Exporting and Trading info

BLACK & DECKER Black & Deckef (B&D), once known almost exclusively as a manufacturer of power tools for professionals, is now involved in "the manufacturing, marketing, and servicing of a wide range of power tools, household products, and other labor-saving devices generally used in and around the home and by professional users." In the 1970s, before broadening its base to include a larger segment of the household market, B&D was flying high. It had captured a large share of the world's power-tool market, and financial analysts were betting strongly on B&D's future. By 1981, however, the picture began to change. Earnings had begun to slip, and a worldwide recession caused a significant downturn in the power-tools segment of B&D's business, its bread and butter. Other events in the world economy added to B&D's problems. A strong U.S. dollar eroded B&D's competitive position in export markets and made B&D vulnerable to...

SUMMARY ■ A global production strategy involves the storage and movement of goods from the source of raw materials to the production of components, to the assembly of goods, to the distribution to consumers. ■ The international firm differs from the domestic one in that goods in intermediate or final form may move from country to country rather than remain in one particular country. ■ International sourcing of goods—primarily in the area of purchasing—differs from domestic sourcing in terms of language, distance, currency, wars and insurrections, strikes, political problems, and tariffs. ■ Foreign sourcing is often undertaken to obtain lower costs and high quality. However, U.S. firms are beginning to compete with foreign firms in both dimensions. ■ Firms must be involved in procedural as well as strategic decisions in order to import successfully. Familiarity with customs procedures is necessary and firms often require the help of specialists. ■ Foreign trade zones (FTZs), long...

LOOKING TO THEFUTURE   As global competition increases and trade barriers continue to fall, it will be increasingly important for firms to drive down costs as much as possible. This means that global firms will need to continue to develop the cheapest sources of supply that they can. Outsourcing as a means of finding components at the cheapest price will continue, and firms that rely on cheap labor as an important part of the production process will continue to look for low-cost production locations, such as Mexico for U.S. firms. In addition, firms will continue to implement the concept of total quality control in order to make their production operations more efficient and effective. The use of concepts such as JIT will enhance the quality and productivity of manufacturing operations. In spite of the move to invest offshore in order to be closer to the market, firms will continue to export. During the late 1980s when the dollar was weak, exports were an important source of s...

Governmental Role in Exporting Governments play a variety of roles in the export process, some of which support exporting and others that appear to retard it. For example, government regulations designed to keep high-tech products from aiding the Soviet military retard high-tech exports of U.S. companies. The International Trade Administration (ITA) of the U.S. Department of Commerce offers a variety of services to firms. There are offices in every state where trade specialists can help firms develop export strategy and gain access to commercial officers overseas as well as to a variety of data services. The ITA also sponsors and promotes trade shows. Eximbonk A major federal source of assistance to U.S. exporters is the Export-Import Bank (Eximbank). The Eximbank is the oldest federal agency specializing in foreign lending. As a fully owned government corporation, it has been in existence since 1934, with the specific objective of financing U.S. foreign trade. The Eximbank provides...

Foreign Freight Forwarders As was mentioned in the international sourcing section of this chapter, dealing in ocean transportation involves a number of different institutions and documentation with which the typical exporter does not have expertise. This is true even if the manufacturer is exporting components to a foreign subsidiary controlled by a common parent corporation. Commonly the services of a foreign freight forwarder are employed. Even export management companies and other types of trading companies often use foreign freight forwarders for their specialized services. The foreign freight forwarder is the largest export intermediary in terms of value and weight handled; however, the services offered are more limited than those offered by an EMC. Once a foreign sale has been made, the freight forwarder acts on behalf of the exporter in recommending the best routing and means of transportation based on space availability, speed, and cost. The forwarder secures such space and ...

Japanese Trading Companies ETCs are essentially new, untested trading companies. When one thinks of trading companies, the giants such as Mitsui, Marubeni, and Mitsubishi of Japan come to mind. The sogo shosha, the Japanese equivalent word for trading company, can trace their roots back to the late 1800s, when Japan embarked on an aggressive modernization process. At that time, the trading companies were referred to as zaibatsu, large, family-owned businesses that were comprised of a series of financial and manufacturing companies usually held together by a large holding company. These zaibatsu were very powerful, so General Douglas MacArthur broke them up after World War II and made many of their activities illegal. The sogo shosha initially took the primary role of acquiring raw materials for the industrialization process and then finding external markets for goods. Although there are more than 6000 trading companies in Japan, the sixteen major sogo shosha control more than a maj...

