Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
13-22. Moose & Walrus (M&W) is a manufacturer of a popular line of clothing for young
people. M&W is firmly established in its home market, which is relatively saturated and
has little prospects for future sales growth. Top management has decided to export
M&W’s clothing line to Japan, Turkey, and various European countries. Suppose M&W
hires you to assist with internationalization. Prepare a briefing for senior managers that
describes:
● The advantages and disadvantages of exporting
● A systematic approach to exporting
● A systematic approach to managing export-import transactions
● Export payment methods
What factors should M&W consider regarding the possible need to adapt its clothing
styles for its target markets?
(LO 13.1; LO 13.2; AACSB: Analytical Thinking)
■ The student should mention the need to access the U.S. Department of Commerce Country
■ He/She should first research the CCG to see if clothing is a leading sector for export to those
■ Then, he/she should outline the advantages to exporting, and the disadvantages outlined in
■ Use the CCG to report on tariffs, duties and other trade barriers that might make exporting
■ If exporting appears to be attractive after the analysis, he/she can outline the payment
■ He/She might explain that countertrade would be neither necessary nor feasible in this case,
■ Students should propose an approach that cites several models taught in this chapter.
■ First, a consultant should first review the motives for selling internationally and characteristics
■ Second, the management and the consultant together should review industry trends and
■ Third, the consultant should discuss the disadvantages of exporting with management, and
● The advantages and disadvantages of exporting
Advantages of Exporting
● Increase sales, market share and profits
often more favorably than in the domestic market
● Increase economies of scale, reducing per-unit costs of manufacturing
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.
A Systematic Approach to Exporting
Exhibit 13.1 highlights the steps in a systematic approach to exporting:
Step One: Assess Global Market Opportunity
■ Analyze firm readiness for exporting, screen for the most attractive export markets, identify
qualified intermediaries/foreign business partners, and estimate industry and company sales
potentials.
■ Managers often visit the most promising countries to deepen their understanding of them.
Step Two: Organize for Exporting
■ What types of managerial, financial, and productive resources should the firm commit to the
exporting venture? What timetable should the firm follow for achieving exporting goals and
objectives? To what degree should the firm rely on domestic and foreign intermediaries to
implement exporting?
■ Exhibit 13.2 outlines the various alternative organizational arrangements for exporting.
• Indirect exporting- Exporting that is accomplished by contracting with
■ Advantage- the ability to internationalize while avoiding the risks and complexity of direct
• Direct exporting- Exporting that is accomplished by contracting with
intermediaries located in the foreign market.
■ Advantage- it gives the exporter greater control over the export process and potential for
■ Disadvantage- the exporter must dedicate substantial time, personnel, and corporate
Direct and indirect exporting are not mutually exclusive.
Key considerations for choosing direct or indirect are:
(1) Time, capital, and expertise that management is willing to commit
• Company-owned subsidiary- A representative office of the focal firm that
■ Companies tend to establish subsidiaries in markets that are large or strategically important.
Step Three: Acquire Needed Skills and Competencies
■ Specialized skills and competencies are required in areas such as product development,
Step Four: Export Management
■ Exporting strategy may need refinement to suit market conditions:
◘ Product adaptation- modifying a product to make it fit the needs and tastes of the
buyers in the target market- the exporter needs to adapt its products to gain competitive
advantage.
◘ Marketing communications adaptation- modifying advertising, selling style, public
● A systematic approach to managing export-import transactions
MANAGING EXPORT- IMPORT TRANSACTIONS
■ When comparing domestic and international business transactions, key differences arise in
documentation and shipping.
Documentation
■ Documentation refers to the official forms and other paperwork required in export
◘ Quotation or pro forma invoice- information regarding price and description of the
product/service
■ Freight forwarder- (travel agents for cargo) typically entrusted with the document
preparations- assist exporters with logistics, packing, labeling, customs and shipping.
PAYMENT METHODS IN EXPORTING AND IMPORTING
■ Advanced economies may afford firms stronger legal frameworks than developing economies,
however, in the event of disputes, local laws and enforcement mechanisms may favor local
Cash in Advance
■ Advantage- the exporter need not worry about collection problems and can access the funds
almost immediately upon concluding the sale.
Letter of Credit
■ Letter of credit- contract between the banks of a buyer and a seller that ensures payment
from the buyer to the seller upon receipt of an export shipment
■ Protects both the buyer and seller, so most popular for export transactions.
■ The system works because virtually all banks have established relationships with
correspondent banks around the world.
■ Exhibit 13.4 presents the typical cycle of an international sale through a letter of credit.
■ Draft- similar to a check- the draft is a financial instrument that instructs a bank to pay a
precise amount of a specific currency to the bearer on demand or at a future date.
Open Account
■ Open account- buyer pays the exporter at some future time following receipt of the goods,
similar to a retail customer paying a department store on account.
