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Unit 8. International Trade

Subject Background

Why export? The two most important reasons are likely to be under-used capacity (exporting will allow you to increase production, reduce unit costs and increase profits) and diversity (relying on just your own domestic market is risky because the market may decline, there may be seasonal factors, etc. Selling in other countriesallows you to spread the risk and develop opportunities abroad).

Before getting started, there is a lot of initial research to be done on the foreign market. The main concerns will include:

· background information (economic situation, political stability, currency risk)

· market size and likely product demand

· competitors’ products already in the market

· tariffs or import restrictions (duties, quotas, taxes)

· distribution channels and methods (agents, distributors, wholesalers, retailers)

· technical, safety, environmental and other standards required by law

· packing and packaging issues ( climate and time in transit, handling methods, need for different packaging to suit local market)

· sales literature and support material (translations needed)

· servicing arrangements ( if needed)

· customer satisfaction policy (money back/replacement schemes).

A major question is then going to be the nature of the distribution channel. Options to
consider will include:

1. Direct selling from manufacturer to customer without an intermediary.

2. Domestic export firms operating in foreign markets (with their own agents, local offices, etc). These firms will take your goods on a wholesale basis and do all the sales and paperwork. However, you have no control over the market and your products may receive little attention compared to others.

3. Agents working exclusively for you in the foreign market. An agent receives a commission for sales made on your behalf. The advantages of using agents are that you gain the services of an experienced local person with contacts and market experience. The disadvantages are that the agent will take a high commission and may lose interest quickly if sales do not arrive quickly.

4. Distributors. A distributor is different to an agent. A distributor is a customer - they have rights (usually exclusive) to purchase your products and resell them in the market. They are like a foreign wholesaler. An agent is justan intermediary and never actually buys any products on their own account.

With agents and distributors there will be many issues to discuss and negotiate on an ongoing basis. These include:
• which products are to be sold
• prices on the foreign market
• performance targets
• payment of local marketing costs
• transportation (taking into account speed, cost, security and efficiency)
• getting paid (cash in advance, letters of credit, bill of exchange, open account, etc).

There are other more specialized export options:

5. Licensing. This means selling or leasing some industrial or commercial expertise (for which you own the patent).



6. Franchising. This is a form of licensing for products which do not have patents.

7. Joint venture. This as a company owned jointly by two or more companies - for example a foreign company with a local partner.

 


Date: 2016-04-22; view: 1880


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