Export Trading Companies  In the fall of 1982 the U.S. government enacted the Export Trading Company Act, legislation that removed some of the antitrust obstacles to the creation of export trading companies in the United States. It was hoped that these ETCs, which are a form of indirect selling that a manufacturer can utilize, would lead to greater exports of U.S. goods and services. ETCs are similar to EMCs, but they tend to provide a broader range of services and often take title to goods, whereas EMCs tend to act as agents. However, the two are very similar. There are four major types of ETCs: newly formed ETCs that received antitrust certification, ETCs organized by state and local governments, ETCs created by commercial banks, and ETCs initially organized by U.S. companies to handle their own exports. The first category involves business enterprises that would like to cooperate for foreign sales but have difficulty cooperating for domestic sales because of antitrust conce...

Export Functions and Facilitating Intermediaries A company engaged in exportation or planning to export must decide whether certain essential activities are to be handled by its own staff or through contracts with other firms. The following functions must be carried out: 1. stimulate sales, obtain orders, and do market research; 2. make credit investigations and perform payment-collection activities; 3. handle foreign traffic and shipping functions; and 4. function as support for the overall sales, distribution, and advertising staff of the firm. Nearly all firms can benefit at one time or another from using the services 0f an intermediary organization that will assume some or all of these func- tions. A variety of different intermediaries can facilitate exports. Some of them act as agents on behalf of the exporter, and others actually take title to the goods and sell them abroad. In addition, some of them are involved in certain specialized aspects of the export process, su...

Building an Export Strategy Many firms enter into exporting by accident rather than by design. When that happens, firms tend to encounter a number of unforeseen problems. In addition, the firm may never get a chance to see how important exports could be. That is why it is important to develop a good export strategy. Before developing the strategy, however, the firm must understand some of the major problems that firms face in exporting. Potential Pitfalls Aside from problems that are common to international business in general and are not unique to exporting, such as language and other culturally related factors, 10 mistakes are frequently made by firms new to exporting: 1. Failure to obtain qualified export counseling and to develop a master international marketing plan before starting an export business. 2. Insufficient commitment by top management to overcome the initial difficulties and financial requirements of exporting. 3. Insufficient care in selecting overseas agents o...

Export Strategy In the discussion of global sourcing, we noted that demand in a country can be satisfied by goods produced in that country or abroad, and that domestic production can use a combination of domestic and foreign components. At this point, we need to look at how domestic production can satisfy foreign consumption through exports. In some cases, goods are shipped to foreign consumers independent of the exporter. In other cases, parts and components are exported to company-owned plants in foreign locations for final assembly and sale. Caterpillar, for example, adopted a strategy after World War II of manufacturing key components in its domestic plants and shipping them around the world for final assembly, which allowed them to maintain tight quality control. Thus the export strategy also is part of the larger sourcing and manufacturing strategy of the MNE as well as a sales strategy for servicing final markets around the world. Exports take place for a number of good reas...

Inventory Control The greater the interchange of products and components, the more difficult the inventory-control process. The problems of distance and time and the uncertainty of the international political and economic environment can make it difficult to determine correct reorder points. For example, if a manufacturer in a country with a weak currency regularly imports inventory from a country with a strong currency, management may wish to stockpile inventory in anticipation of a devaluation despite large carrying costs and the risk of damage or pilferage. Also, the firm may wish to stockpile inventory in anticipation of political chaos or legislation slowing down imports. Rapidly changing international events can ruin a smoothly running inventory-control system. In recent years a lot of press has been given to the concept of just-in-time inventory management, a system that the Japanese have fine tuned. Just-in-time (JIT) manufacturing systems are becoming increasingly popula...