MOST SECURE LEAST SECURE
Cash in
Advance
Cash in
Advance
Letter of
Credit
Letter of
Credit
Open
Account
Open
Account
Countertrad
e
Countertrad
e
■ Exporters use this approach only with long standing customers or those with excellent credit,
otherwise very risky.
Countertrade
Can serve as a method of payment in international transactions-
Types of Countertrade
■ There are four main types of countertrade: barter, compensation deals, counterpurchase, and
■ Barter-
●Direct exchange of goods without any money
■ Compensation deals-
●Payment is in both goods and cash
■ Counterpurchase-
●Two distinct contracts-
■ Buy-back agreement-
●A type of countertrade in which the seller agrees to supply technology or equipment to
construct a facility and receives payment in the form of goods produced by the facility
13-23. Antenna Communications Technologies, Inc. (ACT) is a small satellite technology
communications firm. Its product is a multibeam antenna that allows customers in the
broadcast industry to receive signals from up to 35 satellites simultaneously. The firm
has little international business experience. ACT recently hired you as its export manager
and, based on extensive research, you find substantial demand for the product in Africa,
China, Russia, and Saudi Arabia. Having followed most of the steps in the organizing
framework for exporting, you decide direct exporting is the best entry strategy for ACT.
Your next task is to find distributors in the target markets. How will you approach this
task? What resources should you access to find distributors in these markets? Once
established, what is the best way to maintain solid relations with foreign distributors?
Finally, what payment method should ACT use for most of its prospective markets?
(LO 13.2; LO 13.3; AACSB: Analytical Thinking)
■ There are three concepts that are important for students to discuss: sources for finding good
intermediaries, criteria for choosing intermediaries, and how to maintain a good/ and end a bad
13-24. Ethical Dilemma:
Suppose EcoPure Industries, a manufacturer of components for hybrid motor vehicles,
hires you. EcoPure emphasizes social responsibility in its business dealings and uses
three foreign market entry strategies: exporting, joint ventures, and FDI. Exporting
implies the sale of products to customers located abroad, usually under contract with
foreign intermediaries that organize marketing and distribution activities in local
markets. Using joint ventures, EcoPure partners with foreign firms to access their
technology, expertise, production factors, or other assets. Using FDI, EcoPure invests
funds to establish factories or other subsidiaries overseas. Each of the strategies—
exporting, joint venture, and FDI—is vulnerable to particular types of ethical dilemmas,
and top management has directed you to identify and describe the most typical ones.
Using the ethical framework and other material in Chapter 4 as a guide, what types of
ethical problems might arise in each type of entry strategy? Which entry strategy most
likely gives rise to ethical problems? Be sure to justify your answer.
(LO 13.1; LO 13.3; LO 13.6; AACSB: Reflective thinking)
Ethical Framework
1. Identify the problem
2. Examine the facts
3. Create alternatives
Evaluate each proposed action to assess its consistency with accepted ethical
standards, using the approaches described earlier:
■ Utilitarian—which action results in the most good and least harm?
4. Implement course of action
5. Evaluate results
1. Identify the problem
How are Corporate Social Responsibility (CSR) and Business Ethics manifested in each
of three modes of entry: exporting, joint venture and FDI?
2. Examine the facts
Three possible foreign market entry strategies present different ethical challenges.
3. Create alternatives
Each mode of entry is evaluated from an ethical perspective.
Exporting
■ The fact that EcoPure has no physical presence in the foreign country may present ethical
dilemmas in exporting. Another foreign firm may be hired to handle the marketing strategy but
Joint Venture
■ Joint ventures bring different ethical dilemmas because a firm is now a partner with a foreign
entity. One firm may possess proprietary knowledge for the manufacturing of a product, while
FDI
■ FDI usually places the onus of ethical responsibility on the globalizing firm because that firm is
investing in a new country, establishing a physical presence, and exploiting resources
indigenous to another nation. EcoPure will be building factories and acquiring distribution
4. Implement course of action
■ All of these dilemmas affect EcoPure moving into new markets regardless of the entry
strategy. Exporting creates many ethical dilemmas that are challenging to control because the
firm has no presence in the country. However, FDI may produce the most challenging ethical
5. Evaluate results
■ Were economic and social goals met?
■ Assess how effective the decision is.
■ If you had it to do again, would you do anything differently?
■ Evaluation should assess whether the intended effect is achieved, and if not, whether the firm
should pursue a different action.
● GlobalEDGE™ INTERNET EXERCISES http://globaledge.msu.edu
13-25. You work for a firm that manufactures children’s toys. Despite little international
experience, management wants to start exporting. Your boss understands the
importance of using strong distributors abroad but knows little about how to find them.
You are aware that many national governments offer programs that help new exporters
find intermediaries in foreign countries. Examples include trade missions, trade shows,
and matchmaker programs (in which the exporter is matched with foreign
intermediaries). In the United States, the International Trade Administration (ITA)
provides various services to help exporters find foreign distributors. Visit the ITA website
(www.ita.doc.gov), or the main trade support agency of your country (through
globalEDGE™), and see what programs are available. Then prepare a memo to your boss
in which you describe specific programs to help your firm get started in exporting.
