International Business: The New Realities

Fourth Edition

Chapter 13
Exporting and Global
Sourcing

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Learning Objectives
13.1 Understand exporting as a foreign market entry
strategy.
13.2 Describe how to manage export-import transactions.
13.3 Explain identifying and working with foreign
intermediaries.
13.4 Understand outsourcing, global sourcing, and
offshoring.
13.5 Describe the benefits and risks of global sourcing.
13.6 Understand global sourcing strategies and supply-
chain management.
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Exporting as an Entry Strategy
• Usually the firm’s first foreign entry strategy.
• Low risk, low cost, and flexible.
• Popular with SMEs.
• When we talk about trade, trade deficits, trade surpluses, etc.,
we’re talking exporting.
• Most exports involve merchandise.
• Export channels:
– Independent distributor or agent; or
– Firm’s own marketing subsidiary abroad.

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Because it entails limited risk, expense, and knowledge of foreign markets and
transactions, exporting is what most companies prefer as their primary foreign market
entry strategy. Typically, the focal firm retains its manufacturing activities in its home
market but conducts marketing, distribution, and customer service activities in the
export market, either itself or through an independent distributor or agent.
Beyond initial entry, most firms, large and small, use exporting as part of their
internationalization portfolio. For example, some of the largest exporters in the United
States include aircraft manufacturers Boeing and Lockheed Martin Aero. Big trading
companies that deal in commodities, such as Cargill and Marubeni, are also large-
scale exporters. Large manufacturing firms typically account for the largest overall
value of exports and make up about three-quarters of the total value of exports from
the United States. However, the vast majority of exporting firms—more than 90
percent in most countries—are SMEs with fewer than 500 employees.
As an entry strategy, exporting is very flexible. The exporter can both enter and
withdraw from markets fairly easily, with minimal risk and expense. Exporting may be
employed repeatedly during the firm’s internationalization process, generally at the
early stages and again from production facilities that the firm eventually establishes at
various foreign locations, destined for markets in other countries. Experienced
international firms usually export in combination with other strategies, such as joint
ventures and FDI. Toyota has used FDI to build factories in key locations in Asia,
Europe, and North America from which it exports cars to neighboring countries and
regions.

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Services are Exported as Well
• Examples: Architecture, education, banking, insurance,
entertainment, information.
• However, many pure services cannot be exported
because they cannot be transported.
• Retailers offer their services by establishing retail stores
abroad, via FDI. Retailing requires direct contact with
customers.
• Overall, most services are provided to foreign customers
via entry strategies other than exporting, especially FDI.

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Services include travel, construction, engineering, education, banking, insurance, and
entertainment. Hollywood film studios earn billions by exporting their movies and
videos. Construction firms send their employees abroad to work on major construction
projects. Accountants and engineers often provide their services via the Internet, by
telephone and mail, and by visiting customers directly in their home countries.
Insurance packages can be created in a central location, such as London, and then
exported via mail and the Internet to customers in other countries. The U.S. firm PMI
Mortgage Insurance Co. exports mortgage insurance packages to various foreign
markets and enjoys considerable success in Asia and various European countries.
However, many pure services cannot be exported because they cannot be
transported. You cannot box up a haircut and ship it overseas. Most retailing firms, such
as Walmart, Carrefour and Marks & Spencer, offer their services by establishing retail
stores in their target markets—that is, they internationalize via FDI because retailing
requires direct contact with customers. Many services firms can export some of what
they produce but rely on other entry strategies to provide other offerings abroad. For
example, while Ernst & Young (www.ey.com) can export some accounting services by
sending its employees abroad, in other cases it will establish a physical presence
abroad by setting up an office and hiring local personnel to perform local accounting
services.
Most services are delivered to foreign customers either through local
representatives or agents or in conjunction with other entry strategies such as FDI,
franchising, or licensing. The Internet provides the means to export some types of
services, from airline tickets to architectural services, helping to make the service sector
one of the fastest-growing areas of exports in international business. Services can also
promote and maintain product exports, many of which would not take place without their
support, such as car repair in an auto dealership.
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Advantages of Exporting (1 of 2)
• Increase sales volume; improve market share.
• Generate better profit margins.
• Increase economies of scale.
• Diversify customer base.
• Stabilize sales fluctuations.
• Minimize the cost of foreign market entry.

