8 Exporting Notes 8

Exporting and International Trade

Exporting as an Entry Strategy

Exporting is often the initial foreign market entry strategy for firms due to its low risk, low cost, and flexibility. It's particularly favored by Small and Medium Enterprises (SMEs). Exporting is closely linked to trade, trade deficits, and trade surpluses. Most exports involve tangible goods (merchandise), and the export channels include:

  • Independent distributors or agents
  • Importers
  • A firm's own marketing subsidiary abroad.

International Sales Intensity

The intensity of international sales varies across U.S. industries. For example:

  • Energy: Average international sales are at 59%, with Exxon Mobil at 66%.
  • Information Technology: Average is 57%, with Advanced Micro Devices at 78%.
  • Materials: Average is 53%, with Corning at 72%.
  • Industrials: Average is 45%, with Caterpillar at 59%.
  • Healthcare: Average is 37%, with Abbott Laboratories at 69%.
  • Consumer Discretionary: Average is 35%, with Mattel at 40%.
  • Consumer Staples: Average is 34%, with General Mills at 28%.

Exporting Services

Services such as architecture, education, banking, insurance, entertainment, and information can also be exported. However, many pure services are not exportable due to their non-transportable nature. Retailers may offer services by establishing stores abroad via Foreign Direct Investment (FDI), as retailing requires direct customer interaction. Most services are provided to foreign customers via entry strategies other than exporting, especially FDI.

Advantages of Exporting

  • Increased sales volume and improved market share.
  • Increased economies of scale.
  • Better profit margins.
  • Diversification of customer base.
  • Stabilization of sales fluctuations.
  • Minimized market entry costs and risks.
  • Maximized flexibility.
  • Leveraged capabilities of foreign distributors.

Disadvantages of Exporting

  • Fewer opportunities to learn about foreign markets compared to FDI.
  • Requirement to acquire new capabilities in international sales contracts, financing, logistics, and documentation, which can strain resources.
  • Exposure to tariffs and trade barriers, along with fluctuating exchange rates.

Systematic Approach to Exporting

  1. Assess global market opportunity: Evaluate the firm's readiness to internationalize and select appropriate country markets and partners.
  2. Organize for exporting: Decide on the degree of firm involvement, resource commitment, and the types of domestic and foreign intermediaries to hire.
  3. Acquire needed skills and competencies: Develop skills to handle export operations, train staff, and engage facilitating firms like freight forwarders, bankers, and international trade attorneys.
  4. Implement exporting strategy: Make decisions about product adaptation, marketing communications, pricing, and support for intermediaries or subsidiaries.

Export Intermediation Options

  • Indirect Exporting: Contract with a domestic intermediary (e.g., Export Management Company or Trading Company) to handle all export functions. Common for firms new to exporting.
  • Direct Exporting: Contract with foreign market intermediaries (distributors or agents) to perform export functions. These intermediaries handle downstream value-chain activities in the target market.
  • Company-Owned Foreign Subsidiary: Similar to direct exporting, but the exporter owns the foreign intermediation operation. This is the most advanced option.

Alternative Organizational Arrangements for Exporting

The exporter can work directly with foreign intermediaries (sales representatives, foreign distributors, brokers, or online intermediaries) or establish a company-owned subsidiary in the foreign market.

Export Documentation

Official forms and paperwork required to transport exported goods and clear customs:

  • Quotation or Pro Forma Invoice: Provides potential buyer with price and product description.
  • Commercial Invoice: Actual demand for payment issued after a sale.
  • Bill of Lading: Contract between exporter and shipper, authorizing transportation of goods.
  • Shipper’s Export Declaration: Lists exporter and buyer contact information, product description, value, and destination (used for government statistics).
  • Certificate of Origin: