Chapter 17 – Export and Import Strategies

 

Multiple Choice Questions

 

WHAT ARE THE ENVIORNMENTAL AND ORGANIZATIONAL CONDITIONS THAT MOTIVATE A COMPANY TO CONSIDER EXPORTING?

 

1.      Ownership advantages of a company include all of the following EXCEPT:

a.       specific assets

b.      international experience

c.       ability to develop differentiated products

d.      investment risk (moderate, page 509)

 

2.      Which of the following questions do companies NOT need to consider before deciding to export?

a.       Is exporting consistent with other company goals?

b.      What demands will exporting place on its key resources and how will these demands be met?

c.       Are the expected benefits worth the costs, or would company resources be better used for developing new domestic business?

d.      What is the variability of the home-country’s import tariffs? (difficult, page 509)

 

3.      _______________ means that many global industries have only a few major players, and a company’s strategy for penetrating a particular market might depend on the competition.

a.      Global concentration (moderate, page 509)

b.      Global manufacturing

c.       Global strategic motivations

d.      Export intensity

 

4.      _______________ arise when the company shares its expertise in areas such as R&D, marketing, and manufacturing with its operations abroad.

a.       Global manufacturing

b.      Global concentration

c.       Export intensity

d.      Global synergies (moderate, page 509)

 

WHAT ARE SOME KEY CHARACTRISTICS OF EXPORTERS?

 

5.      The probability of being an exporter ____________ with the company size, as defined by ____________.

a.      increases; revenues  (difficult, page 509)

b.      increases; expenses

c.       decreases; revenues

d.      decreases; return on investment

 

6.      Export ____________, the percentage of total revenues coming from exports, is not positively correlated with company size.

a.      intensity (moderate, page 509)

b.      contraction

c.       retraction

d.      mediation

 

7.      _____________ now make(s) up 88% of the United States’ exporters, and accounts for a fifth of the value of U.S. exports.

a.       Large business

b.      Government entities

c.       Small business  (easy, page 509)

d.      Foreign ownership

 

WHAT ARE THE MAJOR REASONS WHY COMPANIES EXPORT? 

 

8.    Which of the following best describes the reasons why a company might want to enter a market through exporting?

a.       Global concentration

b.      Global manufacturing

c.       Global strategic motivations (moderate, page 510)

d.      Export intensity

 

9.      _______________ is the percentage of total revenues coming from exports.

a.       Import intensity

b.      Export intensity (moderate, page 510)

c.       Global concentration

d.      Global strategic motivation

 

10.    The probability of being an exporter:

a.       depends on whether or not the company establishes an international division.

b.      is usually higher for smaller companies, as they are less preoccupied with the domestic market and make decisions faster.

c.       is independent of the size of the company.

d.      increases with the size of the company. (difficult, page 510)

 

11.    Export intensity (the relative importance of exports to total sales):

a.      is independent of company size. (moderate, page 510)

b.      depends on whether or not the company establishes an international division.

c.       decreases with company size, as domestic sales become more important.

d.      increases with company size.

 

 

WHAT ARE SOME MAJOR MISTAKES COMPANIES MAKE WHEN DESIGNING AN EXPORT STRATEGY?

 

12.    A major pitfall in exporting is:

a.       that managers tend to increase their foreign travel experience and interest in foreign culture, leading to an increase in costs.

b.      an overcommitment by top management to exporting, which tends to get too many people involved.

c.       an unwillingness to modify products to meet other countries' regulations or cultural preferences. (difficult, page 511)

d.      an overreliance on exports when the domestic market booms.

 

13.    All of the following are mistakes companies new to exporting most frequently make EXCEPT:

a.       failure to obtain qualified export counseling and to develop a master international marketing plan before starting an export business

b.      insufficient commitment by top management to overcome the initial difficulties and financial requirements of exporting

c.       neglecting domestic business when export business booms  (difficult, page 511)

d.      failure to print service, sales, and warranty messages in locally-understood languages


 

14.    Insufficient commitment by ____________ to overcome the initial difficulties and financial requirements of exporting is a major pitfall in exporting.

a.       first-line managers

b.      middle managers

c.       top managers  (easy, page 511)

d.      production employees

 

WHAT ARE THE CHARACTERISTICS OF A SOUND EXPORT STRATEGY?

