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MBA of International Trade Management

These are some brief notes on International Trade Management - 1

Dr.  S.  Maurer,  
MBA Professor

Many kinds of equipment must be ëngineered in the metric system for integration with other pieces of equipment or for compliance with the standards of a given country.

You need to weigh many of the same factors you would when pricing for domestic markets,  such as the costs of production,  packaging,  transportation and handling as well as promotion and selling expenses.

When potential customers have limited purchasing power,  the exporter may actually need to develop an entirely new product [innovation] designed to address the market opportunity at a price point that is within the reach of a potential target market.

In Seaboard,  a carrier temporarily left a railroad car in constructive placement on some side rails to await orders for the car to be moved for actual placement to the unloading spot.  While the carrier was waiting for orders,  the car was vandalized.  The court held the carrier liable since the car had not been delivered before the damage occurred.

A product’s size and packaging may have to be modified to facilitate shipment or to conform to possible differences in engineering or design standards in a country or regional markets.

The question of how you will sell,  deliver and service your product abroad is far more important than you may realize.  In answering this question,  the first decision you will want to address is method of distribution.

On ramp-to-ramp rail traffic,  delivery by the railroad is completed when the railroad delivers the car to the destination ramp and notifies the consignee that the shipment is available for pick up.

Regulations for food additives,  for example,  differ from country to country.  The U.S.  Generally Recognized as Safe [GRAS] additives may have maximum content levels or may be prohibited altogether in foreign countries.

To be successful in marketing products in international markets,  most products require some level of adaptation or localization.

it would make perfect sense to develop [unless such products are already available] and export dehydrated vegetables in some country markets.

Even shampoo and cosmetic product makers have to chemically reformulate their shampoo and cosmetic products to make them more suited for people living in hot humid climates.

In view of this phenomenon,  the decision to be made by the exporter should not rest on whether or not it should adapt.  The decision,  more appropriately,  should track,  “What aspects of product offering should we adapt and what aspects should we standardize.”

Firms that market their products and services internationally expect higher growth rates than those which concentrate exclusively on domestic markets,  reports financial consulting firm Coopers & Lybrand.

If a country's standard of living is lower than that of the United States,  a manufacturer may find a market for less sophisticated product models that have become obsolete in the United States.

In Intech,  Inc.  v.  Consolidated Freightways,  Inc.,  836 F.2d 672 [1st Cir.  1987],  the carrier had transported a machine and its accessories in two containers from California to Acton,  Massachusetts.  Upon arrival of the first container at the consignee’s facility,  there was a dispute as to who was responsible to unload the machine.  The container sat there for some six months before C.F.  finally came back and removed it.  Damage was discovered five months later,  when the consignee went to inspect the machine at C.F.’s yard.

These are some brief notes on International Trade Management - 2

Dr.  S.  Maurer,  
MBA Professor

Once the lettër of credit is received,  the beneficiary would approach their bank with the original letter of credit in hand and ask that a specific value of the original letter of credit be assigned to the supplier.  For example,  if the LC was issued for $45,000,  the request for the assignment might be $30,000?

The supplier tries to contact the broker/middleman,  only to find out that the phone has been disconnected and they appear to have left town.  The supplier’s prospect for payment at this point isn’t very good.  For this very reason,  suppliers or manufacturers may shy away from this arrangement.  It’s never a perfect world!

The applicant is always the party that contacts the issuing bank to request the amendment.  Typically the issuing bank grants the request of their customer and issues the amendment.  So far it’s a pretty typical transaction.

Many of the same organizations that sponsor trade shows and fairs - such as the SBA,  manufacturer groups and government agencies - also sponsor trade missions to target countries that enable you to hear from local officials and meet prospective buyers.

In defining their price,  most exporters choose from three common methods.  You can base your overseas price on your domestic one,  then add in export costs.  You can use incremental cost pricing,  determining a basic unit cost that takes into account production and exporting costs plus an additional markup for profit.  Or you can reduce the quality of your product,  using cheaper materials or simplifying production processes.