■ The following are specific programs that would help our firm get started in exporting.
Trade Shows and Events:
■ The Trade Mission Calendar keeps track of high level upcoming or completed trade missions.
The U.S. Commercial Service lists information about domestic and international trade missions
and conferences. The International Trade Administration (ITA) http://trade.gov/index.asp and
www.export.gov are links that also offer search engines for trade events.
Consultancy and Counseling:
■ The Trade Information Center (TIC) and the U.S. Commercial Service provides free export
General Information /Market Research:
■ “A Basic Guide To Exporting,” a publication prepared by the U.S. Department of Commerce
(USDOC), is helpful for a company inexperienced in exporting. Export America, a monthly
Directories:
■ The National Export Directory contains contact information for federal and state trade offices,
Matchmakers:
■ BuyUSA http://www.buyusa.gov/home/ offers ‘matchmaking’ and international business
Export Promotion:
■ MyExports (www.myexports.com) provides exporters low-cost multimedia advertising in the
annual buyers guide and in the MyExports online directory. Commercial News USA allows firms
13-26. Suppose you work for a major trading company exporting timber from Canada,
petroleum from Britain, and processed food products from the United States. To enhance
your career prospects, you want to learn more about the export of these goods from their
respective countries. Visit globalEDGE™ and research current international news about
these industries in the countries indicated. Based on your findings, prepare a brief report
on the status of each in the context of your firm’s exporting efforts.
Student responses will vary. The following are examples.
Timber from Canada
■ The Canadian lumber industry is heavily dependent on foreign markets; approximately 72% of
Petroleum from Britain
■ The UK is the twelfth largest producer of oil and gas combined. Oil and gas from the UK
Processed Food Products from the United States
■ Demand for processed food is increasing. Time and expense of preparing meals at home
decreases as family size increases, therefore smaller households are more likely to eat out.
Demographics is important and differs in each country. For instance in the U.S., obesity has
13-27. Suppose your employer wants to export its products and be paid through letter of
credit (LC). You have volunteered to become the company’s LC expert. One way to
accomplish this is to visit globalEDGE™ and do a search on the keywords “letter of
credit.” Another is to visit the websites of major banks to learn about procedures and
instructions to receive payment through LC. Visit the websites of CIBC (www.cibc.com),
the National Australia Bank (www.national.com.au), and HSBC (www.hsbc.com) to see
what you can learn about LCs. For each bank, what are the requirements for getting an
LC? What services does the bank offer regarding LCs? Can you get training in LCs from
these banks?
■ LCs help companies that engage in import/export transactions to minimize their risks in
international trade and to have a greater control over shipping dates. LCs allow importers to
provide their suppliers with a bank’s undertaking that guarantees payment by a certain date.
Import/Export Services Offered by Banks
■ The issuing bank tracks the transaction status of the LC, which increases efficiency of
■ For importers, the issuing bank guarantees payment to suppliers, thus suppliers do not insist
■ Allows exporters to request immediate payment under LC stipulations, thus improving cash
flow
■ Some issuing banks offer electronic LC platforms over the internet simplifying the process to
particular, the use of sweatshops has attracted much attention. A sweatshop is a factory
characterized by very low wages, long hours, and poor working conditions. Some sweatshops
employ children in unsafe conditions. Pro-labor groups advocate for minimum labor
standards in foreign factories. Suppose your future employer wants to outsource a portion of
its production to certain developing countries but is concerned about the possibility of
employing sweatshop labor. Visit the websites of groups that encourage minimum standards
in labor conditions (for example, www.workersrights.org, www.usas.org, or
www.corpwatch.org or enter the keywords “labor conditions” at globalEDGE™) and prepare a
memo to your employer that discusses the major concerns of those who advocate minimum
labor standards.
(LO 13.4; AACSB: Analytical Thinking)
■ Watchdogs of minimum labor standards advocate for workers to earn a livable wage in a safe
and decent work environment.
■ In other words, workers should be working on their own free will, as well as, be given breaks
and overtime pay.
CAREER TOOLBOX EXERCISE
IDENTIFYING AN ATTRACTIVE EXPORT MARKET
Visit MyManagementLab for more information.
Simulation Offshoring
Apply what you have learned in this chapter by doing a simulation and answering questions
about a domestic software manufacturer deciding about outsourcing key functions to foreign
suppliers.
Go to MyManagementLab to access the simulation.
MyManagementLab
Go to Mymanagementlab.com for Auto-graded writing questions as well as the following
Assisted-graded writing questions:
13-29. What roles do distribution channel intermediaries play for exporting firms?
13-30. Describe the characteristics and advantages of letter of credit as a payment
method in exporting.
13-31. MyManagementLab Only– comprehensive writing assignment for this
chapter.
Visit MyManagementLab for suggested answers
