BUSI 4344 Exam 4 Study Notes

The Promise and Pitfalls of Exporting

• Exporting Definition: Producing goods at home and selling them in foreign markets.
• Benefits:
  • Large revenue and profit opportunities for most firms.
  • Economies of scale:
  • Large firms are proactive about exporting.
  • Medium and small firms are often reactive due to intimidation or unfamiliarity with foreign markets.
  • Initial problems can deter companies from future ventures.

Improving Export Performance

• Service Providers:
  • Freight Forwarders:
  • Combine smaller shipments into larger ones to minimize shipping costs.
  • Handle documentation, payments, and carrier selections.
  • Export Management Companies (EMC):
  • Act as an export marketing department for client firms.
  • Export Trading Companies:
  • Provide comprehensive services, including export documentation, logistics, and transportation.

Export Strategy

1. Hire Experts: Employ an EMC or an experienced export consultant for guidance on opportunities and regulations.
2. Focus on Select Markets: Start with one or a few foreign markets.
3. Small Scale Entry: Begin entering foreign markets on a small scale to minimize costs of potential failures.
4. Commitment: Acknowledge the time and management effort required for export sales; consider hiring more personnel.
5. Build Relationships: Invest time in developing strong local distributor/customer relationships.
6. Hiring Locals: Employ local personnel to assist with market establishment.
7. Be Proactive: Actively seek export opportunities.
8. Consider Local Production: Keep the option of producing locally available.

Export and Import Financing

• Letter of Credit:
  • A bank promise to pay a specified sum to the beneficiary (exporter) upon document presentation.
  • Issued on request of the importer with a fee.
• Bill of Lading:
  • Serves as a receipt, contract, and document of title.
  • Can be used as collateral for funds pre or during shipment.

Export Assistance

• Export-Import Bank:
  • Financing assistance for U.S. exports to support employment and competitiveness.
  • Offers loan guarantees for loans made to foreign buyers purchasing U.S. exports.

Countertrade

• Definition: An alternative method to structure international sales when traditional payment is problematic.
• Types of Countertrade:
  • Barter: Direct exchange of goods/services without cash.
  • Counterpurchase: Reciprocal buying agreements.
  • Offset: Agreement to use a percentage of proceeds from the sale to purchase in the country.
  • Switch Trading: Involves third-party trading houses.
  • Compensation/Buybacks: Accepting a percentage of product output as payment for services rendered.
• Pros:
  • Financing exports when cash is unavailable.
  • May be required by foreign governments.
  • Strategic marketing advantage.
• Cons:
  • Preference for hard currency payments.
  • Risks of exchanging unusable or poor-quality goods.

Value Creation Activities

• Production: Involves creating a product.
• Supply Chain Management: Integration of logistics, purchasing, operations, and market channel activities from raw materials to end customers.
• Objectives:
  1. Minimize costs in transitioning from raw materials to finished goods while maximizing customer value.
  2. Enhance product quality by establishing process-based quality standards to eradicate defects.

Quality Management

• Six Sigma:
  • Aims for defect reduction, productivity boosts, waste elimination, and cost reduction.
  • Seeks near perfection in quality, deriving from Total Quality Management (TQM) philosophy.

Production Location Decision

• Country Factors:
  • Political/economic systems, culture, and factor costs vary globally.
  • Consideration of location economies, trade barriers, transportation costs, regulations, and exchange rate movements.
• Technological Factors:
  • Impacted by fixed setup costs, minimum efficient scales, and technology flexibility.

Just-in-Time Inventory

• JIT Inventory System:
  • Delivers parts as needed for production processes.
  • Advantages: Increases inventory turnover, reduces holding costs, and improves cash flow.
  • Disadvantages: Lacks inventory buffer.

Make-or-Buy Decisions

• Strategic and Operational Levels:
  • Strategic decisions encompass long-term implications, whereas operational decisions focus on the short-term.
  • Factors involve cost analyses, product success, and inventory planning.

Staffing Policies

• Approaches:
  • Ethnocentric: Leadership by parent-country nationals; unites culture but can breed resentment.
  • Polycentric: Local management; minimizes cultural issues but limits career growth.
  • Geocentric: Efficient use of resources; can be expensive and limited by immigration policies.
• Expatriate Failure: High rates of premature returns from international assignments due to adjustment issues, family challenges, or personal limitations.

Expatriate Compensation

• Balance Sheet Approach: Seeks to offer the same living standards at home and abroad, factoring in base salary, premiums, allowances, and benefits.
• Base Salary: Equivalent to home country position; may be paid in local or home currency.
• Foreign Service Premium: Additional compensation for international assignments to encourage expatriate acceptance.

International Labor Relations

• Concerns of Organized Labor:
  • Companies leverage the ability to relocate production to counter labor bargaining power.
  • Maintaining skilled jobs domestically while outsourcing low-skilled tasks abroad.
  • Transfer of employment practices may weaken labor force power.