iba 460 exam 1

Factors contributing to growth in international trade over the last 60 years

-economic development worldwide, trade integration

-cost for travel, shipments, and telecommunications decreased

-more firms trading internationally, more small firms getting involved

benefits of int'l trade in Alabama and the US

-more large firms are exporting out of alabama

what is the infrastructure of Alabama's trade ports

-small/med. businesses

-deep water port

-inland transportation

-6 foreign trade zones

--store/process shipments in sub zones to delay payment of import taxes

-public/private services (export training, marketing, taxes)

-Export Alabama Alliance: small companies get involved in trading

-more jobs created

-exports increased from $2.8B in 1990 to $21.7B in 2017

-ranked #8 in southeast exports

Alabama's top 5 exports

vehicles, mineral fuels, machinery, iron/steel, plastic

impact of free trade agreements

-reduces trade barriers

-best way to open foreign markets to the US

-stable and transparent trading environment

-exports to free trade countries grow at a faster rate than non FTA

North American Free Trade Act (NAFTA)

-between US, Mexico, and Canada

-removes barriers in exchange for goods

-removes investment restrictions

-protects intellectual property rights

1. Uruguay Round of GATT

2. Israel FTA with US

-established the World Trade Organization (WTO)

-first free trade agreement the US made was with Israel, promoted regulatory transparency

Process used to IDENTIFY potential foreign markets

indicators of success based on previous data

-leads: trends in regions that share the same characteristics

-sales: trends of past sales indicate you can actually sell a product in another competitive market

-competitive behavior: how/where are competitors selling

-trade shows: what countries attend the most, insight about other countries markets

-experts/customers: what is their opinion on your plan/product

Process used to RANK potential foreign markets

1. develop a list of indicators

2. convert data (assign point values)

3. weight each factor and assign it relative importance

4. analyze the results: are they reasonable? what-if analysis

Why rank foreign markets?

-don't rely on untested assumptions

-avoid hidden agendas in the company

-make informed decisions w/ consensus

-not a one-time thing, its a process

Proactive market selection

-focus on a set number of markets

-global assessment of market opportunity

-independent of previous sales/competitors

-stimulus from inside the company

-more up-front costs

Reactive market selection

-fast-low risk approach b/c you and your competitors have been selling in the market already

-ranked/id'd foreign markets

-low cost

cons of reactive market selection

-competitors might be wrong

-mismatched market and product life cycle

-higher % of mistakes

global indicators of a product's international potential

1. Demographic: the customer (size, age, density, growth rate), (income, education, religion, lang)

2. Macroeconomics: GDP, inflation, potential of recession, emerging v. mature markets

3. Gov't Policies: import controls, tariffs, regulations, labeling

4. Environmental: weather, geography, infrastructure

5. Import/Export Data: harmonized code, historical data

6. Industry Specific: entry-barriers, rivalry, supplier power, buyer power, risks in industry

impact of import tariffs and exchange rates

-can be more costly to export

-pro-producer, anti-customer: price of product goes up, customer wants smaller order

-short term effects: higher prices reduce consumption, businesses profit, and the gov't sees an increase in revenue

-long-term effects: businesses see decline in efficiency due to lack of competition, reduction in profits due to emergence of substitutes

what is an import tariff?

taxes applied to all imported goods

-local gov't can protect local industries and locally produced products

impact and example of non-tariff barriers (NTB)

-reduces the total number of items imported into a specific country

-important to decrease NTB otherwise it can put your product out of the market

-ex. import licences, labeling, quotas

ex. of labeling

in Canada they require almost all products to have bilingual labeling; if you do not understand this before shipping you could waste tons of money re-labeling your products

Absolute Quota

limit set by importing country's government

Tariff-Rate Quota

two-tiered tariff; low rate on products until a specific amount of units have been imported, after limit is reached the tariff will increase

Harmonized Tariff Schedule (HS Code/HTS)

-classifying globally traded products, used for imports

-10 digits, 6 harmonized

-made by importer, checked by customs

-21 sections, about 17,000 codes

-recognized by 198 countries

Schedule B Number

-used for exports, made by the US census

-10 digits, first 6 digits are based on HS code

-about 9000 codes

T/F: There is currently more trade in in services than merchandise.

False. There are currently more trades in merchandise.

Trade in services

types of service: financial advising, legal, advertising, postal

-accounts for around 20% of the total world trade

Wal-Mart effect

-economic impact felt by local businesses when a large company like Wal-Mart opens near them

-forces smaller retailers out of business and reduces wages

-forces suppliers to make their products for less money

-attributed to their immense buying power

-benefits: curb inflation, and keep employee productivity optimal

MRP & MRPII

Materials Req. Planning & Manufacturing Resources Planning: tool that allows firms to decide what to produce, how much, depending on sales forecasts and pending orders

DRP

Distribution Resources Planning:

tool that allows a retail firm when/what/how much to order from suppliers in relation to what they sell to customers

T/F: DRP, MRP, and MRP II all depend on the reliable and efficient delivery of smaller shipments.

True.

Comparative Advantage

ratio of products, which country can produce a product more efficiently than another product they are currently making, they will trade for product

Absolute Advantage

if a country can produce another product more efficiently than another country, they will trade

Factor Endowment Theory

a country will enjoy comparative advantage if its naturally endowed with a larger factor of economic production (ex. land, labor, capital)

Driver of Int'l trade

1. Cost: companies increase sales worldwide to recover from high investment costs

2. Competition: comp. enter foreign markets to keep up and retaliate against with their competitors

3. Market: firms enter foreign markets because their customer's expect them to be present

4. Technology: firm's customer's use technology to make purchases

Top 5 Importing Countries

1. Us 13.8%

2. China 10.1%

3. Germany 6.3%

4. Japan 3.9%

5. UK 3.7%

Top 5 Exporting Countries

1. China 13.8%

2. US 9.1%

3. Germany 8.1%

4. Japan 3.8%

Top U.S. exporters/exports

Canada, Mexico, China, Japan

-industrial supplies (chemicals)

-capital goods (medical)

-consumer goods (cells)

-automotive

-food/bev.

Top U.S. importers/imports

China, Mexico, Canada, Japan

-industrial supplies

-consumer goods

-capital

-auto

-food/bev.

Cluster Theory

-competitive clusters form when companies in the same industry focus in one geographic area.

-the companies feed on each other's knowledge, pushed to innovate faster

-if they become more efficient and innovative, they eventually become world class suppliers

ex. Silicon Valley (IT) and Geneve, Switzerland (watches)

Logistics Cluster Theory

-logistics companies concentrate in one geographic area

-manufacturers can operate more efficiently since services are shipped to one area

-help one another to attract new customers

-ex. Singapore or Memphis, TN

Ad Valorem Tax

-tax based on value of property, follows property from owner to owner

-duty is collected "ad valorem"

-billed from exporter on invoice

calculation of duties

-landed value of goods, costs and freight

-transport costs added to invoice

-ground shipped, int'l fee is subtracted from importer's bill

export controls (who, what, why)

-DoC: controls most commercial and "dual-use" items

-BIS: controls export of military/tech products that can pose a threat to the US

-Dept of State: defense items

does my shipment require a license?

4 reasons

1. actual item code

2. reasons for control

3. who its going to

4. the end use

5. every variation of the product

EAR99

-commercial goods that are not ECCN are EAR99

-low level tech and consumer goods

ECCN

Export Control Class. Number

-Commerce control list

-id reasons for control

-tells licensing requirements

CCL

Commodity Control List

-what can/can't be shipped

-WAS: everything not specifically authorized requires a license

-NOW: everything is permitted unless it is specifically unauthorized