Offshore Manufacturing In recent years, offshore manufacturing (manufacturing outside of the borders of a particular country) has provided a useful alternative to giving up the domestic market to low-cost foreign competitors. Offshore manufacturing escalated sharply in the 1960s and 1970s in the electronics industry worldwide as one firm after another set up production facilities in the Far East, principally in Taiwan and Singapore. Those locations were chosen because of low labor costs, the availability of cheap materials and components, and prox- imity to markets. Now these countries are beginning to give way to the newer "low-cost" countries of Asia (Indonesia, Thailand, Malaysia, Vietnam, and Bangladesh) and Latin America. Maquiladora Industry Mexico has become one of the newest centers for offshore production for U.S. firms through the maquiladora industry. The Mexican government estimates that the industry, which already earns more foreign exchange than any indus...

Foreign Trade Zones  In recent years, foreign trade zones (FTZs) have become more popular as     an intermediate step in the process between import and final use. Oftentimes,  tne nnai use 1S Ior export; however, the zones are also good for making use  of foreign sourcing. FTZs, established by federal grants [in the United States] primarily to state and local government agencies, provide areas where domestic and imported merchandise can be stored, inspected, and manufactured free from formal customs procedures until the goods leave the zones. The intended purpose of the zones is to encourage the domestic location of firms by affording them opportunities to defer duties, pay less duties, or to avoid certain duties completely.15 FTZs have been used in the United States primarily as a means of providing greater flexibility as to when and how customs duties are to be paid. However, their use in export business has been climbing. In the United States, FTZs used ...

The Role of Customs Agencies When importing goods into any country, a firm must be totally familiar with the governmental customs operations. The primary duties of the U.S. Customs Service, for example, "include the assessment and collection of all duties, taxes, and fees on imported merchandise, the enforcement of customs and related laws, and the administration of certain navigation laws and treaties." As a major enforcement organization, it "combats smuggling and frauds on the revenue and enforces the regulations of numerous other Federal agencies at ports of entry and along the land and sea borders of the United States."12 The importer needs to know how to clear goods, what duties must be paid, and what special laws exist. On the procedural side, when merchandise reaches the port of entry— Sea-Tac Airport, in the case of Sunset Flowers—the importer needs to file documents with Customs in which a tentative value and tariff classification are assigned to the ...

The import Strategy There are two different types of considerations for potential importers: procedural and strategic. Procedural considerations relate more to the rules and regulations of the customs office of a country. This was a key concern to John Robertson in the Sunset Flowers case, because he needed to determine the regulations for importing flowers from New Zealand to the United States. Importation requires a certain degree of expertise in dealing with institutions and documentation that a firm may prefer to avoid. As a result, the importer may wish to work through an import broker, as John Robertson did. The broker obtains various government permissions and other clearances before forwarding necessary paperwork, such as a bill of lading, to the carrier that is to deliver the goods from the dock to the importer. The bill of lading serves as a receipt for goods delivered to the common carrier for transportation, a contract for the services to be rendered by the carrier, an...

GLOBAL SOURCING Before components can be manufactured, raw materials must be procured. The least complicated way of sourcing inputs is through domestic sources. Using domestic sources allows the firm to avoid problems such as language, distance, currency, wars and insurrections, strikes, political problems, tariffs, and more complicated transportation channels, to name a few. For many firms, however, domestic sources may be unavailable or more expensive than foreign sources. For a country such as Japan foreign procurement can be critical, since nearly all of its uranium, bauxite, nickel, crude oil, iron ore, copper, and coking coal and approximately 30 percent of its agricultural products are purchased from abroad. Japanese trading companies such as Mitsubishi came into being to acquire the raw materials necessary to fuel the manufacturing process. Whether raw materials are available domestically or not, firms must devise global sourcing strategies that take changing world economic...

The Entry Process When a shipment of goods intended for commercial use reaches the United States, it may not be entered legally until after: (a) it enters the port of entry, (b) the exporter pays the estimated duties and (c) customs authorizes delivery of the merchandise. The process, in its simplest form, has five essential steps. Step One: Entry . Within five working days of arrival of a shipment at a United States port of entry, entry documents must be filed. These documents consist of: • Entry Manifest, Customs Form 7533; or Application and Special Permit for Immediate Delivery, Customs Form 3461 • Evidence of right to make entry • Commercial invoice or a pro forma invoice • Packing list(s) if appropriate • Other documents necessary to determine merchandise admissibility Form 3461 is a Special Permit for Immediate Delivery and is an alternative procedure that provides for the immediate release of a shipment. Figure 6-2 shows the form used for land shipments, and F...