Regulations for food additives,  for example,  differ from country to country.  The U.S.  Generally Recognized as Safe [GRAS] additives may have maximum content levels or may be prohibited altogether in foreign countries.

Doing business in foreign markets can be very different from doing business here at home,  so don't be afraid to ask for help.

The bank will require the original letter of credit be presented along with the written request for the assignment.  The bank needs the original LC so it can endorse the backside of the LC indicating that an assignment has been made to the named party and the value of the assignment.

Factors such as topography,  humidity and energy costs can affect the performance of a product or even define its use in a foreign market.

Strong warranties may be required to break into a new market,  especially if the enterprise is an unknown supplier.  In other cases warranties similar to those in the home country market may not be expected.

The way you market your product in the United States can provide helpful clues for developing methods of selling it internationally.

For consumer products the pack might have various functions: protective,  informative,  merchandising and conforming to legal requirements and buying habits [e.g.  Americans tend to buy less frequently than Europeans,  so the largest size is more popular in the United States].

The availability,  performance and level of sophistication of commercial infrastructure will warrant a need for adaptation or localization of products.  For example,  an exporter may decide not to market its frozen line of food products in countries where retailers do not have adequate freezer space.

Whatever methods you choose to promote your products,  you'll find that direct exporting offers distinct advantages: lower inventory,  control over your product,  potentially higher profits and a closer relationship to foreign buyers and the marketplace.  However,  these advantages come with a price.

The issuing bank needs to track the amendments to determine if the beneficiary has either accepted or rejected the change.  If the beneficiary accepts the amendment,  it can change the liability the applicant has with the LC.

These are some brief notes on International Trade Management - 3

Dr.  S.  Maurer,  
MBA Professor

Though there are multiplë complexities in export marketing,  you most concentrate on issues and challenges relating to the need for product adaptation for export markets.

Foreign distributors and sales representatives generally work on commission,  assume no risk or responsibility,  and are under contract for a specified period.

Simply stated exporting refers to the marketing of goods produced in one country into another.

Strong warranties may be required to break into a new market,  especially if the enterprise is an unknown supplier.  In other cases warranties similar to those in the home country market may not be expected.

You need to weigh many of the same factors you would when pricing for domestic markets,  such as the costs of production,  packaging,  transportation and handling as well as promotion and selling expenses.

The supplier tries to contact the broker/middleman,  only to find out that the phone has been disconnected and they appear to have left town.  The supplier’s prospect for payment at this point isn’t very good.  For this very reason,  suppliers or manufacturers may shy away from this arrangement.  It’s never a perfect world!

it would make perfect sense to develop [unless such products are already available] and export dehydrated vegetables in some country markets.

The availability,  performance and level of sophistication of commercial infrastructure will warrant a need for adaptation or localization of products.  For example,  an exporter may decide not to market its frozen line of food products in countries where retailers do not have adequate freezer space.

The applicant is always the party that contacts the issuing bank to request the amendment.  Typically the issuing bank grants the request of their customer and issues the amendment.  So far it’s a pretty typical transaction.

Your bank can also be an excellent resource if you choose one that has an international department and is committed to serving small business.  Such an institution can help you with all aspects of an export transaction and introduce you to the federal and state government export financing programs that actively support small firms.  State governments are another prime source of assistance.

If the consignee is to unload the trailer,  the issue then involves whether there was an agreement that delivery was to be accomplished without obtaining a signed delivery receipt.

When potential customers have limited purchasing power,  the exporter may actually need to develop an entirely new product [innovation] designed to address the market opportunity at a price point that is within the reach of a potential target market.

A common carrier can affect delivery by merely depositing the merchandise at the consignee's place of business without acceptance or rejection by the consignee.