 

15.    To establish a successful export strategy, management must do all of the following EXCEPT:

a.       obtain expert counseling on exporting

b.      select a market or markets

c.       formulate and implement an export strategy

d.      assess the company’s import potential by examining existing government subsidies (difficult, page 511)

 

16.    As a company designs its export strategy, it must:

a.       avoid becoming entangled in government agencies, as they rarely provide help.

b.      determine if it has the production capacity to deliver the product. (difficult, page 511)

c.       use U.S. Customs to determine how to get products to foreign markets.

d.      identify several markets in which to concentrate its efforts so that it does not put all its eggs in a few baskets.

 

17.    A U.S. government agency that provides assistance to companies interested in exporting is:

a.       the Department of Defense.

b.      U.S. Customs.

c.       the Export Trade Agency.

d.      the International Trade Administration. (moderate, page 511)

 

WHAT ROLE DOES THE CUSTOMS AGENCY OF A GOVERNMENT PLAY?

 

18.    The primary duties of the _____________ are 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.

a.       U.S. Secret Service

b.      U.S. Customs Service  (easy, page 515)

c.       Internal Revenue Service

d.      Food and Drug Administration

 

19.    All of the following are primary duties of the U.S. Customs Service EXCEPT:

a.       the assessment and collection of all duties, taxes, and fees on imported merchandise

b.      the enforcement of customs and related laws

c.       the administration of certain navigation laws and treaties

d.      the collection of import and export tariffs (moderate, page 515)

 

20.    Which of the following statements is FALSE regarding the role of the customs agency of a government?

a.       It deals with smuggling operations.

b.      It is increasingly involved in helping protect against foreign terrorist attacks.

c.       It deals with the administration of certain navigation laws and treaties.

d.      It approves and declines migrant work visas.  (moderate, page 515)


 

DESCRIBE THE DIFFERENT TYPES OF THIRD-PARTY INTERMEDIARIES THAT ASSIST EXPORTERS AND IMPORTERS.  WHY WOULD A COMPANY USE THEM OR NOT?

 

21.    A foreign merchant who purchases the products from the manufacturer and sells them at a profit is called a:

a.       customs agent.

b.      distributor. (moderate, page 516)

c.       sales representative.

d.      commission agent.

 

22.    In _______________, the exporter sells goods directly to or through an independent domestic intermediary in the exporter’s home country that exports the products to foreign markets.

a.       direct selling

b.      indirect selling (easy, page 516)

c.       multilevel marketing

d.      global resource planning

 

23.    All of the following are major types of indirect intermediaries EXCEPT:

a.       the export management company

b.      the export trading company

c.       export agents

d.      distributors (moderate, page 516)

 

WHAT ARE EXPORT MANAGEMENT COMPANIES, AND HOW DO THEY HELP POTENTIAL EXPORTERS?

 

24.    Which of the following is typically true of an export management company?

a.       Most EMCs in the United States are large, representing a wide range of products, and a large number of companies.

b.      It is usually a division of a manufacturing company.

c.       It operates on a contractual basis for a manufacturer by helping obtain orders for its clients' products. (difficult, page 518)

d.      It usually takes title to products rather than acts as agents.

 

25.    Exporters use an export management company as part of:

a.       a direct selling strategy.

b.      risk enhancement strategy.

c.       an indirect selling strategy. (moderate, page 518)

d.      forwarding strategy.

 

26.    A(n) _______________ operates on a contractual basis and provides exclusive representation for and exporter’s goods and services in a well-defined foreign territory.

a.       import broker

b.      export management company (moderate, page 518)

c.       consular invoicer

d.      horizontal financial trader


 

WHAT ARE EXPORT TRADING COMPANIES AND TYPES OF TRADING COMPANIES?  HOW DO THEY ASSIST THE FLOW OF IMPORTS AND EXPORTS?

 

27.    Which of the following is true of Export Trading Companies in the United States?

a.       They are not allowed to involve competitors due to antitrust laws.

b.      They have been the most successful form of export intermediary in recent years.

c.       They are like independent distributors that match up buyers and sellers. (difficult, page 519)

d.      They must be established independently of the manufacturer in order to avoid a conflict of interest.

 

28.    The _______________, the Japanese equivalent word for trading company, can trace its roots back to the late nineteenth century, when Japan embarked on an aggressive modernization process.

a.       chaebol

b.      sogo shosha (moderate, page 519)

c.       kaizen

d.      maquiladora

 

29.     Korean trading companies are part of the large Korean business groups called:

a.       sogo shosha.

b.      kaizen.

c.       maquiladora.

d.      chaebol. (moderate, page 519)

 

WHAT ARE SOME OF THE DIFFERENT TYPES OF DOCUMENTS USED IN INTERNATIONAL TRADE?