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Advantages of Exporting (2 of 2)
• Minimize risk.
• Maximize flexibility.
• Leverage the capabilities of foreign distributors and other
business partners located abroad.

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Disadvantages of Exporting
• Compared to FDI, exporting offers fewer opportunities to
learn about customers, competitors, and other aspects of
foreign markets.
• Firm must acquire and dedicate new capabilities in
international sales contracts and transactions,
international financing methods, and logistics and
documentation, all of which can strain organizational
resources.
• Exposes the firm to tariffs and other trade barriers as well
as fluctuating exchange rates.

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A Systematic Approach to Exporting

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Export Intermediation Options
• Indirect exporting: Contracting with an intermediary in
the firm’s home country to perform all export functions,
often an Export Management Company or a Trading
Company. Common among firms new to exporting.
• Direct exporting: Contracting with intermediaries in the
foreign market to perform export functions, such as
distributors or agents. They perform downstream value-
chain activities in the target market.
• Company-owned foreign subsidiary: Similar to direct
exporting, except the exporter owns the foreign
intermediation operation; the most advanced option.
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Alternative Organizational Arrangements
for Exporting

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Export Documentation (1 of 2)
The official forms and other paperwork required to transport
exported goods and clear customs.
• Quotation or pro forma invoice: Issued on request to
advise a potential buyer about the price and description of
the exporter’s product or service.
• Commercial invoice: Actual demand for payment issued
by the exporter when a sale is concluded.
• Bill of lading: Basic contract between exporter and
shipper. Authorizes the shipping company to transport
the goods to the buyer’s destination.

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Export Documentation (2 of 2)
• Shipper’s export declaration: Lists the contact
information of the exporter and buyer, full description,
declared value, and destination of the products being
shipped. Used by governments to collect statistics.
• Certificate of origin: The “birth certificate” of the goods,
showing country where the product originated.
• Insurance certificate: Protects the exported goods
against damage, loss, pilferage and, sometimes, delay.

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Incoterms (International Commerce
Terms)(1 of 2)
• A system of universal, standard terms of sale and
delivery.
• Commonly used in international sales contracts and price
lists to specify how the buyer and the seller share the
cost of freight and insurance, and at which point the
buyer takes title to the goods.

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Incoterms (International Commerce
Terms)(2 of 2)

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Examples of INCOTERMS (1 of 2)
Incoterms Definition Key Points Arrangement of
Shipping
EXW Delivery takes place at EXW represents Buyer arranges
Ex works(named place) the seller's premises or minimal obligation for shipping.
another named place the seller; the buyer
(i.e., works, factory, bears all costs and
or warehouse). risks involved in
claiming the goods
from the seller's
premises.
FOB Delivery takes place The buyer bears all the Buyer arranges
Free on board(named when the goods pass costs and risks of loss shipping.
port of shipment) the ship's rail at the or damage upon
named port of delivery. The seller
shipment, the port of clears the goods for
origin in the seller's export.
home country.

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Examples of INCOTERMS (2 of 2)
Incoterms Definition Key Points Arrangement of
Shipping
CI F Seller pays the cargo The seller pays for Seller arranges
Cost, insurance, and insurance and delivery freight and insurance to shipping and
freight (named port of of goods to the named transport the goods to insurance.
destination) port of destination. the named port of
From the destination destination. At that
port, buyer is point, responsibility for
responsible for the goods transfers
customs clearance and from the seller
other costs and risks. to the buyer.

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Methods of Payment
Method Advantages Disadvantages
Cash in Best for the seller. Risky from the buyer’s
Advance standpoint, and thus unpopular;
tends to discourage sales.
Open Easy for the exporter, Risky unless there is strong
Account who simply bills the established relationship between
buyer, who is expected exporter and buyer
to pay at some future
time as agreed.
Letter of A contract between the Requires following a strict
Credit banks of the buyer and protocol, specified in the contract.
the seller. Largely risk- Can involve much paperwork.
free, it helps establish
instant trust.

