By James F. Foley

Published by Dearbon

A Kaplan Professionsl Company

Sales to Other Markets 4 Ž

Avoid Changing Domestic Conditions 4 Ž Access to Lower Cost Structures 5 Ž Beyond the Traditional Motivations 5 Ž Exploit Global Presence 5 Ž Global Money Flows 7 Ž What About Small Companies? 7 Ž

Using This Text 8 Ž The Text in a Course 8 Ž The Text on Its Own 8 Ž

CHAPTER 2. When Is a Company Ready to Go Global? 11 Ž Management Commitment 12 Ž What Does Management Commitment Establish? 12 Ž Product Experience: Understand Your Competitive Advantage 14 Ž Cash Flow 17 Ž Capacity and Capability to Produce International Products 17 Ž Capacity and Capability for Manufacturers 17 Ž Capacity and Capability for Service Companies 18 Ž What Does Not Have to Be in Place Before Going Global 18 Ž International Expertise 18 Ž Language 19 Ž Will You Need to Visit Foreign Markets? 21 Ž

CHAPTER 3. Harmonized Codes: Classifying Your Export Products 22 Ž Why Harmonized Codes Are Needed 23 Ž How the Harmonized System Works 23 Ž Sections and Chapters 23 Ž Headings 25 Ž Subheading 26 Ž The Commodity Code 28 Ž Locating the Correct Harmonized Code 29 Ž Obtaining Copies of the Schedule B or HTS 30 Ž First Step: Check the Index 30 Ž Schedule B versus HTS Subheadings 31 Ž Resolving Difficult Classifications 31 Ž Seek Assistance in Classifying Your Goods 33 Ž Binding Rulings 34 Ž Harmonized Code versus SIC, NAICS, and SITC 34 Ž

CHAPTER 4. Which Foreign Markets Will Be Successful for Your Product? 36 Ž Developing Indicators Based on Previous Experience 37 Ž Past Leads 37 Ž Past Sales 37 Ž Competitor Behavior 38 Ž Domestic Trade Shows 38 Ž Discussions with Industry Experts 38 Ž Input from Customers 39 Ž Proactive versus Reactive Market Selection 39 Ž Pitfalls of a Reactive Market Selection Strategy 40 Ž Global Assessment: A Proactive Market Selection Strategy 40 Ž Global Indicators 41 Ž Trade Barriers 43 Ž Tariff Barriers 43 Ž Nontariff Barriers 45 Ž Finding Country Data on Trade Barriers 48 Ž

CHAPTER 5. Selecting Foreign Markets 50 Ž Why Rank Markets? 51 Ž Tool for Selecting Foreign Markets: An Illustration 51 Ž Step One: Developing Indicators 53 Ž Step Two: Converting the Data into Comparable Indicators 54 Ž Step Three: Weighing Each Indicator 55 Ž Step Four: Analyzing the Results 56 Ž How to Use Your Market Selection Model 56 Ž Using Models as a Screening Tool 58 Ž Country versus Market Analysis 58 Ž

CHAPTER 6. Sources of International Marketing Data 60 Ž Primary versus Secondary Data 61 Ž Obstacles to Collecting International Secondary Data 61 Ž Obstacles to Collecting International Primary Data 62 Ž Resolving Primary versus Secondary International Data Challenges 62 Ž Dealing with Data Problems 63 Ž Sources for Country/Market Data 65 Ž STAT-USA and the National Trade Data Bank (NTDB) 65 Ž Fax Retrieval Systems/Web Sites 73 Ž Country Desk Officers 73 Ž Private Resources 73 Ž Industry Data 73 Ž Where to Go for Industry Data 74 Ž STAT-USA 74 Ž Industry Desk Officers 76 Ž Trade Associations 76 Ž Publications, Industry Journals, and Periodicals 77 Ž Foreign Phone Books 77 Ž Networking 77 Ž Determining Your Competitive Position in Foreign Markets 78 Ž Competitive Information Is No Elixir for Success 78 Ž The Goal of Competitive International Research 79 Ž Key Sources of International Competitive Information 79 Ž Databases: Public and Private 81 Ž U.S. Exports by Commodity 81 Ž PIERS: Port Import Export Reporting Service 84 Ž Directory of United States Exporters 86 Ž United Nations International Trade Statistics Yearbook 87 Ž Company Information 88 Ž Company Literature and Web Sites 88 Ž Company International Advertising 88 Ž Industry Associations 89 Ž Public Sources 89 Ž Industry Press 89 Ž Newspapers 90 Ž Interviews and Direct Contact 90 Ž Ž Industry Contacts: Press and Advertising 90 Ž Government Contacts 91 Ž Foreign Customers and Distributors 91 Ž Employees from Competitors 92 Ž

