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COURSE TITLE: BA CORE 6 INTERNATIONAL BUSINESS

LESSON 13
LEARNING OVERVIEW
This lesson explains importing, exporting, countertrade, global sourcing, and how
companies manage importing and exporting. It also discusses the different options that
companies can do to finance their importing and exporting.
LEARNING OBJECTIVES
At the end of the lesson, the students will be able to:
1. Describe importing, exporting, countertrade and global sourcing.
2. Explains how companies manage importing and exporting.
3. Describe the different options that companies can do to finance their importing and
exporting.
LESSON PROPER
Engagement
Importing is _____________ while exporting is ____________.
Exploration
Exporting, Importing and Global Sourcing
Exporting is an effective entry strategy for companies that are just beginning to enter a
new foreign market. It’s a low-cost, low-risk option compared to the other strategies.
These same reasons make exporting a good strategy for small and midsize companies
that can’t or won’t make significant financial investment in the international market.
Companies can sell into a foreign country either through a local distributor or through their
own salespeople. Many government export-trade offices can help a company find a local
distributor. Increasingly, the Internet has provided a more efficient way for foreign
companies to find local distributors and enter into commercial transactions.
Distributors are export intermediaries who represent the company in the foreign market.
Often, distributors represent many companies, acting as the “face” of the company in that
country, selling products, providing customer service, and receiving payments. In many
cases, the distributors take title to the goods and then resell them. Companies use
distributors because distributors know the local market and are a cost-effective way to
enter that market.

REFERENCE: Saylor URL: http://www.saylor.org/books Saylor.org

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Why Do Companies Export?

Companies export because it’s the easiest way to participate in global trade, it’s a less
costly investment than the other entry strategies, and it’s much easier to simply stop
exporting than it is to extricate oneself from the other entry modes.
An export partner in the form of either a distributor or an export management company
can facilitate this process. An export management company (EMC) is an independent
company that performs the duties that a firm’s own export department would execute.
The EMC handles the necessary documentation, finds buyers for the export, and takes
title of the goods for direct export. In return, the EMC charges a fee or commission for its
services. Because an EMC performs all the functions that a firm’s export department
would, the firm doesn’t have to develop these internal capabilities. Most of all, exporting
gives a company quick access to new markets.
Benefits of Exporting:
1. Market - the company has access to a new market, which has brought added
revenues.
2. Money - more revenue and gained access to foreign currency
3. Manufacturing - the cost to manufacture a given unit decreased because it has
been able to manufacture at higher volumes and buy source materials in higher
volumes, thus benefitting from volume discounts.
Risks of Exporting
1. If you merely export to a country, the distributor or buyer might switch to or at least
threaten to switch to a cheaper supplier in order to get a better price or someone
might start making the product locally and take the market from you.
2. Buyers prefer to buy from someone who’s producing directly within the country. At
this point, many companies begin to reconsider having local companies.
Specialized Entry Modes: Contractual
Contractual modes involve the use of contracts rather than investment. Contractual entry
includes:
1. Licensing
➢ Licensing is defined as the granting of permission by the licenser to the licensee
to use intellectual property rights, such as trademarks, patents, brand names,
or technology, under defined conditions.
➢ The possibility of licensing makes for a flatter world, because it creates a legal
vehicle for taking a product or service delivered in one country and providing a
nearly identical version of that product or service in another country.
➢ Under a licensing agreement, the multinational firm grants rights on its
intangible property to a foreign company for a specified period of time.
➢ The licenser is normally paid a royalty on each unit produced and sold.

REFERENCE: Saylor URL: http://www.saylor.org/books Saylor.org

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➢ Most companies consider this market-entry option of licensing to be a low-risk

option because there’s typically no up-front investment.
➢ For a multinational firm, the advantage of licensing is that the company’s
products will be manufactured and made available for sale in the foreign
country (or countries) where the product or service is licensed.
➢ The multinational firm doesn’t have to expend its own resources to
manufacture, market, or distribute the goods. This low cost, of course, is
coupled with lower potential returns, because the revenues are shared between
the parties.
2. Franchising
➢ Under a franchising agreement, the multinational firm grants rights on its
intangible property, like technology or a brand name, to a foreign company for
a specified period of
➢ time and receives a royalty in return.
➢ The difference is that the franchiser provides a bundle of services and products
to the franchisee.
➢ For example, McDonald’s expands overseas through franchises. Each
franchise pays McDonald’s a franchisee fee and a percentage of its sales and
is required to purchase certain products from the franchiser. In return, the
franchisee gets access to all of McDonald’s products, systems, services, and
management expertise.
Specialized Entry Modes: Investment
1. Joint Ventures
➢ An equity joint venture is a contractual, strategic partnership between two or
more separate business entities to pursue a business opportunity together.
➢ The partners in an equity joint venture each contribute capital and resources in
exchange for an equity stake and share in any resulting profits.
Risks of Joint Ventures
1. Challenge of finding the right partner not just in terms of business focus but also in
terms of compatible cultural perspectives and management practices.
2. Local partner may gain the know-how to produce its own competitive product or
service to rival the multinational firm.
Wholly Owned Subsidiaries
Firms may want to have a direct operating presence in the foreign country, completely
under their control. To achieve this, the company can establish a new, wholly owned
subsidiary (i.e., a greenfield venture) from scratch, or it can purchase an existing company
in that country. Some companies purchase their resellers or early partners (as Vitrac
Egypt did when it bought out the shares that its partner, Vitrac, owned in the equity joint
venture).

REFERENCE: Saylor URL: http://www.saylor.org/books Saylor.org

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Other companies may purchase a local supplier for direct control of the supply. This is
known as vertical integration. Establishing or purchasing a wholly owned subsidiary
requires the highest commitment on the part of the international firm, because the firm
must assume all of the risk—financial, currency, economic, and political
Companies seeking to enter a foreign market need to do the following:
1. Research the foreign market thoroughly and learn about the country and its culture.
2. Understand the unique business and regulatory relationships that impact their
industry.
3. Use the Internet to identify and communicate with appropriate foreign trade
corporations in the country or with their own government’s embassy in that country.
Each embassy has its own trade and commercial desk.

Explanation
Name ___________________________ Score __________

Define : (1) exporting; (2) importing; and (3) global sourcing

Extension
Name ___________________________ Score __________

Why do companies export?

Evaluation

Name ______________________________ Score __________

Why do companies seek to enter a foreign market?

REFERENCE: Saylor URL: http://www.saylor.org/books Saylor.org