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Letter of Credit Cycle

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Countertrade
• An international business transaction in which all or partial payments are made in kind
rather than cash. Similar to barter.
• Used when conventional means of payment are difficult, costly, or nonexistent. For
example, countertrade has been mandatory for all Australian federal government
foreign purchases of more than 2.5 million Australian dollars. In South Korea,
countertrade is mandated for government telecommunications and defense
procurement exceeding $1 million. In Asia, Indonesia led the way early by requiring
countertrade for large-scale public sector purchases. Eastern European nations and
Russia have practiced barter and countertrade transactions for many years.
Countertrade occurs in response to two primary factors. First is the chronic shortage of
hard currency which is common to developing economies. Second is the lack of
international marketing prowess/courage among developing economy firms.
Countertrade enables such firms to generate hard currency and access markets that
might otherwise be inaccessible to them.
•  Firms can encounter five problems in countertrade

• Accounts for between 10% and 1/3 of all world trade.

• Common in large-scale government procurement.

• Risky. May involve inferior or hard-to-price goods; may lead to price padding; Can be
complex, cumbersome, and time-consuming.
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Types of Countertrade
• Barter: Goods are directly exchanged, without the transfer of
any money.
• Compensation deal: Payment in goods and cash.
• Counter purchase: Entails two distinct contracts. In the first,
the seller agrees to a set price for goods and receives cash
from the buyer, contingent on a second contract in which the
seller agrees to purchase goods from the buyer.
• Buy-back agreement: Seller agrees to supply technology or
equipment to construct a facility and receives payment in the
form of goods produced by it.

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Examples of Countertrade
• Boeing traded aircraft for oil, in Saudi Arabia.
• Caterpillar received caskets in Colombia and wine in
Algeria, in exchange for earthmoving equipment.
• Goodyear traded tires for minerals, textiles, and
agricultural products.
• Coca-Cola received tomato paste from Turkey, oranges
from Egypt, and beer from Poland, in exchange for Coke.

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Overview on Countertrade

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Sources of Export Financing
• Commercial banks.
• Distribution channel intermediaries.
• Buyers.
• Suppliers.
• Government assistance programs (e.g., Export-Import
Bank, Small Business Administration).

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Types of Exporting Intermediaries (1 of 2)
• Foreign distributor: Based in the foreign market. Works
under contract for the exporter, takes title to, and
distributes the exporter’s products in a national market or
territory, often performing marketing functions such as
sales, promotion, and after-sales service.
• Manufacturer’s representative: Contracted by the
exporter to represent and sell its merchandise or services
in a designated country or territory.

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Types of Exporting Intermediaries (2 of 2)
• Trading company: Engages in import and export of a
variety of commodities, products, and services.
• Export management company (EMC): Based in the
home market. Acts as an export agent on behalf of a
client company.

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Sources of Information to Identify
Potential Intermediaries (1 of 2)
• Country and regional business directories such as
Kompass (Europe), Japanese Trade Directory, and
Foreign Yellow Pages.
• Trade associations e.g., National Furniture Manufacturers
Association; National Association of Automotive Parts
Manufacturers.
• Government ministries and agencies e.g., Austrade in
Australia, Export Development Canada, U.S. Department
of Commerce.

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Sources of Information to Identify
Potential Intermediaries (2 of 2)
• Commercial attachés in embassies and consulates
abroad.
• Branch offices of government agencies located in
exporter’s country, such as the Japan External Trade
Organization.

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Working with Foreign Intermediaries
• The exporter relies on intermediaries for much of the
marketing, physical distribution, and customer service
activities in the export market.
• The exporter should cultivate mutually beneficial, bonding
relations; respond to the intermediary’s needs;
demonstrate commitment; and build trust.
• Intermediaries prefer handling good, profitable products,
and desire various types of support.

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Common Dispute Areas with
Intermediaries
• Compensation arrangements.
• Pricing practices.
• Advertising and promotion practices and the extent of
advertising support.
• After-sales service.
• Return policies.
• Adequate inventory levels.
• Incentives for promoting new products.
• Adapting the product for local customers.