CHAPTER 7. Two Key Decisions before Going Global 93 Ž Foreign Market Entry: Direct or Indirect 94 Ž Indirect Market Entry 94 Ž Types of Indirect Exporting 94 Ž Benefits of Indirect Exporting 95 Ž Disadvantages of Indirect Exporting 97 Ž Direct Market Entry 100 Ž The Progression of Direct Entry Modes 100 Ž Benefits of Direct Exporting 101 Ž Disadvantages of Direct Exporting 102 Ž Choosing between Direct and Indirect Methods 103 Ž Is It All or Nothing? 104 Ž Product Standardization versus Adaptation 105 Ž Pressures to Adapt Your Product or Service 106 Ž Pressures to Standardize Your Product or Service 107 Ž To Adapt or Standardize? 108 Ž

CHAPTER 8. Finding Your Partners for Indirect Exporting 111 Ž EMCs versus Piggyback Partners 111 Ž Finding an EMC 113 Ž Finding a Piggyback Partner 116 Ž What to Expect When Negotiating Contracts with Indirect Partners 117 Ž

CHAPTER 9. Finding Your Partners for Direct Exporting 122 Ž Sales Agent or Distributor? 122 Ž Sales Agents 124 Ž Distributors 126 Ž Pricing Considerations 127 Ž Agent or Distributor: Which Type? 127 Ž To Travel or Not to Travel? . . . That's the Question 127 Ž Finding International Customers Only through Research 128 Ž Research Requirements 128 Ž Top Ten Methods for Finding Overseas Agents or Distributors without Travel 131 Ž Selecting Agents or Distributors without Travel 139 Ž Selecting Agents or Distributors with Travel 139 Ž When to Go 140 Ž Arranging Meetings 140 Ž Do Not Overbook Your Schedule 141 Ž The Gold Key Service from the Commercial Service 141 Ž Don't Just Visit Buyers 141 Ž Selecting the Right Representative Is Like Hiring a New Employee 142 Ž Issues to Discuss during Meetings 142 Ž Determine the Motivation of the Foreign Agent or Distributor 144 Ž Avoiding the "First Is Best" Temptation 146 Ž

CHAPTER 10. International Business across Cultures 148 Ž Experiencing Cultural Differences 149 Ž Understanding Cultural Differences 150 Ž The Implications of Hofstede's Research 151 Ž Putting Cultural Differences into Practice 152 Ž Back to the Dilemma and the Role of Corporate Culture 152 Ž

CHAPTER 11. International Pricing 155 Ž International Pricing versus Domestic Pricing 155 Ž Competitive Pricing Calculations 158 Ž A Case Example: Exporting to Brazil 158 Ž Analysis of the Price Difference with the Brazilian Competitor 163 Ž Analysis of the Price Difference with the Argentine Competitor 164 Ž Dealing with International Pricing Concerns 164 Ž Long-Term Price Problems 164 Ž Short-Term Price Problems 165 Ž Developing a Pricing Structure 166 Ž Variable Costing versus Full Absorption Costing 166 Ž Market Conditions and Competitive Position 167 Ž Consistent Pricing between International Markets? 168 Ž Who Pays What? 168 Ž

