Import/Export Basics (Ch. 2)

Beginning Steps

1. Terminology2. Homework3. Choosing the product4. Making contacts5. Market research6. What’s the bottom line?

1. Import/Export Terminology

•International trade uses distinctive vocabulary

•Terms & acronyms guide, regulate, and facilitate trade

•Commonly used terms:▫Glossary: pgs. 351-385

2. Homework

•RESEARCH!•What should you research?

▫the product▫profit potential

•Research is a good investment, not a waste of time (even if you already have some experience)

3. Choosing the Product

• Familiarity with…▫ the product▫ the industry

• Advantage in…▫ knowledge▫ contacts▫ language/culture

3. Choosing the Product

•Marketing decisions▫product standards (ISO)

ISO: International standards for business, government, society

▫technical specifications and codes 220V, 50Hz 120V, 60Hz

▫quality and product life cycle developed vs. less developed countries

▫other uses for the products e.g., motorcycles

4. Making Contacts• Who are sources of information? Who can I contact?

▫ import: consulate office, embassy, government Embassies and Consulates around the World World Trade Center Associations (WTCA)

▫ export: industry publications, department of commerce International Dept of Commerce Federation of International Trade Associations FITA World Trade Center Associations (WTCA)

Import and Export Foreign Trade.comTRADE SHOWS!!!!! Trade Show Calendar ConferencesBiz Trade Shows

4. Making Contacts•Who can I contact to market a

product/service?▫import: trade shows, direct mailers, Internet▫export: trade shows, retailers, United Nations

Alibaba.com•Contacts for exporters and importers

▫Trade shows▫Manufacturers/suppliers▫Sales representatives▫Customers▫FITA Geographically Specific Leads

5. Market Research

•Your purpose is to make a profit. •Thus, you need to know whether or not

your product will survive in a certain market.

•You have to do market research!

•Share your homework answers with your neighbor.

6. What’s the Bottom Line?

•Make a profit!

1. Initial quotations2. Terms of sale3. The market channel4. Pricing

1. Initial Quotations

•Letter of Inquiry a.k.a. Request for Quotation (RFQ)

•This is the first step•Who sends the letter? –Importer to

exporter•What is in the letter? – Importer asks

exporter to send the importer a pro forma invoice.

•Look at sample RFQ on p. 25

1. Initial Quotations

•PRO FORMA INVOICE•exporter to importer

•A temporary invoice which includes product description and specifications, costs, price, quantity, shipping costs, delivery terms, and procedures.

•Purpose: describes details of sale in advance; obtain letter of credit

•Look at p. 27 for a sample pro forma invoice

2. Terms of Sale

•Pricing terms•“Defines the geographical point where the

risks and costs of the exporter and importer begin and end.” –p.26

•INCOTERMS: International Commerce Terms

•Purpose: prevent misunderstandings of responsibilities and liabilities

INCOTERMS• The Incoterms® rules• The Incoterms® rules have become an essential part of

the daily language of trade. They have been incorporated in contracts for the sale of goods worldwide and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade.

ICC websiteMost commonly used: • EXW • FAS• CIF• DAF

Certificates of Origin

ICC provides a critical advocacy and representation role at the global level, promoting the role of chambers as competent authorities in the issuance of COs and the acceptance of electronic COs.

EXWEX = from; W = works (factory, warehouse)the SELLER (exporter) the BUYER (importer)

• is responsible for packing and labeling merchandise and having it ready for loading (seller doesn’t load)

• is responsible for all other risks and costs from the delivery point to the final destination

FAS: Free Alongside Shipthe SELLER (exporter) the BUYER (importer)

• is responsible for packing and labeling merchandise, having it ready for loading, placing it at the side of the ship, and clearing it for export

• is responsible for all transportation costs and risk of loss of goods

FAS Long Beachsee p. 27

CIF: Cost, Marine Insurance, Freightthe SELLER (exporter) the BUYER (importer)

• is responsible for shipping, insurance and other costs up to the port of final destination

• is responsible for risks and costs from the port of destination

DAF: Delivered at Frontierthe SELLER (exporter) the BUYER (importer)

• is responsible to hire someone to take goods to the frontier

• is responsible for picking up the goods, carrying them across the border, and clearing them for importation

3. The Market Channel

•see p. 30

4. Pricing

•Profitable but competitive•Consider the market channel (each entity

marks it up)•Consider the region—taxes, cost of doing

business, bribes?•Unique—can have a higher price•Gain a foothold—marginal cost pricing setting a price just above where a loss would occur—p. 30

4. Pricing

•Dumping—gain market share by incurring a loss

p. 30 illegal• Pricing Model• Commissions p. 32 • export middleman—7-20%• import middleman—5-20%

• Currency—must agree

Export vs. ImportExport

Export commission (7-20%)Freight forwarderFreight to port (inland freight)Consular invoice (customs)Foreign distributer/agent (5-20%)

Sales commissionExport Packing

Labeling

Export vs. ImportImport What should the sales price

be???Customs and customs brokerDuties/TariffsRepackagingTaxesBanking CostsDistrubutorsPromotionOverheadSalaries