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Criteria for Evaluating Export
Intermediaries (1 of 2)
Intermediary Evaluation Criteria
Dimension
Organizational Strengths • Ability to finance sales and growth in the market
• Ability to provide financing to customers
• Management team quality
• Reputation with customers
• Connections with influential people or government agencies in the
market
Product-Related Factors • Knowledge about the exporter's product
• Quality and superiority of all product lines handled by the intermediary
• Ability to ensure security for patents and other intellectual property
rights
• Extent to which intermediary handles competing product lines

Sources: Based on Business International, “How to Evaluate Foreign Distributors,” pp. 145-149 (May 10, 1985); S.
Tamer Cavusgil, Poh-Lin Yeoh, and Michel Mitri, “Selecting Foreign Distributors: An Expert Systems Approach,”
Industrial Marketing Management 24, No. 4 (1995), pp. 297-304; International Trade Administration, Basic Guide to
Exporting: The Official Government Resource for Small and Medium-Sized Businesses (Washington, D C:
International Trade Administration, 2011); Franklin Root, Entry Strategies forInternational Markets (Hoboken, NJ:
Jossey-Bass, 1983/1998).

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Criteria for Evaluating Export
Intermediaries (2 of 2)
Intermediary Evaluation Criteria
Dimension
Marketing Capabilities • Experience with the product line and target customers
• Extent of geographic coverage provided in the target market
• Quality and quantity of sales force
• Ability to formulate and implement marketing plans
Managerial Commitment • Percent of intermediary's business consisting of a single supplier
• Willingness to maintain inventory sufficient to fully serve the market
• Commitment to achieving exporter's sales targets

Sources: Based on Business International, “How to Evaluate Foreign Distributors,” pp. 145-149 (May 10, 1985); S.
Tamer Cavusgil, Poh-Lin Yeoh, and Michel Mitri, “Selecting Foreign Distributors: An Expert Systems Approach,”
Industrial Marketing Management 24, No. 4 (1995), pp. 297-304; International Trade Administration, Basic Guide to
Exporting: The Official Government Resource for Small and Medium-Sized Businesses (Washington, D C:
International Trade Administration, 2011); Franklin Root, Entry Strategies forInternational Markets (Hoboken, NJ:
Jossey-Bass, 1983/1998).

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Global Sourcing
Procurement of products or services from suppliers located
abroad for consumption in the home country or a third
country
• Also called global outsourcing, global procurement or
global purchasing; it amounts to importing.
• Involves a contractual relationship between the buyer and
the foreign supplier, in which the performance of a
specific value-chain activity is subcontracted to the firm’s
own subsidiary or to an independent supplier.

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Sourcing for Dell Inspiron Notebook
Computer

Sources: Based on “Dell’s Current Suppliers,” 2015, www.dell.com; Thomas Friedman,

The World Is Flat 3.0 (New York: Picado, 2007);

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Drivers of Global Sourcing
1. Technological advances in
communications, especially
the Internet and international
telephony.
2. Falling costs of international
business.
3. Entrepreneurship and rapid
economic transformation in
emerging market countries.

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Two Key Decisions Regarding Global
Sourcing
1. Decision 1: Outsource or Not? Decide whether each
value-adding activity should be conducted in-house or
by an independent supplier. Known as the ‘make or buy’
decision. Firms usually internalize activities that are part
of their core competence or that involve the use of
valuable intellectual property.
2. Decision 2: Where in the World Should Value-
Adding Activities Be Located? Firms configure their
value-chain activities in specific countries to cut costs,
reduce transit time, access favorable factors of
production, and access competitive advantages.

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Example of Worldwide Value Chain
Configuration (1 of 2)
1. BMW employs more than 60,000 factory personnel at
30 sites in 14 countries to manufacture its vehicles.
2. The Munich plant builds the BMW 3 Series and supplies
engines to other BMW factories abroad.
3. A plant in South Carolina makes 350,000 vehicles per
year.

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Example of Worldwide Value Chain
Configuration (2 of 2)
4. A plant in NE China makes cars in a local joint venture.
5. A plant in India makes BMWs for the Asia market.
6. BMW configures sourcing to minimize costs (e.g., by
producing in China), access skilled personnel (by
producing in Germany), remain close to key markets (by
producing in China, India and the United States).