CHAPTER 12. Legal Considerations 171 Ž Legal Systems 171 Ž U.S. Legal Considerations 172 Ž Foreign Corrupt Practices Act 172 Ž U.S. Embargoes 174 Ž Export Controls 174 Ž Antitrust Laws 175 Ž Product Liability 176 Ž Foreign Legal Considerations 177 Ž Intellectual Property Rights 177 Ž International Contracts 179 Ž

CHAPTER 13. Tax and Accounting Issues 182 Ž U.S. Tax Incentives for Exporters 183 Ž Foreign Sales Corporations (FSC) 183 Ž Interest Charge Domestic International Sales Corporations (IC-DISC) 185 Ž IRA-Owned FSCs 186 Ž Duty Drawback 186 Ž What Is Eligible for Drawback? 187 Ž How to Obtain Duty Drawback 187 Ž Drawback Rates and Dates 188 Ž Foreign Sales Taxes (VAT) 188 Ž Implication of VAT for U.S. Exporters 189 Ž

CHAPTER 14. Logistics 193 Ž Intermodalism and Containerized Cargo 194 Ž Container Dimensions 194 Ž Door-to-Door versus Port-to-Port (LCL) Container Service 196 Ž Air Cargo Containerization 197 Ž Noncontainerized Cargo 197 Ž Understanding Incoterms: The Terms of Sale 197 Ž Putting the Intercotems to Use: Five Common Terms 198 Ž Some Concerns When Using Incoterms 202 Ž The Role of Freight Forwarders 203 Ž Your Reliance on Freight Forwarders 204 Ž Choosing a Freight Forwarder 205 Ž Obtaining an International Freight Quote 207 Ž International Logistics Solutions 208 Ž

CHAPTER 15. Documentation 209 Ž Export Documents 210 Ž How to Prepare Documents 212 Ž The Basic Nine Export Documents 213 Ž Quotations 213 Ž Pro Forma Invoice 215 Ž Commercial Invoice 217 Ž Packing List 218 Ž The Shipper's Export Declaration 219 Ž Certificate of Origin 220 Ž The NAFTA Certificate of Origin 221 Ž Insurance Certificate 224 Ž Bills of Lading 224 Ž Drafts 226 Ž Miscellaneous Export Documents 226 Ž

CHAPTER 16. Financial Risk, Payment Methods, and Trade Finance 230 Ž International Financial Risk 231 Ž Incomplete International Data 231 Ž Greater Likelihood of Procedural Errors 232 Ž Events Outside the Company's Control 232 Ž Company Financials Contain Risk 233 Ž International Transactions: Three Risks 233 Ž Credit Risk 235 Ž Political Risk 235 Ž Foreign Exchange Risk (FX Risk) 236 Ž Minimizing International Financial Risk 237 Ž Minimizing Credit Risk 237 Ž Minimizing Political Risk 240 Ž Minimizing Foreign Exchange Risk 241 Ž Financial Tools for Managing Foreign Exchange Risk 243 Ž FX Tools 244 Ž Comparison of FX Tools 247 Ž International Payment Methods 247 Ž Cash in Advance 248 Ž Letters of Credit (Irrevocable) 249 Ž Collections (At Sight, or Against Acceptance) 253 Ž Open Account 254 Ž Obtaining Long-Term Financing 255 Ž

CHAPTER 17. Setting a Pace for Your Export Growth: Assessing Your Export Progress and Success 259 Ž A Model for Assessing Your Initial Global Success 259 Ž Internal Considerations 261 Ž Foreign Market Considerations 265 Ž Product Considerations 269 Ž Three Cross-Themes: Resources, Time Frame, and Market Selection Model 272 Ž Resources 272 Ž Time Frame 273 Ž Market Selection Model 274 Ž Adding New Markets 274 Ž

CHAPTER 18. Managing International Channels of Distribution 276 Ž Expectations of Your Customers 276 Ž Appreciating the Unique Role of Foreign Representatives 277 Ž A Product that Works and a Service that Meets Needs 277 Ž Good Communication and Service 278 Ž Lack of Discrimination 278 Ž Great Prices 279 Ž Motivating Your Channels of Distribution 279 Ž Playing the Exclusivity Game 279 Ž When to Move to Nonexclusive Contracts 280 Ž Other Methods to Manage the Distribution Channel 281 Ž Meeting with Your Foreign Buyers 282 Ž Considerations When Terminating an Agent or Distributor 283 Ž Direct Marketing versus Direct Selling 285 Ž

