Chapter
4
Managing Export Operations
Key Points
Steps to Managing Export Operations
Pricing in Export Markets
Stages of Export Market Involvement
Trade Intermediaries
Vital Questions to be asked
Present day export trade
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INTERNATIONAL MANAGEMENT 5/e
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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
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
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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
Step 3 - Take a long-run Perspective
Initial costs must be viewed as investments
Returns on investments will not be immediate in export markets
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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.
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
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
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
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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.
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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
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
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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?
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?
What are the most appropriate channels of distribution for our product to achieve our goals in export markets?
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Present day export trade
Tariff and nontariff 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
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
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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
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
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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.
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
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
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. .
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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
Effect of trade on financing needs and sources
Irrevocable letter of credit (LoC) used to overcome uncertainty
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