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Business Process Outsourcing (BPO)
• Outsourcing of business functions to independent
suppliers such as accounting, human resource functions,
IT services, and customer service.
• BPO includes:
– Back-office activities, including internal, upstream
business functions such as payroll and billing, and
– Front-office activities, which
includes down-stream,
customer- related services
such as marketing or technical
support.
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Contract Manufacturing
• Arrangement in which the focal firm contracts with an
independent supplier to manufacture goods according to
well-defined specifications. E.g., Nike, IKEA.
• Example:
Patheon is a leading contract manufacturer in the
pharmaceutical industry, providing drug development and
manufacturing for pharmaceutical and biotechnology
firms worldwide. Operates 11 factories in North America
and Europe, producing over-the-counter drugs and
numerous top prescription drugs for leading
pharmaceutical firms.

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Global Sourcing from Subsidiaries versus
Independent Suppliers
• In global sourcing, the focal firm has two major choices. It
can source from:
(1) Independent suppliers, or
(2) Company-owned subsidiaries and affiliates.
• Global sourcing from independent suppliers involves
outsourcing production to a third-party provider abroad.
• Captive sourcing is sourcing from the firm’s own
production facilities located abroad. Production is carried
out at a foreign facility that the focal firm fully or partly
owns through direct investment.

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Nature of Outsourcing and Global
Sourcing
Blank Value-adding activity is Value-adding activity is
internalized externalized(outsourced)

Value-adding activity kept in A B

home country Keep production in-house, in Outsource production to third-
home country party provider at home

Value-adding activity conducted C D

abroad(global sourcing) Delegate production to foreign Outsource production to a third-
subsidiary or affiliate(captive party provider abroad(contract
sourcing) manufacturing or global
sourcing from independent
suppliers)

Sources: Based on B. Kedia and D. Mukherjee, “Understanding Offshoring: A Research Framework

Based on Disintegration, Location and Externalization Advantages,” Journal of World Business 44,
No. 3 (2009), pp.250-261; Information Economy Report 2009 (New York: United Nations, 2009);
World Investment Report 2004 (New York: UNCTAD, 2004).

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Offshoring (1 of 2)
• A natural extension of global sourcing, it refers to the
relocation of a business process or entire manufacturing
facility to a foreign country.
• MNEs shift production of goods or processes to foreign
countries to enhance their competitive advantages.
• Common in the service sector, including banking,
software writing, legal services, and customer service
activities.

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Offshoring (2 of 2)
• Example
Large legal hubs have emerged in India that provide
services such as drafting contracts and patent applications
with lawyers in North America and Europe costing $300 an
hour or more, Indian firms can cut legal bills by 75 percent.

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Choices in Outsourcing Value Chain
Activities

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Benefits of Global Sourcing (1 of 2)
• Cost Efficiency, due to lower wages abroad, leading to
improve profitability.
• Ability to Achieve Strategic Goals
– Faster corporate growth.
– Access to qualified personnel
– Improved productivity and service, especially when a
task is outsourced to a firm specialized in that task.

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Benefits of Global Sourcing (2 of 2)
– Business process redesign.
– Increased speed to market.
– Access to new markets.
– Technological flexibility.

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Risks in Global Sourcing (1 of 2)
• Lower-than-expected cost savings.
• Environmental factors, such as exchange rate
fluctuations, trade barriers, and labor strikes.
• Weak legal environment, which can affect protection of
intellectual property.
• Inadequate or low-skilled workers.
• Overreliance on suppliers.

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Risks in Global Sourcing (2 of 2)
• Risk of creating competitors.
• Erosion of morale and commitment among home- country
employees, due to outsourcing jobs.

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Labor Cost per Hour of Typical Workers in
Various Locations

Sources: Based on Eurostat: Hourly Labor Costs, at ec.europa.eu; International Labour

Organisation (ILO), Statistics and Databases, http://www.ilo.org/ Labour Bureau,
Government of India, at http://labourbureau.nic.in.

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Overview on India
• Leading offshoring destination for software development
and back-office services such as call centers and
financial accounting activities.
• A leading world center in the IT industry, employing more
than two million people.

• Strong English language skills.

• Abundant pool of educated engineers,
managers, and other specialists.
• Low labor costs.

