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Foreign Direct Investment vs Export/Import

Why Export

To serve markets where you have no production
To remain price competitive at home
To test foreign markets inexpensively
To offset domestic cyclical sales
To respond to foreign competitors
To improve efficiency of manufacturing

Export Assistance-Exporting is hard. You will need help. Get it from:

Market Access and Compliance (MAC) specialists
Trade Development Office
US Commercial Services (USCS)
International Trade Office of SBA
Department of Commerce Export Assistance Program (EAP)

Export Vocabulary-Shipping

FAS - Free along ship, port of call
CIF - Cost, insurance, freight, foreign port
CFR - Cost and freight, foreign port
DAF - Delivered at frontier

Export Vocabulary-Payments

L/C - Letter of credit
Export draft - almost an international check
Factoring - selling accounts receivable

Export Vocabulary-Other

Free trade zone - Country designates area to be outside its customs territory
Customs Drawback - rebate on customs duties

Why Import

Lower cost goods
Needed natural resources
Unique cultural goods
Overseas efficiencies

Bonded Warehouse

Place to store imported goods before customs are paid

Automated Commercial System

Electronic tracking of imports used by US.

Harmonized Tariff Schedule of the US

Classifies products to determine tariff rates

Why Foreign Direct Investment-Supply Factors

Production costs
Availability of natural resources
Access to key technology

Why Foreign Direct Investment-Demand Factors

Customer access
Marketing advantage
Exploitation of competitive advantage
Customer mobility

Why Foreign Direct Investment-Political Factors

Avoidance of trade barriers
Economic development incentives

Why Not Export Instead

Lower transportation or production costs
Multidomestic strategy
Access to resources
Host country policies

Approaches to Direct Investment

Outright purchase
Collaboration - Licensing, Franchising, Joint Ventures

FDI Problems

Conflicting cultures
Control issues
Differing goals
Unmotivated partners


a company start from scratch-finds a grass covered(green) field somewhere in the country of interest and builds its own factor, hires its own workers and builds up itsentire production process from scratch-eliminates all the historical prblems of an outright purchase

Outright Purchase

a company finds another company within their industry in the country they're interested in that does things similar enough to themselves and buys them.

Collaboration-Private Label

a simple way to avoid tariff's and get your product produced in another country is to have an existing manufacturer make your product under your private label


a company sells a foreign company the right to distribute its product withing that country


the foreign company will still own the operation but the franchising agreement will give the franchisor far more control over operations

Collaboration-Joint Ventures

two companies create a third company and split ownership rights in it

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