Chapter 16

Exporting, Importing, and Countertrade

Information SourcesMost comprehensive government source of export

information - U.S. Department of Commerce International Trade Administration and the United

States and Foreign Commercial Servicehttps://www.buyusa.gov/ “International Partner Search”; “Franchise Partner Search”;

“Gold Key” service

Small Business Administration can helpLocal and state governments also provide supportOEC (Observatory of Economic Complexity)

Data Visualization: https://atlas.media.mit.edu/en/Search (Top Right Menu): Enter your assigned country (much info) Visualizations (Top Center Menu): Explore the “Tree Map” tool

Use Caution When Trading

If something appears too good to be true, it often is:

Check Bureau of Industry & Security (BIS) - Denied Persons Listhttp://www.bis.doc.gov/dpl/default.shtm LINK

Direct Selling

You export the product - your partner helps you sell it after it arrives there:Sales representative: usually operates on

a commission basis within an exclusiveterritory (next slide has details on agents)Distributor: Merchant who purchases

goods from a manufacturer and stocks,services, and resells them to retailers at aprofit PREFERRED because they invest in inventory

Export Financing?

Methods: Wire (T.T.), L/C, D/P, D/A, Open Account, EscrowL/C (shown below)

Negotiating Style On-line ToolNegotiating Style Assessment

Rate each of the 35 itemsDirect Link: https://goo.gl/Woj9ysORhttp://consultapedia.com/consultapedia_mentor/tool_negotiating_style.php

Your style (strengths/weaknesses/appropriateness)

DodgerDreamerHagglerCompetitorProblem Solver

Let’s Negotiate: Groups – (6 groups) 17 camelsA man, after he died, left 17 camels to his three sons1/2 to his oldest son, 1/3 to his middle son, 1/9 to youngest Can you figure out how to divide these exactly as directed?

Short Film (5 min)

Two Questions to ask:1. What happens to both sides in the event that we

don’t agree? (consequences of no agreement)- What are the consequences for both sides?- Clarity on customer’s alternative to us if we don’treach agreement – know these options better thanthey do.

2. What are the likely terms in the event we do agree?- What are the likely trades from both sides?- What are all of the factors that come into play?- Where do we have extra wiggle room?

Negotiation Strategies

4 Steps to Effective Negotiation

Estimate – Initial PreparationCNA – Consequence of No AgreementTrades – Concessions a party is willing to makeMEO – Multiple Equal Offers

Let’s Negotiate: Groups –One is Buyer, One is Seller

Buyer: $2 billion company, active in trade, wants a lower price, on-going relationship

Seller: $1.5 million company, active in trade, wants higher profits, expand sales, on-going relationship

The last transaction (have done business before):5,000 units @ $200.00 per unit CIF Los Angeles – GPS devicePayment: Open Account Net 30 (after invoice – date of shipping)

Bubble pack, standard export packing, 1 year warrantee Estimate - Prepare for negotiation (5 minutes)

• Outline CAN & Wish List for both sides (write on paper) Validation Meeting with (buyer/seller) - 5 minutes Results – what did you validate? (write results on paper)

A Trade Bundling (adjust price and profits)

Bundle Up - Adding Value• Value becomes primary buyer motivator• Response to competitive pricing• Extends life-cycle• e.g., computers [combined with software/warranty]

Bundle Down - Take Away Value• Price becomes primary buyer motivator• “Buy” market share strategy• Creates low-cost image• e.g., Ikea [knock-down condition/low price]

TradesCost Analysis – Seek lower OVERALL costs Banking Fees Costs related to

Standards/Registrations• Costs vs. risks (ISO 9000-

2000)

Documentation fees Export/Import processing

costs Financing charges Foreign exchange costs

(Risks) Freight/ Intermodalism/

Insurance Costs• INCOTERMS

Inspection/Lab testingcosts

Inventory/ carrying costs(up to 1.5%/week)• Fewer larger shipments VS.

frequent smaller shipments Legal/contract costs

(Risks) Marketing costs Minimum order quantities Production costs

• Sample costs• Spare parts allocations

(defective goods contact) Special packaging/ private

label costs

TradesOpportunities to Reduce Costs

Adapt Logistics• Product shipping form (KD, SKD)• Adjust frequency of departures• Optimize route sequencing

Subassembly in FTZ (Foreign TradeZones)• Classification (Changes duty rate)• Move labor intensive tasks

Alternative Financing Methods

Countertrade

A range of barter-like agreements that facilitate the trade of goods and services for other goods and services when they cannot be traded for money

Used when conventional means of payment aredifficult, costly, or nonexistent

Example: Computers for “Fertilizer” (Russia) No money – only had . . . Used trading company to facilitate Sold before received as payment

Typical Wish Lists (for the non-professional)

Typical Seller Wish List EstimationRank Item Weight Range (High to Low)1. Length of contract 40% 1-3 years (longer)2. Volume 25% 3–1,000 units (more)3. Price 15% $20–$16 (higher)4. Payment terms 10% 30–45 days (shorter)5. Service 10% 8/5 – 24/7 (less)

Typical Buyer Wish List EstimationRank Item Weight Range (High to Low)1. Price 40% $14–$18 (lower)2. Payment terms 20% 45 - 90 days (longer)3. Service 20% 12/7 - 24/7 (more)4. Length of contract 10% 0–2 years (shorter)5. Volume 10% 1–2,000 units (less)

Professional Supplier Selection

Professional Buyers’ Needs (in order):1. Financial stability2. People3. Supplier performance4. Supplier cost reduction ideas5. Supplier development projects6. Delivery7. Quality8. Product cost (price)9. Order accuracy10. Customer support11. Business relations

Buyer: $2 billion company, active in trade, wants a lower price, on-going relationship

Seller: $1.5 million company, active in trade, wants higher profits, expand sales, on-going relationship

The last transaction (have done business before): 5,000 units @ $200.00 per unit CIF Los Angeles – GPS devicePayment: Open Account Net 30 (after invoice – date of shipping)

Bubble pack, standard export packing, 1 year warrantee Create & Divide Value - Prepare for negotiation (5 minutes)

Outline your Multiple Equal Offers (same paper - reverse side) Negotiation for 5 minutes Results – debrief (write results on paper)

Let’s Negotiate: Revisited

4 Steps to Effective Negotiation - Review

Estimate – Initial PreparationCNA – Consequence of No AgreementTrades – Concessions a party is willing to makeMEO – Multiple Equal Offers

1. Send Initial Correspondence Product Literature Image Brochures/ Corporate

background Cover Letter General Price Quotation/

Payment terms

2. Receive Feedback for Additional Information Special Requests Clarifications/ Bargaining

3. Send Out An Individualized Quotation Tie to Purchase Order (P.O.) Establish payment method/

requirements Consider Using Blanket P.O.

For Repetitive Purchases (12-Month Period)

International Sales & Quotation Process

Price and Delivery Schedule Release Schedules Cut Ordering Lead

Time Can Obtain Quicker Orders (Not Having

to Go Through Purchasing Departments Each Time)

Attach Special Sales Agreements (sales contract)

4. Receive P.O. Check sales agreements (contract)

Acknowledge/ accept P.O.

5. Send Proforma Invoice Itemize costs/ include validity date Partial shipment/ transshipment allowances Specify documentation/ payment terms

6. Receive Payment/ Payment Arrangement

7. Proceed With Transaction

What type of help is available? Video (9 min)

Think Globally – Export USA

While watching the film please think about this question:How can the U.S. Foreign Commercial Service help a company to enter foreign markets?

What type of help is available? Video