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Corporate Social Responsibility
• Global sourcing can lead to three major
problems in the home country:
– Job losses
– Reduced national competitiveness
– Declining living standards

Source: Roger Bamber/Alamy

• MNEs may be ineffective or indifferent about:
– Protecting the environment
– Promoting human rights
– Labor practices and working conditions abroad
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Useful Public Policy for Minimizing the
Harm of Global Sourcing
• Global sourcing involves creative destruction. It may
eliminate jobs, but it creates new advantages and
opportunities, that benefit firms, increase profits, and
often lead to the ability to create better jobs.
• Governments should strive to:
– Keep the cost of doing business low (e.g., via
appropriate economic and fiscal policies).
– Ensure a strong educational system, that supplies
engineers, scientists, and knowledge workers.
– Maximize worker flexibility to help those who lose jobs
find other positions.
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Ethical Connections (1 of 2)
• If you call customer service for a computer or cell phone,
you may reach someone on the other side of the world.
• Outsourcing to countries where labor is cheaper helps
companies lower labor costs and improve profits.
• In a global economy, domestic workers compete with
overseas workers for jobs whose output can be
transmitted by telephone or the Internet. Jobs once done
by domestic workers are effectively shipped overseas.

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Ethical Connections (2 of 2)
• Working conditions in emerging markets occasionally
amount to sweatshop conditions.
• At the same time, global sourcing from emerging markets
creates jobs for those who may otherwise face poverty.

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Strategies for Minimizing Risk in Global
Sourcing (1 of 2)
• Go offshore for the right reasons. The best rationale is
strategic, such as enhancing the quality of offerings,
improving productivity, and freeing up core resources.
• Get employees on board. Poorly planned sourcing
projects creates unnecessary tension with existing
employees.
• Choose carefully between a captive operation and a
contract with outside suppliers.

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Strategies for Minimizing Risk in Global
Sourcing (2 of 2)
• Choose suppliers carefully. There are many options to
choose from. A sourcing broker can help.
• Emphasize communications and collaboration with
suppliers. Minimize problems by developing clear and
effective relations with suppliers.
• Safeguard interests in terms of maintaining the firm’s
reputation, building a stake for the supplier, keeping open
options for finding alternate partners if needed, and
withholding key intellectual property.

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Global Supply Chain Management
• Global supply chain: The firm’s integrated network of
sourcing, production, and distribution, organized on a
world scale, and located in countries where competitive
advantage can be maximized.
• Sourcing from numerous suppliers scattered around the
world requires efficient supply-chain management.
• Third party logistics providers (3PLs) as well as
independent logistics service providers such as FedEx, T
NT, and UPS are useful facilitators.

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Stages, Functions, and Activities in the
Global Supply Chain

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Features of Global Supply Chain
Management
• The costs of physically delivering a product to an export
market may account for as much as 40% of the total cost.
• Firms use information and communications technologies
(ICTs) to streamline operations, reducing costs and
increasing distribution efficiency.
• Logistics involves physically moving goods through the
supply chain. Incorporates information, transportation,
inventory, warehousing, materials handling and similar
activities associated with the delivery of raw materials,
parts, components, and finished products.

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Transportation Modes
• Land transportation is via highways and railroads Ocean
transportation is via large container ships.
• Air transportation involves commercial or cargo aircraft.
• Ocean and air transport are common in international
business because of the long distances. Ocean transport
is the cheapest and most common.
• Ocean transport was revolutionized by the development
of 20- and 40-foot shipping containers.

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Comparing Ocean, Land, and Air
Transport
Ocean Transport Land Transport Air Transport
• Accounts for about 90 • Usually more • Accounts for only 1
percent of international expensive than percent of international
shipments Relatively ocean transport but shipments.
slow cheaper than air • Fast and predictable
• Relatively inexpensive • Exporters often opt • Expensive
• Revolutionized by the for ocean shipping • Used mostly for:
development of 40-foot even when land – perishable products
shipping containers transport is available. (e.g., food, flowers)
For example, some – products with a
Mexican firms send high value-to-
goods to Canada by weight ratio (laptop
ship. computers)
– urgently needed
goods (medicines,
emergency
supplies).

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Copyright © 2017, 2014, 2012 Pearson Education, Inc. All Rights Reserved
The yield spread is a key metric that bond investors use
when gauging the level of expense for a bond or group of
bonds. For example, if one bond is yielding 7% and another
is yielding 4%, the spread is three percentage points, or 300
basis points (BP). Non-Treasury bonds are generally
evaluated based on the difference between their yield and
the yield on a Treasury bond of comparable maturity.

