Chapter 4Managing Export Operations

Key PointsSteps to Managing Export OperationsPricing in Export Markets Stages of Export Market InvolvementTrade IntermediariesVital Questions to be askedPresent day export trade

Steps to Managing Export Operations Step 1 -Segment world markets

Product quality and product feature segmentation

Factors influencing segmentation Purchasing power Consumer tastes Weather conditions Level and dispersion of wages and

technical skills

Steps to Managing Export Operations Step 1 -Segment world markets

Important factors in analysis Emerging demand met by innovations in

product technology in one country that are mirrored in other countries

Deregulation and restructuring of markets Government policies and programs

Steps to Managing Export Operations (contd..) Step 2 - Select an Entry Strategy to Promote

Sustainable Competitive Advantage Standardized product to all markets Product- Life cycle strategy Localized market strategy A combination of strategies can also be

followed

Steps to Managing Export Operations (contd..) Step 3 - Take a long-run Perspective

Initial costs must be viewed as investments Returns on investments will not be

immediate in export markets

Channels of Distribution in Export Markets International channels will be more complex

and have more layers. Distribution costs will be higher May have to use different or many types of

distribution with which there is no experience Distribution channels may provide

information that can be used as market research and aid in further expansion

Pricing in Export Markets

Strategy 1 - Requiring prices in export markets that yield higher returns than are available in domestic markets

Based on the belief that export operations are more risky relative to domestic sales - can result in uncompetitive prices.

Pricing in Export Markets

Strategy 2- Pricing to yield similar returns in domestic and export markets

Based on the viewpoint that export markets do not necessarily differ from domestic markets

Pricing in Export Markets

Strategy 3 - Pricing to yield lower returns, or even losses, in export markets—at least in the short run

Reflects an approach that views export markets as the potential growth markets of the future - firm vulnerable to antidumping action

Pricing in Export Markets

Strategy 4 - Pricing to sell production in excess of the needs of the domestic market so long as these sales make a contribution to fixed overhead and profit

View of export markets as a dumping ground for production in times of excess capacity - firms very vulnerable to anti-dumping actions

Stages of Export Market Involvement Stage 1 – Unplanned entry

Unsolicited order from abroad, overproduction, declining domestic sales, pressures, “follow the leader” behavior, government-sponsored trade fairs, and funded export missions

Stage 2 – Systematic evaluation of the impact of exports

Stage 3 - Exports become a major factor in the firm’s strategy and operations.

Trade Intermediaries Import Traders

For every export, there is an import Pure importers are market connectors; they

create value through linking producers abroad to buyers in the domestic market

Pure importers usually have an advantage such as knowledge of the domestic market and practices

Trade Intermediaries Export Traders

They are also market connectors Their advantages lie in knowledge of markets

in particular countries or in knowledge of worldwide markets for particular products.

Trading Houses Pure import operations and pure export

operations are joined together in the trading houses

Vital Questions to be asked

Does our product and firm have a sustainable competitive advantage in export markets and, if so, why?

What are the export markets and the segments of those markets that will value our product sufficiently (relative to other competing products) to offset our costs of production and distribution?

Vital Questions to be asked

Should the firm export a standard product with a standard marketing mix worldwide or should it tailor its products and marketing mix to individual export markets?

What natural and government-imposed trade barriers impede linking production in one country to purchase in another, and what factors might facilitate this linkage?

Vital Questions to be asked

What are the most appropriate channels of distribution for our product to achieve our goals in export markets?

Present day export trade

Tariff and non-tariff barriers to trade have fallen globally and free trade areas have developed.

Firms often now analyze trade opportunities on a regional, and sometimes even broader basis

Present day export trade

Products are often not sent directly from one home production site to an export market abroad. Inputs are sourced in a number of countries and assembled in other countries, and the final product is sold in yet other countries

Trade intricately linked with foreign investment, joint ventures, licensing, franchising, contract production, and component sourcing

Countertrade

A special form of exporting is countertrade, the linked exchange of goods for goods in international trade

Countertrade covers - Barter ,Counterpurchase, Compensation or buyback, Production sharing, Industrial offsets, Switches, Unblocking funds and Debt for equity swaps

Countertrade

Can be complicated and costly to negotiate and execute

Important characteristics of countertrade contracts need to be attended to carefully by an exporter

Generally countertrade is an inefficient form of trade. It creates costs and risks for both importers and exporters

Major Project Development

Importance and investment increased during the 1990s –likely to continue to increase in the future.

Generally for infrastructure development - electricity generation, telecommunications, water and sewage treatment facilities, and even roads and ports.

Major Project Development

Types of Major projects Turnkey projects

Firm undertakes to construct a major project, then turns it over to its owners when it is in full operation

Major Project Development

Types of Major projects Build, operate, and transfer projects (BOT)

Firms bid for the right to construct the project, the winning firm also operates the facility after it is completed.

Ownership is limited to a certain time period, after which the project is transferred to another organization

Major Project Development

Types of Major projects Build, operate, and own projects (BOO)

Firms bid for the right to construct the project.

The winning firm also operates the facility after it is completed. .

Exports, Imports, and International Finance Important aspects for exporters/importers

Effect of the real exchange rate on competitive advantage,

Effect of variations in the nominal exchange rate on export and import profitability Pricing of the goods in the importers

currency Countered by setting up currency hedge Use of forward contracts

Exports, Imports, and International Finance Important aspects for exporters/importers

Effect of trade on financing needs and sources Irrevocable letter of credit (LoC) used to

overcome uncertainty