 

30.    A document that is a receipt for goods delivered to the common carrier for transportation, a contract for the services rendered by the carriers, and a document of title is known as a(n):

a.       export license.

b.      commercial invoice.

c.       consular invoice.

d.      bill of lading. (moderate, page 522)

 

31.    A bill for goods from the buyer to the seller that contains the description of the goods, the address of the buyer and seller, and delivery and payment terms is known as a:

a.       bill of lading.

b.      commercial invoice. (moderate, page 522)

c.       shipper's export declaration.

d.      certificate of origin.

 

32.    Countries often use _______________ to determine the specific tariff schedule for imports; it is a document that indicates where products originate.

a.       commercial invoice

b.      shipper's export declaration

c.       bill of lading

d.      certificate of origin (moderate, page 522)

 

33.    A document that controls exports and is used to compile trade statistics is known as a:

a.       bill of lading.

b.      commercial invoice.

c.       certificate of origin.

d.      shipper's export declaration. (moderate, page 522)

 


WHAT ARE THE MAJOR FINANCIAL ISSUES RELATED TO EXPORTING?

 

34.    From the exporter’s point of view, all of the following are major issues that relate to the financial aspects of exporting EXCEPT:

a.       the methods of payment

b.      the financing of receivables

c.       insurance

d.      intermodal transportation (moderate, page 523)

 

35.    Which of the following basic methods of payments is the least secure in terms of security to the exporter?

a.       letter of credit

b.      draft or bill of exchange

c.       open account

d.      cash in advance (moderate, page 524)

 

36.    Which of the following major issues DOES NOT relate to the financial aspects of exporting?

a.       the price of the product

b.      the method of payment

c.       insurance

d.      location of production  (moderate, page 523)

 

WHAT TYPES OF DOCUMENTS DO EXPORTERS USE TO ENSURE RECEIPT OF PAYMENT?  WHAT ARE THE DIFFERENCES AMONG THESE DOCUMENTS?

 

37.    A letter of credit:

a.       is issued by a credit agency to a bank.

b.      cannot be amended.

c.       is more secure than cash in advance.

d.      obligates the importer's bank to honor a draft presented to it. (difficult, page 524)

 

38.    A confirmed letter of credit:

a.       obligates the importer's bank to honor a draft presented to it.

b.      obligates the exporter's bank to honor a draft presented to it. (moderate, page 524)

c.       cannot be amended.

d.      only has the confirmed guarantee of the importer’s bank.

 

39.    A revocable letter of credit:

a.       obligates the exporter's bank to honor a draft presented to it.

b.      can only be amended if all the parties involved agree.

c.       can be amended by any of the parties involved at any point. (moderate, page 524)

d.      obligates the importer's bank to honor a draft presented to it.

 

40.    An irrevocable letter of credit:

a.      can only be amended if all parties involved agree. (moderate, page 524)

b.      is issued by an irrevocable credit agency.

c.       can be amended by any of the parties involved at any point.

d.      obligates the exporter's bank to pay interest to the importer.


 

DEFINE COUNTERTRADE, BARTER, BUYBACK, AND OFFSET TRADE.  WHAT FACTORS MIGHT MOTIVATE A COMPANY TO ENGAGE IN ANY OF THESE?

 

41.    The term that refers to any one of a number of different arrangements by which goods and services are traded for each other is:

a.       barter.

b.      countertrade. (moderate, page 528)

c.       offset.

d.      buybacks.

 

42.    A situation in which goods are traded for goods due to a shortage of foreign exchange is known as:

a.       offset trade.

b.      multilateral trade.

c.       barter. (moderate, page 528)

d.      bilateral trade.

 

43.    _______________ are products the exporter receives as payment that are related to or originate from the original export.

a.      Buybacks (moderate, page 528)

b.      Barters

c.       Offsets

d.      Factoring

 

a.       44.    A situation in which an exporter sells goods for cash but then undertakes to promote exports from the importing country in order to help it earn foreign exchange is known as:

b.      swing trade.

c.       buyback.

d.      offset trade. (moderate, page 528)

 

Essay Questions

 

44.    What are some key characteristics of exporters?

 

Answer

         Research conducted on the characteristics of exporters has resulted in two basic conclusions:  (1) the probability of being an exporter increases with company size, as defined by revenues; and (2) export intensity, the percentage of total revenues coming from exports, is not positively correlated with company size.  The greater the percentage of exports to total revenues, the greater the intensity. 