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Any financial paper has stock quotes that will look something like the image below:

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Columns 1 & 2: 52-Week High and Low - These are the highest and lowest
prices at which a stock has traded over the previous 52 weeks (one year). This
typically does not include the previous day's trading.

Column 3: Company Name & Type of Stock - This column lists the name of the
company. If there are no special symbols or letters following the name, it is
common stock. Different symbols imply different classes of shares. For
example, "pf" means the shares are preferred stock.

Column 4: Ticker Symbol - This is the unique alphabetic name which identifies
the stock. If you watch financial TV, you have seen the ticker tape move across
the screen, quoting the latest prices alongside this symbol. If you are looking
for stock quotes online, you always search for a company by the ticker symbol.
If you don't know what a particular company's ticker is you can search for it at:
http://finance.yahoo.com/l.

Column 5: Dividend Per Share - This indicates the annual dividend payment per
share. If this space is blank, the company does not currently pay out dividends.

Column 6: Dividend Yield - The percentage return on the dividend. Calculated as

annual dividends per share divided by price per share.

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Column 7: Price/Earnings Ratio - This is calculated by dividing the current stock price by earnings
per share from the last four quarters. For more detail on how to interpret this, see our
P/E Ratio tutorial. P/E ratio as an important indicator on how a company is doing relative to
others in its industry or to the market more broadly, as well to how it has performed in the past.

Read more: Understanding The P/E Ratio

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Column 8: Trading Volume - This figure shows the total number of shares traded for the day, listed
in hundreds. To get the actual number traded, add "00" to the end of the number listed.

Column 9 & 10: Day High and Low - This indicates the price range at which the stock has traded
at throughout the day. In other words, these are the maximum and the minimum prices that people
have paid for the stock.

Column 11: Close - The close is the last trading price recorded when the market closed on the day.
If the closing price is up or down more than 5% than the previous day's close, the entire listing for
that stock is bold-faced. Keep in mind, you are not guaranteed to get this price if you buy the stock
the next day because the price is constantly changing (even after the exchange is closed for the
day). The close is merely an indicator of past performance and except in extreme circumstances
serves as a ballpark of what you should expect to pay.

Column 12: Net Change - This is the dollar value change in the stock price from the previous day's
closing price. When you hear about a stock being "up for the day," it means the net change was
positive.

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Use the following information for the next two questions. The
C.B decreases the reserve requirement.
1- The money supply will            and the interest rate will
          .
(a) increase; increase
(b) increase; decrease
(c) decrease; increase
(d) decrease; decrease

2- Bondholders will experience a

(a) capital gain and consumption will increase.
(b) capital gain and consumption will decrease.
(c) capital loss and consumption will increase.
(d) capital loss and consumption will decrease.

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Use the following information for the next two questions. The Fed
decreases the reserve requirement.
17. The money supply will            and the interest rate will           .
(a) increase; increase
(b) increase; decrease
(c) decrease; increase
(d) decrease; decrease
ANSWER: (b) A decrease in the reserve requirement is an
expansionary monetary policy. The interest rate will decrease.
18. Bondholders will experience a
(a) capital gain and consumption will increase.
(b) capital gain and consumption will decrease.
(c) capital loss and consumption will increase.
(d) capital loss and consumption will decrease.
ANSWER: (a) An interest rate decrease will result in an increase in
bond prices (a capital gain). As wealth increases, bondholders will
increase consumption.

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A bond pays a fixed payment of $6 per $100 of face value. The
current yield on new bonds of similar risk and maturity is 10%.
The current price of the bond
(a) is certainly higher than its face value.
(b) is certainly lower than its face value.
(c) may be higher than its face value—it also depends on the
extent of capital gains or losses.
(d) may be lower than its face value—it also depends on the
extent of capital gains or losses.

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A bond pays a fixed payment of $6 per $100 of face value. The
current yield on new bonds of similar risk and maturity is 10%.
The current price of the bond
(a) is certainly higher than its face value.
(b) is certainly lower than its face value.
(c) may be higher than its face value—it also depends on the
extent of capital gains or losses.
(d) may be lower than its face value—it also depends on the extent
of capital gains or losses.
ANSWER: (b)If the current yield is greater than 6%, the price of
the bond must have fallen to less than $100 (because the payment
is fixed contractually). We can conclude this with certainty,
without knowing the extent of the capital loss.

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