
without setting up their own export departments.
 ✅ Example: A local shoe manufacturer in Vietnam can reach European
markets through an EMC specializing in footwear exports.

3. Reduces Financial and Operational Risks

 Different export participants (e.g., export distributors, commission
representatives) share or assume risks in the export process.
 This allows manufacturers to focus on production and quality, not
on foreign trade complexities.
 ✅ Example: An export distributor buying goods outright takes on the
financial risk of resale, protecting the manufacturer from losses.

4. Improves Efficiency and Cost Savings

 Specialized intermediaries like freight forwarders or export brokers
have expertise in tariffs, routes, and shipping costs.
 This expertise saves companies time, money, and resources.
 ✅ Example: A freight forwarder consolidating shipments can lower
export costs for multiple small exporters.

5. Facilitates Global Networking and Market Knowledge

 Export intermediaries provide access to foreign market data,
cultural insights, and buyer networks.
 They help exporters adapt strategies to local preferences and
regulations.
 ✅ Example: An EMC helps a U.S. food company understand labeling
laws and taste preferences in Middle Eastern markets.

6. Supports Economic Growth and Trade Development

 Efficient export systems supported by various participants boost
national export performance.
 This leads to job creation, foreign exchange earnings, and
stronger international ties.
 ✅ Example: Countries with strong export intermediary systems, like
South Korea, have achieved sustained export-led growth.

💡 In Summary
Understanding key export participants is essential for successful global
marketing and trade management.
It helps companies:
  Enter new markets confidently,
 Minimize risks and costs, and
 Build strong international partnerships.

Objective 6. Identify home-country export organization

considerations.

Home-Country Export Organization Considerations

1. Deciding Who Handles Export Responsibility
 Companies must decide whether to manage exporting internally (in-
house) or externally (outsourced).
 This decision depends on the firm’s size, resources, export
experience, and target markets.
 Example: A small Filipino furniture company might partner with an
Export Management Company (EMC), while Samsung handles
exporting through its own international division.

2. In-House Export Operations (Internal Approach)

Companies that prioritize exporting may create internal export
departments or divisions.
Possible structures include:
 ✅ Part-time export activity handled by domestic employees —
suitable for small firms starting out.
o Example: A local coffee brand in the Philippines assigns export
duties to its domestic sales manager.
 ✅ Export partner linked to domestic marketing — the partner
takes ownership before goods leave the country.
o Example: A clothing brand works with a local logistics affiliate
that manages overseas orders.
 ✅ Independent export department — separate from domestic
operations.
o Example: Nestlé Philippines has a dedicated export unit
focusing on Asian markets.
 ✅ Export department within an international division — used by
larger multinational corporations.
o Example: Toyota Motor Corporation integrates exports within
its global operations division.
 ✅ Multi-divisional approach — each product division chooses the
best structure.
o Example: Unilever may use different export structures for its
food, beauty, and home care divisions.

3. Evaluating Export Market Opportunities

  The degree of market difference between domestic and export
markets determines the need for specialized staff.
 If target markets are similar to the home market, domestic staff may
handle exports effectively.
o Example: A U.S. tech company exporting to Canada might not
need major adaptation.
 If target markets differ (e.g., cultural, regulatory, or economic
differences), specialized export personnel are needed.
o Example: A German car manufacturer exporting to India must
understand local import tariffs and consumer preferences.

4. Cost and Competence Considerations

 In-house exporting can be cost-effective if managed by competent
staff.
 The assigned employee must:
1. Know the product and customers well.
2. Have market-relevant knowledge applicable to the export
market.
 Example: A Philippine coconut oil company exporting to Japan must
ensure staff understand Japanese labeling and safety standards.

5. External Export Service Providers (Outsourcing Option)

If a company lacks internal capacity, it can partner with external
organizations:
 Export Management Companies (EMCs) – act as the export
department for several firms.
 Export brokers – connect buyers and sellers for a commission.
 Export merchants/distributors – buy goods and resell abroad.
 Combination export managers – represent multiple manufacturers
in similar product lines.
 Manufacturers’ export agents – work on commission without taking
ownership of goods.
✅ Example: A small handicraft exporter in Cebu may rely on an EMC in Manila
to handle foreign sales and documentation.

🎯 Key Takeaway
When organizing for export in the home country, companies must balance
control, cost, competence, and market knowledge.
 Small firms → benefit from external export partners.
 Large firms → gain efficiency and control through in-house export
divisions.

Objective 7. Identify market country export organization

considerations
Need for Market-Country Distribution Arrangements
 Companies must decide how to distribute their products in the
target (market) country.
 This involves choosing between direct market representation or
independent intermediaries.
 ✅ Example: A French skincare company entering South Korea must
decide whether to open its own distribution office (direct) or partner
with a Korean distributor (indirect).

2. Direct Market Representation – Definition and Benefits

 Refers to a company establishing its own sales or distribution
operations in the foreign market (e.g., local branch, subsidiary, or
owned distributor).
 Advantages:
o Greater control over marketing strategy, pricing, and brand
image.
o Faster decision-making on product or promotional
adjustments.
o Better communication and direct feedback from local
customers or retailers.
 ✅ Example: Toyota (Japan) directly manages its U.S. distribution
through Toyota Motor North America, ensuring consistent brand
image and responsive market adaptation.