A world of opportunity awaits outside the U.S.  borders.  Despite calls for protectionism by a number of business and government leaders,  trade agreements and the reconfiguration of nations are creating a global marketplace that offers new horizons for enterprises willing to venture out.

Carrier liability ends when delivery has been completed.  Again,  this is a question of fact that often involves a “dropped” trailer.  When it is the carrier’s duly to unload the trailer,  dropping the trailer in the consignee’s premises does not constitute delivery.

These are some brief notes on International Trade Management - 4

Dr.  S.  Maurer,  
MBA Professor

While many enterprisës recognize the potential of the global marketplace,  the idea of taking it on can be extremely daunting.  Experts agree that the process starts with a deep commitment.  And with that commitment come resources of money,  time and effort to research markets,  learn about new cultures and create a strategic business plan that specifically addresses the new realities.

Whatever methods you choose to promote your products,  you'll find that direct exporting offers distinct advantages: lower inventory,  control over your product,  potentially higher profits and a closer relationship to foreign buyers and the marketplace.  However,  these advantages come with a price.

The case of PolyGram Group Distribution,  Inc.  v.  Transus,  Inc.,  990 F.Supp.  1454 [N.D.  Ga.  1997] involved a mis-delivery of some 67 cartons of sound recordings intended for a new Media Play store in Gainesville,  Florida.  The shipment was supposed to be sent to a distribution center in Minneapolis.  However,  PolyGram instructed the carrier to deliver to a new store that was still under construction and had not yet opened for business.  The carrier delivered the shipment to the site and apparently obtained the signature of one of the construction workers.  it was later discovered that most of the cartons had disappeared.

The availability,  performance and level of sophistication of commercial infrastructure will warrant a need for adaptation or localization of products.  For example,  an exporter may decide not to market its frozen line of food products in countries where retailers do not have adequate freezer space.

The great complaint of most exporters is distributors who are poised to hop aboard the fastest train and move whatever product is currently hot

However,  the savviest exporters manage to make the relationship work.

The court also reversed the lower court’s finding that O’Hare Services and Channel Distribution were not liable,  and remanded the matter back for further proceedings to determine if they could be liable under Illinois law as bailees,  since there was evidence of very lax security precautions.

Instruction or maintenance manual,  for example,  should be made available in centimeters,  weights in grams or kilos,  and temperatures in degrees Celsius.

After determining that your product is highly exportable,  you need to identify your potential customers.  The best way to do this is through market research.

The beneficiary knows that their supplier wants some type of assurance that they will be paid,  but the beneficiary wants to maintain a maximum amount of control over the transaction.  An Assignment of Proceeds might just be the answer.

Invent new products to satisfy both your domestic and foreign markets.  If management is uncertain that the profit potential in foreign markets is large enough to recover costs for product adaptations or it is driven by a risk-averse culture,  it is likely to limit its export activity to products that require only minimal changes to existing domestic products by exporting the products to only those countries that are politically,  physically and culturally similar to their own.

Local customs,  such as religion or the use of leisure time,  often determine whether a product will gain market acceptance.  The sensory impact of a product,  such as taste or visual impact,  may also be a critical factor.  The Japanese consumers’ desire for beautiful packaging,  for example,  has led many U.S.  enterprises to redesign cartons and packages specifically for this market.

You may want to test your product's appeal by advertising in the U.S.  Department of Commerce's catalog-magazine,  Commercial News USA.  A manufacturer of emergency oxygen packs did just that and received inquiries from every continent.  Today,  40 percent of the enterprise's products go to foreign markets.

Local product market scanning,  competitive product sampling and evaluation are also needed to determine the appropriate level of warranties in country markets where the products are being exported.

The buyer,  not knowing that an assignment of proceeds has been issued,  may be thrilled at the prospect of not having to pay their bank an examination fee under the LC and embrace the open account proposal.

Doing business in foreign markets can be very different from doing business here at home,  so don't be afraid to ask for help.