QUESTIONS
13-1. As described in the case, what are the benefits of exporting?
(LO 13.1; AACSB: Application of knowledge)
■ As an entry strategy, exporting is low cost, low risk, and uncomplicated.
13-2. How do exporters go about finding foreign distributors?
■ Use of private and government (federal, state and local) resources such as:
13-3. What advice does Sharon Doherty offer to new exporters?
(LO 13.1; AACSB: Analytical Thinking)
■ Take advantage of support intermediaries located abroad provide.
■ Doherty often gives guidance to her foreign-based distributors, sharing her knowledge and
● SUGGESTED SOLUTIONS TO CASE QUESTIONS
13-4. Do you see any problems with Philip Austin’s plan for European expansion? Do
you support his entrepreneurial approach to exporting? What should be the features of a
more systematic approach to exporting?
■ One problem is that Austin’s plan is based on insufficient knowledge about European
prospects.
Here are some errors that Austin may have made with his initial enthusiasm.
■ First, attendees at trade fairs, particularly those in established and competitive markets like
Europe, are more likely to be looking to sell than to buy. People who gave Barrett their
A more systematic approach to exporting would include:
■ Preliminary screening: Barrett would analyze general variables like GNP/GDP, mortality
rates, population figures of the European countries to make the initial choices of countries.
Since people will have to pay higher prices for imported goods, countries with low GNPs can
be eliminated.
13-5. Why did Barrett choose exporting as its entry strategy for Europe, as opposed to
foreign direct investment or licensing? What advantages does exporting provide to
Barrett? What are the potential drawbacks of exporting for Barrett?
(LO 13.1; AACSB: Analytical Thinking)
■ While several entry modes (e.g., exporting, licensing, joint ventures, local manufacturing) are
possible, the best case can be made for Barrett to enter Europe via exporting.
■ It is least risky, and allows it to sell without major fixed capital or personnel investments.
■ Barrett can work with agents in the beginning, and establish a European subsidiary later to
minimize exposure to duties in the European Common (EC) market.
■ The UK may would be a good location for such a subsidiary, given Australia’s historic ties and
13-6. What challenges can Barrett expect in its export drive? What types of new
capabilities does the firm need to acquire to manage its export transactions?
(LO 13.1; AACSB: Analytical Thinking)
■ The biggest challenge in the European market will be high competition.
■ Since many Australian firms have entered and settled in the European market, they may have
competitive advantages such as low prices and good relations with food suppliers (supermarket
chains).
To manage its export transactions, Barrett will have to learn or acquire the following capabilities:
Determine Market Access:
(1) Tariff levels, quotas, duties, local taxes, VAT, etc;
Determine Assess Product Potential:
Estimate Landed Costs:
Estimate Local Distribution and Production:
(1) Availability of appropriate agents/distributors;
Estimate Other Variables:
13-7. How should Barrett choose between direct and indirect exporting? What are the
ideal characteristics of European intermediaries for Barrett? Where can Barrett turn for
financing its export sales?
(LO 13.1; AACSB: Analytical Thinking)
■ If Barrett plans to do indirect exporting, it will rely on foreign intermediaries for marketing its
goods.
■ Giving all control to the intermediaries may ease company’s efforts in marketing their
products, but it gives Barrett less control in the foreign market.
■ Intermediaries give more importance to their own profitability so they will work with many other
■ Initial intermediaries in Europe might be agents responsible for receiving and transferring
orders to the company, but Barrett should give them strong marketing content that emphasizes
its unique image as a provider of quality, exotic products.
■ Barrett might hire skilled marketers in Europe to provide appropriately targeted marketing and
■ The three Incoterms that provide relatively minimal risk and responsibility to Barrett would be
■ Barrett might obtain financing from the buyer, or from its own local commercial bank.
13-8. There are already numerous companies selling processed foods in Europe. What
can Barrett do to compete successfully against these firms?
(LO 13.3; AACSB: Analytical Thinking)
Competitive advantages derived from Barrett’s strengths-
■ It has an established network of food producers and processors in Australia from which to
draw for foreign sales.
■ Australia, a member of the British Commonwealth, has a historical bond to the UK, which in
turn is the largest investor in Australia. Barrett should have advantages if it establishes a
presence or subsidiary in the UK.
13-9. Why does Austrade want Australian firms to focus on exporting processed foods?