3. Direct Representation and Market Development

 When a product is new or not yet established, direct representation
helps ensure focused marketing efforts and investment in brand
building.
 Independent intermediaries may not invest enough time or resources
since they handle multiple brands.
 ✅ Example: Starbucks entered China with direct investment to build
brand awareness, rather than relying on third-party distributors.

4. Clarification: Direct Representation ≠ Direct to Consumer

 Direct representation typically means selling to wholesalers or
retailers, not end consumers.
 ✅ Example: BMW owns U.S.-based distributing agencies that sell
vehicles to franchised dealers, not directly to individual car buyers.

5. When to Use Independent or Indirect Representation

 In small or low-volume markets, establishing direct operations is
not cost-effective.
 Companies may instead rely on independent distributors or
agents who already have local networks.
  ✅ Example: A Philippine handicraft exporter selling to boutique stores
in Finland may use a local distributor instead of opening a branch
there.

6. Importance of Finding Reliable Distributors

 Success in indirect representation depends heavily on finding
competent and motivated distributors who can effectively
promote and sell the product.
 ✅ Example: A U.S. organic food brand partnering with a reputable
Dubai-based distributor can reach supermarkets across the Middle
East efficiently.

7. Strategic Balance
 Companies may adopt a hybrid approach—using direct
representation in large markets (e.g., the U.S., China) and
intermediaries in smaller or emerging markets.
 ✅ Example: Apple has subsidiaries in major markets (direct), but uses
distributors in countries like Vietnam or Kenya (indirect).

Objective 8
. Identify home-country export organization
considerations.

Trade Financing and Methods of Payment in International Trade

🔹 Importance of Payment Methods
 Ensures exporters are properly paid for their sales and importers
receive their goods as agreed.
 Payment terms form part of trade negotiations and help prevent
conflicts or misunderstandings.
 Exporters must balance risk vs. competitiveness when offering
payment terms to foreign buyers.
o Example: A U.S. exporter may offer favorable terms to a trusted
European distributor to stay competitive.

🪙 1. Cash with Order (CWO)

 Importer pays upfront before goods are shipped.
 Lowest risk for the exporter but highest risk for the importer (no
shipment guarantee).
 Common when the buyer is new or in a high-risk country.
o Example: A small Philippine handicraft exporter may require CWO
from new customers in Africa due to uncertain political
conditions.

📄 2. Open Account
  Exporter ships goods first, invoices the importer, and gets paid after
delivery (usually 30–90 days).
 High risk for exporter, low risk for importer.
 Used when there is trust or long-term relationship between trading
partners.
o Example: Samsung may ship smartphones to established
European retailers under open account terms.

🏦 3. Letter of Credit (L/C)

 A bank-guaranteed payment mechanism that substitutes the
bank’s creditworthiness for the importer’s.
 Reduces nonpayment risk for exporter and nonperformance risk
for importer.
 The importer’s bank (“issuing bank”) opens the L/C in favor of the
exporter (the beneficiary).
 Exporter’s bank acts as an advising or negotiating bank to confirm
payment.
✳️Types of L/C
 Irrevocable L/C: Cannot be changed or canceled without consent of
both parties.
 Confirmed L/C: Exporter’s bank adds its own guarantee—used when
importer’s country poses political or economic risks.
o Example: A Canadian wheat exporter may use a confirmed L/C
when selling to buyers in Argentina to guard against currency
controls.
🧾 L/C Process Summary
1. Importer requests bank to open an L/C.
2. Bank issues L/C and sends to exporter’s bank.
3. Exporter ships goods and submits required documents (invoice, bill of
lading, insurance certificate).
4. Bank verifies documents and releases payment.
5. Importer pays bank and receives documents to claim the goods.
 Example: Japanese auto firm Fuji Heavy Industries required
irrevocable L/Cs from Subaru of America to ensure upfront payment
in the 1960s.

📑 4. Documentary Collections
 Used when partners have moderate trust—less costly than L/Cs but
riskier for exporters.
 Banks act as intermediaries but do not guarantee payment.
📦 Two Types:
 Documents Against Payment (D/P or Sight Draft):
o Importer pays immediately to receive shipping documents.
o Example: A textile exporter from India may use D/P when selling
to a mid-sized European retailer.
 Documents Against Acceptance (D/A or Time Draft):
 o Importer signs a promise to pay later (e.g., 60 or 90 days) and
gets documents before paying.
o Riskier for exporter—importer may default.
o Example: Bayer uses a time draft arrangement in Venezuela
due to government payment restrictions and currency controls.

⚙️5. Real-World Case Insights

🧬 Bayer in Venezuela
 Could not use L/Cs due to government restrictions.
 Used documents against acceptance—accepted time drafts and
government bond conversions.
 Faced high currency risk and payment delays but continued
operations for ethical reasons.
🚗 Subaru and Fuji Heavy Industries
 Fuji required Subaru of America to use irrevocable L/Cs after sales
risks arose.
 Protected Fuji from nonpayment when Subaru’s U.S. dealers defaulted
—showing the L/C’s importance in early international trade
partnerships.

🔐 6. Additional Export–Import Issues

 C-TPAT (Customs Trade Partnership Against Terrorism):
o Enhances supply chain security and expedites customs
clearance for certified firms.
o Example: Amazon ensures its global logistics comply with C-TPAT
to avoid inspection delays.
 Duty Drawbacks:
o Refunds duties on imported materials that are re-exported as
finished goods.
o Encourages exports by lowering costs of production inputs.
o Example: A U.S. electronics firm importing microchips for
assembly and re-exporting phones may claim a duty drawback.