         (moderate, page 509)

 

45.    In a short essay, discuss the various reasons that companies export.

 

Answer

Companies export primarily to increase sales revenues. This is true for service companies as well as manufacturers. Many of the former, such as accountants, advertisers, lawyers, and consultants, export their services to meet the needs of clients working abroad. Export sales can be a means of alleviating excess capacity in the domestic market. In addition, some companies export rather than invest abroad because of the perceived high risk of operating in foreign environments. Finally, many companies export to a variety of markets as a diversification strategy. Because economic growth in not the same in every market, export diversification can allow a company to take advantage of strong growth in one market to offset weak growth in another.

(easy, page 510)


 

46.    In a short essay, discuss the potential pitfalls of exporting.

 

Answer

Aside from problems that are common to international business in general and not unique to exporting, such as language and other cultural factors, the following are mistakes companies new to exporting most frequently make:

a.       Failure to obtain qualified export counseling and to develop a master international marketing plan before starting an export business.

b.      Insufficient commitment by top management to overcome the initial difficulties and financial requirements of exporting.

c.       Insufficient care in selecting overseas agents or distributors.

d.      Chasing orders from around the world instead of establishing a base of profitable operations and orderly growth.

e.       Neglecting export business when the domestic market booms.

f.       Failure to treat international distributors on an equal basis with their domestic counterparts.

g.       Unwillingness to modify products to meet other countries’ regulations or cultural preferences.

h.      Failure to print service, sales, and warranty messages in locally understood languages.

i.        Failure to consider use of an export management company or other marketing intermediary when the company does not have the personnel to handle specialized export functions.

      (difficult, page 511)

 

47.       In a short essay, discuss the various steps management must take to establish a successful export strategy.

 

Answer

a.       Assess the company’s export potential by examining its opportunities and resources—first of all, the company needs to determine if there is a market for their goods and services. Next it needs to make sure it has enough production capacity to deliver the goods or services to foreign customers.

b.      Obtain expert counseling on exporting—most governments provide assistance for their domestic companies, although the extent of commitment varies by country. Other government agencies also assist exporters. As a company’s export plan increases in scope, it probably will want to secure specialized assistance from banks, lawyers, freight forwarders, export management companies, export trading companies, and others.

c.       Select a market or markets—this key part of the export strategy may be done passively or actively. In the former, the company learns of markets by responding to requests from abroad that result from trade shows, advertisements, or articles in trade publications.

d.      Formulate and implement an export strategy—In this step, a company considers its export objectives (immediate and long term) specific tactics it will use, a schedule of activities and deadlines to achieve its objectives, and the allocation of resources to accomplish the different activities. Then it implements the strategy by getting the goods and services to foreign consumers.

      (difficult, page 511)

 

48.    What are the major types of importers?

 

Answer

a.       Those that are looking for any product around the world that they can import. They might specialize in certain types of products—such as sports equipment or household items—but they are simply scanning the globe and looking for any product that will generate positive cash flow for them.

b.      Those that are looking at foreign sourcing to get their products at the cheapest price.

c.       Those that use foreign sourcing as part of their global supply chain.

 

Importing requires a certain degree of expertise in dealing with institutions and documentation, which a company may not have. Consequently, a company may elect to work through an import broker. The import broker obtains various governmental permissions and other clearances before forwarding necessary paperwork to the carrier that is to deliver the goods to the importer. Import brokers in the United States are certified by U.S. Customs Service to perform the functions necessary to bring products into the country.

         (moderate, page 514)

 

49.    What is the role of an import broker?

 

         Answer

         The import broker obtains various governmental permissions and other clearances before forwarding necessary paperwork to the carrier that is to deliver the goods to the importer.  Import brokers in the United States are certified as such by the U.S. Customs Service to perform the functions necessary to bring products into the country.

         (easy, page 515)

 

50.     What role does the customs agency of a government play?

 

Answer

a.       When importing goods into any country, a company must be totally familiar with the customs operations of the importing country. In this context, “customs” are the country’s import procedures and restrictions, not its cultural aspects. The primary duties of the U.S. Customs Service are 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 also deals with smuggling operations.

b.      An importer needs to know the way to clear goods, the duties to pay, and the special laws that exist regarding the importation of products. On the procedural side, when merchandise reaches the port of entry, the importer must file documents with customs officials, who assign a tentative value and tariff classification to the merchandise. Then customs officials examine the goods to determine whether there are any restrictions on their importation. If there are restrictions, the goods may be rejected and not be allowed to enter the country.

               (moderate, page 515)

 

51.    In a short essay, discuss the various ways a broker or other import consultant can help an importer minimize import duties.