Why is exporting high value-added products good for Australia?
■ Austrade, the Australian government’s trade promotion agency, was encouraging companies
to increase exports of processed food to increase value added (new jobs, higher GDP, etc.) and
help Australia solve its trade balance problems.
■ Much of current exports are primarily raw foods, not processed foods.
V. END OF CHAPTER QUESTIONS
● TEST YOUR COMPREHENSION
13-10. What is exporting? What are the advantages and disadvantages?
(LO 13.1; AACSB: Application of knowledge)
■ Exporting is the strategy of producing products or services in one country, often the producer’s
home country, and selling and distributing them to customers in other countries.
Advantages include increasing overall sales, market share, and profit margins; increase
Advantages of Exporting
● Increase sales, market share and profits
often more favorably than in the domestic market
● Diversify customer base, reducing dependence on home markets
● Stabilize fluctuations in sales associated with economic cycles or seasonality of demand
● Minimize risk and maximize flexibility, compared to other entry strategies
Disadvantages include learning less about customers, competitors, and uniqueness of the
market; it requires the firm to acquire new capabilities and dedicate resources to properly
conduct export transactions; and high sensitivity to tariffs and other trade barriers, as well as
exchange rate fluctuations.
Disadvantages of Exporting
● Little direct contact with foreign customers (in contrast to FDI), hinders firm-level learning
about customers, competitors, and other unique foreign market aspects.
● Developing specialized export capabilities places a strain on resources. Exporters must
become proficient in international sales contracts & transactions, financing methods, logistics,
and documentation.
● Exports are more sensitive to tariffs, trade barriers and exchange rate fluctuations. Exporters
can be priced out of foreign markets if shifting exchange rates make their products too costly to
foreign buyers.
13-11. Describe the organizing framework for exporting. What steps should the firm
follow to ensure exporting success?
(LO 13.1; AACSB: Application of knowledge)
There are four steps for a systematic approach to exporting.
Step one is to assess the global market opportunity,
13-12. What are the major tasks involved in managing export transactions?
13-13. Explain the payment methods that exporters typically use. What is the most
reliable payment method and how do exporters carry it out?
■ Payment methods- listed roughly in order from most to least secure- cash in advance, letter of
credit, open account, consignment, and countertrade.
■ There are four primary payment methods: cash in advance, letter of credit, open account,
consignment, and countertrade.
■ Exhibit 13.4 presents the typical cycle of an international sale through a letter of credit.
13-14. Explain the nature, role, and risks involved in countertrade.
■ Countertrade is an international business transaction were all or partial payments are made in
kind rather than in cash.
■ The focal firm engages simultaneously in exporting and importing.
■ There are four types of countertrade: barter, compensation deals, counter purchase, and
buyback agreements.
■ There are five circumstances in which countertrade might work well:
■ There are five problems with countertrade:
The goods received a payment may be inferior in quality;
13-15. What steps should the exporter take to ensure success in working with
intermediaries
■ Success in exporting usually depends on establishing strong relationships with distributors,
■ Intermediaries move products and services in the home country and abroad and perform key
■ For most exporters, relying on an independent foreign distributor is a low-cost way to enter
■ Most intermediaries are based in the exporter’s target market provide services such as:
●Conducting market research
●Finance sales and extending credit
■ Intermediaries based in the foreign market can function like the exporter’s local partner,
Finding Foreign Intermediaries
■ Various sources are available for finding intermediaries abroad, including:
◘ Country and regional business directories, such as Kompass (Europe), Bottin
◘ Other directories – Dun and Bradstreet, Reuben H. Donnelly, Kelly’s Directory, and
◘ Trade associations that support specific industries such as the National Furniture
◘ Government departments, ministries, and agencies charged with assisting economic
■ The exporter should attend a trade fair in the target country.
■ Also, on-site visits afford managers direct exposure to the key players in the local industry, the
Working with Foreign Intermediaries
■ In exporting, the most typical intermediary is the foreign-based independent distributor.
■Experienced exporters go to great lengths to build relational assets—that is, high-quality,
■ While competitors can usually replicate the exporter’s other competitive attributes, such as
Firms develop relationships with their intermediaries in various ways:
■ Cultivate mutually beneficial, bonding relationships
■ Respond genuinely to intermediary needs
■ Exhibit 13.5 summarizes the selection criteria that experienced exporters use to qualify
13.16. Identify the benefits that companies receive from global sourcing. Why do firms
outsource to foreign suppliers?
