Chapter 14 Study Guide
Chapter 14 Study Guide INTB3080
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This 4 page Study Guide was uploaded by Jayne Johnston on Tuesday February 9, 2016. The Study Guide belongs to INTB3080 at University of Cincinnati taught by Dr. Ratee Apana in Spring 2016. Since its upload, it has received 46 views. For similar materials see Global Environment of Business in International Business at University of Cincinnati.
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Date Created: 02/09/16
Chapter 14 Study Guide Opening Case: SteelMaster Buildings How has SteelMaster Buildings been able to grow its exports? Combination of high quality, the ability to produce customized designs, and competitive pricing. Did they use resources? What were they? They hired someone to develop their international presence. Also, they used the Virginia Economic Development Partnership and the U.S. Commercial Service to expand their network. How has the Internet leveled the playing field for small/medium size enterprises like SteelMaster Buildings that want to maximize their export opportunities? It gives them the opportunity to personalize websites esp. in language and use key words on search engines to increase traffic which helps people understand the product and turn that into sales. Improving Export Performance Why export? The great promise of exporting in the large revenue and profit opportunities are to be found in foreign markets for most firms in most industries. Why has export increased? What are the enablers? It has become easier to export because of the decline in trade barriers under GATT and the WTO and as regional economic agreements like the EU and North American Free Trade Agreement have significantly increase exporting opportunities. What are our major exports? Machines, engines, pumps Electronic equipment Aircraft, spacecraft Vehicles Oil Medical, technical equipment Plastics Gems, precious metals, coins Pharmaceuticals Organic chemicals What are the common pitfalls of marketing? Unfamiliar with foreign market opportunities; they do not know how bit the opportunities actually are or where they might lie. Many would-be exporters, typically small firms, are often intimidated by the complexities and mechanics of exporting to countries where business practices, language, culture, legal Chapter 14 Study Guide systems, and currency are very different from the home market. Management Focus: Export Strategy at 3M The company often uses its exports to establish an initial presence in a foreign market, only building foreign production facilities once sales volume rises to a level that justifies local production. 3 Principles – First In (to a new market) Defeats Others a.k.a. “FIDO”. FIDO is to gain advantage over other exporters by getting into a market first and learning about that country and how to sell there before others do. – “Make a little, sell a little”, which is the idea of entering on a small scale with a modest investment and pushing one basic product. – Hire local employees to sell the firm’s product. 3M believes local hires have a better idea of how to sell in their own country than American expatriates. Management Focus: Red Spot Paint and Varnish Building long-term personal relationships with potential foreign customers is often key to getting business. Export and Import Financing Lack of Trust, Why? Firms engaged in international trade have to trust someone… – They may have never seen – Who lives in a different country – Who speaks a different language – Abides by/not abides by a different legal system – Who could be very difficult to track down if he/she defaults on an obligation Problem is solved by using a 3 party trusted by both, a reputable bank, to act as an intermediary. Letter of Credit – issued by a bank, indicating that the bank will make payments under specific circumstances. Draft (bill of exchange) – order written by an exporter instructing an importer to pay a specified amount of money at a specified time. Sight Draft – draft payable on presentation to drawee Time Draft – promise to pay by the accepting party at some future date Bill of Lading – document issued to an exporter by a common carrier transporting merchandise; it serves as a receipt, a contract, and a document of title. Typical International Trade Transaction Chapter 14 Study Guide Export Assistance Export-Import Bank (Ex-Im Bank) – agency of the U.S. government whose mission is to provide aid in financing and facilitate exports and imports. Export Credit Insurance – if a customer defaults on payment, the insurance firm will cover a major portion of the loss. Chamber of Commerce Acts as a spokesman for the business and professional community and translate the group thinking of its members into action Provides specific services of a type that can be most effectively presented by a community organization both to its members and to the area as a whole Countertrade Incidence Countertrade is a means of financing international trade, relatively minor one, prospective exporters may have to engage in this technique sometimes to gain access to certain international markets. Types Barter – direct exchange of goods/services between two parties without a cash transaction. Counterpurchase – reciprocal buying agreement. Offset – buying agreement similar to counterpurchase, but the exporting country can then fulfill the agreement with any firm in the country to which the sale is being made. Switch Trading – use of a specialized third-party trading house in a countertrade arrangement. Chapter 14 Study Guide Buyback – when a firm builds a plant in a country and agrees to take a certain percentage of the plant’s output as partial payment of the contract. Pros and Cons Pro – gives a firm a way to finance an export deal when other means are not available. Pro – may be required by the government of a country to which a firm is exporting goods/services; making it a strategic marketing weapon Con – firms would prefer to be paid in hard currency Con – may involve the exchange of unusable/poor-quality goods that the firm cannot dispose of profitably
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