CHAPTER 19. International Advertising, Public Relations, and Trade Missions/Shows 287 Ž International Advertising 288 Ž Modifications to Domestic Advertising 289 Ž Modifications to Marketing Materials 289 Ž Direct International Advertising 290 Ž Placing International Advertising 291 Ž International Ad Copy 292 Ž Cooperative Advertising 293 Ž International Public Relations 295 Ž PR Activities for the Small to Midsize Company 295 Ž One Voice, One Image . . . One Brand 298 Ž Establish Global Brand Guidelines 298 Ž Help Foreign Representatives Achieve Advertising and PR Goals 299 Ž Trade Missions and Trade Shows 299 Ž Trade Shows versus Trade Missions 299 Ž Basics of a Trade Mission 300 Ž Why Participate in a Trade Mission? 301 Ž When to Participate in a Trade Mission 301 Ž Considerations When Selecting a Trade Mission 302 Ž Foreign Trade Shows 303 Ž Tips for Success in Foreign Trade Shows 305 Ž

CHAPTER 20. Key to Success: A Customer Orientation 312 Ž Benefits of Effective Customer Service 313 Ž Creating Effective International Customer Service: The Role of the Company 314 Ž The Initial Baseline: Domestic Customer Service 314 Ž Meeting the Needs of Your International Buyers 315 Ž Specific Issues in International Customer Service Programs 315 Ž The Role of the Foreign Buyers 320 Ž Repairs and Product-Related Problems 320 Ž Using Foreign Representatives to Consolidate Shipments 321 Ž Customer Training and Support 321 Ž

CHAPTER 21. Sustaining Success through Clear Communication and Managing Change 323 Ž Clear Communication to Your International Sales and Distribution Network 323 Ž Establishing a Feedback Mechanism 324 Ž Benefits of an International Feedback Mechanism 325 Ž Feedback Mechanisms 326 Ž Responding to Feedback 327 Ž Managing Change to Sustain Success 328 Ž Cash Flow Constraints 328 Ž Domestic Resources Become Maxed Out 329 Ž International Becomes the "Golden" Department 329 Ž International Success Creates Complacency 330 Ž Drawing Attention from Competitors 331 Ž Company Becomes Too Dependent on One Market or Region 331 Ž

CHAPTER 22. The Internet and International Trade 332 Ž The Internet: The Dream International Trade Tool 333 Ž Specific Advantages of the Internet 333 Ž Using the Internet to Expand International Trade 335 Ž Special Considerations when Using the Internet 336 Ž Technical Considerations 338 Ž The Potential Downsides of the Internet 341 Ž

CHAPTER 23. Beyond Exporting: Foreign Direct Investment 343 Ž Why Companies Go Beyond Exporting 344 Ž Barriers to Exporting Success 344 Ž Need for Increased Control and Feedback 345 Ž Access to Foreign Resources 347 Ž FDI: A Strategic Framework 348 Ž FDI Options 349 Ž Foreign Sales and Marketing Offices 349 Ž

Appendix A: Sample International Distribution Agreement 355

Appendix B: The Nine Basic Export Documents: Sample Forms and Instructions 365Appendix C: The NAFTA Certificate of Origin 387

Index 397

CHAPTER 1.1 Issues of International Trade 9

CHAPTER 2.1 Management Issues and Corresponding International Business Plan Implications 13

CHAPTER 2.2 Six Questions to Answer before Developing an International Strategy 15

CHAPTER 3.1 Breakdown of Harmonized Codes 24

CHAPTER 3.2 Breakdown of Harmonized Codes by Chapters 24

CHAPTER 3.3 Six Guiding Rules for Classifying Products under the Harmonized Code System 32

CHAPTER 4.1 Questions to Help Identify Global Indicators for Foreign Market Success 41