■ Exhibit 13.7 outlines the Nature of Outsourcing and Global Sourcing.
■There are two primary reasons to pursue global sourcing: cost efficiency and the ability
COST EFFICIENCY
■ Cost efficiency is the traditional rationale for sourcing abroad.
ABILITY TO ACHIEVE STRATEGIC GOALS (transformational outsourcing)
■ The strategic argument for global sourcing being a catalyst to free expensive analysts,
■ Not mutually exclusive—achieving cost efficiency and strategic goals
■ Industries that particularly benefit from global sourcing include:
13-17. What are the implications for company strategy and performance of business
process outsourcing?
■ Business process outsourcing is acquiring business services from independent suppliers
■ The key idea is that the firm should outsource only those business tasks that do not comprise
13.18. What are the risks that firms face in global sourcing?
■ Studies show that as many as half of all outsourcing arrangements are terminated earlier than
planned.
Lower-than-expected cost savings–
■ International transactions are more complex and costly than expected.
Environmental factors-
■ Environmental challenges such as currency fluctuations, tariffs and other trade barriers, high
Weak legal environment-
■ Many popular locations for global sourcing (for example, China, India, and Russia) have weak
Inadequate or low-skilled workers-
■ Some companies have found that although labor costs may be cheap, productivity is lower,
Overreliance on suppliers-
■ Unreliable suppliers may reprioritize earlier work when they gain a more important client.
Risk of creating competitors-
■ As the focal firm shares its intellectual property and business-process knowledge with foreign
Erosion of morale/commitment among home-country employees-
■ Global sourcing can leave employees caught in the middle between their employer and their
■ Additional challenges of global sourcing include: vulnerability to exchange rate fluctuations,
13.19. What steps can managers take to minimize the risks of global sourcing?
There are six managerial guidelines for minimizing risk:
1. Firms should offshore for the right reasons.
2. Managers must get employees onboard.
3. Managers must choose between a captive operation and a contract with outside
13-20. What are the major guidelines for strategic global sourcing?
13-21. What is the role of supply chain management in global sourcing?
Global Sourcing
[Also called global procurement or global purchasing]
■ Global sourcing- procurement of products or services from independent suppliers or
Go offshore for the right reasons-
Firms must offshore for strategic reasons, not just cost-cutting reasons.
◘ The vast majority of companies cite cost-cutting as the main reason for global
Get employees on board-
Managers must convince home country employees that offshoring makes strategic sense. In
other words, management must get local buy-in for the idea.
◘ Disaffected middle managers may undermine projects and other goals that sourcing
Choose carefully between a captive operation and contracting with outside suppliers-
◘ Managers should be vigilant to strike the right balance between the organizational
◘ Managers must choose offshoring partners carefully, and choose offshoring activities
Choose suppliers carefully-
◘ Finding and managing foreign suppliers is complex. Suppliers may engage in
◘ Managers must choose countries and suppliers carefully. They must exercise great
Emphasize communications and collaboration with suppliers-
A common reason for global sourcing failure is that buyers and suppliers spend too little time
◘ Clarify expectations, communicate business philosophies and practices to minimize
◘ Close collaboration with suppliers in development activities enables knowledge
◘ Strong relationships help create a moral contract between the focal firm and the
Safeguard interests-
The focal firm should take specific actions to safeguard its interests:
◘ First, it can advise the supplier to refrain from engaging in activities that harm the
◘ Second, it can escalate commitments by making partner-specific investments (such
◘ Third, it can share costs and revenues by building a stake for the supplier so that, in
◘ Fourth, it can maintain flexibility by keeping open its options for finding alternate
Global Supply-Chain Management
■ Global supply chain is the firm’s integrated network of sourcing, production and distribution,
■ A key reason sourcing products from distant markets has become a major business
■ Global supply-chain management includes both upstream (supplier) and downstream
Supply Chain vs. Value Chain
■ The concepts of the supply chain and the value chain are related but distinct.
■ The supply chain is the collection of logistics specialists and activities that provides inputs to
■ Skillful supply-chain management serves to optimize value-chain activities.
■ An efficient supply-chain system is necessary for effective global sourcing.
● APPLY YOUR UNDERSTANDING