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International Business Chapter 18

Foreign Direct Investment vs Export/Import
STUDY
PLAY
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
Logistics
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
Greenfield
Outright purchase
Collaboration - Licensing, Franchising, Joint Ventures
FDI Problems
Conflicting cultures
Control issues
Differing goals
Unmotivated partners
Greenfield
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
Collaboration-Licensing
a company sells a foreign company the right to distribute its product withing that country
Collaboration-Franchising
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