CHAPTER 4.2 Indicators Suitable for Global Assessment 44

CHAPTER 5.1 Reasons for Ranking Foreign Markets Using an Analytical Model 52

CHAPTER 5.2 MasterFitness Initial Research Data 54

CHAPTER 5.3 MasterFitness Market Selection Model 55

CHAPTER 5.4 MasterFitness Final Market Ranking 57

CHAPTER 6.1 Agencies Contributing Information to STAT-USA Databases 66

CHAPTER 6.2 Selected Databases provided by STAT-USA 67

CHAPTER 6.3 Table of Contents of a Country Commercial Guide (CCG) 70

CHAPTER 6.4 Questions You Can Answer with the Country Commercial Guides 72

CHAPTER 6.5 Sample List of Industry Sector Analysis Reports 75

CHAPTER 6.6 Comparison of Various Sources of International Competitive Information 80

CHAPTER 6.7 U.S. Export of Harmonized Code: 9201.20.0000 Grand Pianos 83

CHAPTER 6.8 Data Tracked in the PIERS Database 85

CHAPTER 6.9 Data Fields in the Directory of U.S. Exporters by the Journal of Commerce 87

CHAPTER 7.1 Clarification of the Types of Export Management Companies 96

CHAPTER 7.2 Risks and Rewards of Indirect and Direct Exportation 104

CHAPTER 8.1 Comparison of Export Management Companies and Piggyback Partners 114

CHAPTER 8.2 Comparison of Net Profit from Domestic versus Indirect Export Sales 118

CHAPTER 9.1 Comparison of Agents and Distributors 123

CHAPTER 9.2 Helpful Indicators for Distributor/Agent Selection 129

CHAPTER 9.3 Web Sites Offering International Company Databases 136

CHAPTER 9.4 Factors to Consider When Choosing Foreign Agents/Distributors 143

10.1 Hofstede's Value Dimensions 150

13.1 Example of Tax Savings from the Use of an FSC 184

14.1 Incoterms Grouped by Which Cost Items Are Included in a Sales Quotation 199

14.2 Ocean Terms of Sale Comparison 200

14.3 Services Provided by Freight Owners 204

15.1 Standard Documents for Export 211

15.2 The Nine Essential Export Documents 213

15.3 Summary of NAFTA Preference Criteria 225

16.1 Summary of International Financial Risk Types, Sources to Assess Each Risk, and Techniques to Lower Risk 234

16.2 Sources of Credit Data 239

16.3 A Selection of Companies Offering Export Credit Insurance 240

16.4 Clifford Vadnais' International Lifecycle Model: Three Phases of Foreign Exchange Management 242

16.5 Comparison of Various Hedging Tools in Regard to Cost, Suitability of Transactions Size, and Fit for Companies 248

16.6 Typical Flow of a Letter of Credit Transaction 251

16.7 Standard Instructions to Foreign Buyers for Opening L/Cs 253

17.1 Factors for Assessing Global Progress and Success 260

17.2 Issues to Consider during Foreign Buyer SWOT Analysis 267

19.1 Sample International Business Card 307

20.1 Foreign Buyer Expectations and Their Impact on International Customer Support Functions 316

22.1 Comparison of Internet Connection and Communication Rates 339

23.1 Risks and Rewards of Foreign Direct Investment 349

23.2 Range of Foreign Direct Investment Options 350

A.1 International Distribution Agreement 355

B.1 Sample Quotation Checklist 367

B.2 Pro Forma Invoice 369

B.3 Sample Pro Forma Invoice 370

B.4 Moocow Feeder Company Invoice, Page One 372

B.5 Moocow Feeder Company Invoice, Page Two 373

B.6 Sample Packing List 375

B.7 Shipper's Export Declaration 378

B.8 Sample Ocean Bill of Lading 380

B.9 Sample Certificate of Origin 382

B.10 Sample Insurance Certificate 384

B.11 Sample Bank Draft 386

C.1 Example of NAFTA Transformation 388

C.2 Calculation of Regional Value Content for a Cherry Kitchen Table 391

C.3 NAFTA Certificate of Origin 393