 

Answer

a.       Valuing products in such a way that they qualify for more favorable duty treatment—Different product categories have different duties. For example, finished goods typically have a higher duty than parts and components.

b.      Qualifying for duty refunds through drawback provisions—Some exporters use in their manufacturing process imported parts and components on which they paid a duty. In the United States, the drawback provision allows domestic exporters to apply for a 99% refund of the duty paid on their imported goods, as long as they become part of the exporter’s product.

c.       Deferring duties by using bonded warehouses and foreign trade zones—Companies do not have to pay duties on imports stored in bonded warehouses and foreign trade zones until the goods are removed for sale or used in a manufacturing process.

d.      Limiting liability by properly marking an import’s country of origin—Because governments assess duties on imports based partly on the country of origin, a mistake in marking the country of origin could result in a higher import duty. For example, in the United States, if a product or its container is not properly marked when it enters the country, the product could be assigned a marking duty equal to 10% of the customs value. This would be in addition to the normal tariff.

      (difficult, page 515)


 

52.    What are export management companies, and how do they help potential exporters?

 

Answer

An export management company (EMC) usually acts as the export arm of a manufacturer. The EMC primarily obtains orders for its clients’ products through the selection of appropriate markets, distribution channels, and promotion campaigns. It collects, analyzes, and furnishes credit information and advice regarding foreign accounts and payment terms. The EMC also may take care of export documents, arrange transportation, set up patent and trademark protection in foreign countries, and assist in establishing alternative forms of doing business, such as licensing or joint ventures. EMCs operate on a contractual basis and provide exclusive representation in a well-defined foreign territory. In the United States, most EMCs are small, entrepreneurial ventures that tend to specialize by product, function, or market area. Although EMCs perform an important function for companies that need their expertise, a manufacturer that uses an EMC may lose control over foreign sales, as they are passing off that responsibility to an independent party. If the EMC does not actively promote the product, the company will not generate many exports.

         (moderate, page 518)

 

53.    What are some of the different types of documents used in international trade?

 

Answer

Of the many documents that must be completed, some of the most important are:

a.       A pro forma invoice—An involve, like a letter of intent, from the exporter to the importer outlining the selling terms, price, and delivery if the goods are actually shipped. If the importer likes the terms and conditions, it will send a purchase order and arrange for payment. At that point, the exporter can issue a commercial invoice.

b.      A commercial invoice—a bill for the goods from the buyer to the seller. It contains a description of the goods, the address of buyer and seller, and delivery and payment terms. Many governments use this form to assess duties.

c.       A bill of lading—a receipt for goods delivered to the common carrier for transportation, a contract for the services rendered by the carrier, and a document of title.

d.      A consular invoice—sometimes is required by countries as a means of monitoring imports. Governments can use the consular invoice to monitor prices of imports and to generate revenue for the embassies that issue the consular invoice.

e.       A certificate of origin—indicates where the products originate and usually is validated by an external source, such as the chamber of commerce. It helps countries determine the specific tariff schedule for imports.

f.       A shipper’s export declaration—used by the exporter’s government to monitor exports and to compile trade statistics.

g.       An export-packing list—itemizes the material in each individual package, indicates the type of package, and is attached to the outside of the package.

      (difficult, page 522)

 

54.    In a short essay, discuss the differences between a revocable and irrevocable letter of credit.

 

Answer

A revocable letter of credit is one that can be changed by any of the parties. However, both exporter and importer may prefer an irrevocable letter of credit, which is a letter that cannot be canceled or changed in any way without the consent of all parties to the transaction. With this type of letter of credit, the importer’s bank is obligated to pay and is willing to accept any drafts at sight, meaning these drafts will be paid as soon as the correct documents are presented to the bank. With a confirmed letter of credit, the exporter has the guarantee of an additional bank, sometimes in the exporter’s home country, sometimes in a third country.

         (easy, page 522)


 

55.    In a short essay, discuss offset trade.

 

Answer

Offset trade is when an exporter sells products for cash and then helps the importer find opportunities to earn hard currency. Offsets are most often used for big-ticket items, such as military sales. Offset arrangements are usually one of two types:

a.       Direct offsets—income of any business that relates directly to the export. Generally, the exporter seeks contractors in the importer’s country to joint venture or coproduce certain parts if applicable.

b.      Indirect offsets—includes all business unrelated to the export. Generally the exporter is asked by the importer’s government to buy a country’s goods or invest in an unrelated business.

 

Some of the most common direct offset practices in military sales include coproduction, licensed production, subcontractor production, overseas investment, and technology transfer. Examples of indirect offsets might include assisting in the export of unrelated products from the host country or generating tourist revenues for the host country.

         (moderate, page 528)