{"id":105,"date":"2015-07-29T21:38:23","date_gmt":"2015-07-29T21:38:23","guid":{"rendered":"https:\/\/courses.candelalearning.com\/intlbusx1xmaster\/?post_type=chapter&p=105"},"modified":"2017-01-09T19:18:01","modified_gmt":"2017-01-09T19:18:01","slug":"what-is-importing-and-exporting","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/chapter\/what-is-importing-and-exporting\/","title":{"raw":"Reading: What is Importing and Exporting?","rendered":"Reading: What is Importing and Exporting?"},"content":{"raw":"
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Learning Objectives<\/h3>\r\n
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  1. Understand what importing and exporting are.<\/li>\r\n\t
  2. Learn why companies export.<\/li>\r\n\t
  3. Explain the main contractual and investment entry modes.<\/li>\r\n<\/ol>\r\n<\/div>\r\n
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    What Do We Mean by Exporting and Importing?<\/h2>\r\nThe history of importing and exporting dates back to the Roman Empire, when European and Asian traders imported and exported goods across the vast lands of Eurasia. Trading along the Silk Road<\/span><\/span> flourished during the thirteenth and fourteenth centuries.<\/span>[footnote]Jack Goldstone, Why Europe? The Rise of the West in World History 1500\u20131850<\/em> (New York: McGraw-Hill, 2008).<\/span> [\/footnote]\u00a0Caravans laden with imports from China and India came over the desert to Constantinople and Alexandria. From there, Italian ships transported the goods to European ports.[footnote]J. O. Swahn, The Lore of Spices<\/em> (Gothenburg, Sweden: Nordbok, 1991), 15\u201317.[\/footnote]<\/span>\r\n\r\nFor centuries, importing and exporting has often involved intermediaries, due in part to the long distances traveled and different native languages spoken. The spice trade of the 1400s was no exception. Spices were very much in demand because Europeans had no refrigeration, which meant they had to preserve meat using large amounts of salt or risk eating half-rotten flesh. Spices disguised the otherwise poor flavor of the meat. Europeans also used spices as medicines. The European demand for spices gave rise to the spice trade.[footnote]Antony Wild, The East India Company: Trade and Conquest from 1600<\/em> (Guilford, CT: Lyons Press, 2000).[\/footnote]<\/span> The trouble was that spices were difficult to obtain because they grew in jungles half a world away from Europe. The overland journey to the spice-rich lands was arduous and involved many middlemen along the way. Each middleman charged a fee and thus raised the price of the spice at each point. By the end of the journey, the price of the spice was inflated 1,000 percent.[footnote]Jack Turner, Spice: The History of a Temptation<\/em> (Westminster, MD: Alfred A. Knopf, 2004), 5.[\/footnote]<\/span>\r\n\r\nAs explained in Chapter 8 \"International Expansion and Global Market Opportunity Assessment,\"\u00a0exporting<\/span><\/span> is defined as the sale of products and services in foreign countries that are sourced or made in the home country. Importing is the flipside of exporting. Importing<\/span><\/span> refers to buying goods and services from foreign sources and bringing them back into the home country. Importing is also known as global sourcing, which will be examined in depth in the section\u00a0\"Managing Export and Import.\"\r\n
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    An Entrepreneur\u2019s Import Success Story<\/h2>\r\nSelena Cuffe started her wine import company, Heritage Link Brands, in 2005. Importing wine isn\u2019t new, but Cuffe did it with a twist: she focused on importing wine produced by black South Africans. Cuffe got the idea after attending a wine festival in Soweto, where she saw more than five hundred wines from eighty-six producers showcased.[footnote]Selena Cuffe\u2019s bio, African-American Chamber of Greater Cincinnati \/ Greater Kentucky, accessed September 4, 2010, http:\/\/african-americanchamber.com\/view-user-profile\/selena-cuffe.html<\/a>.[\/footnote]<\/span> Cuffe did some market research and learned of the $3 billion wine industry in Africa. She also saw a gap in the existing market related to wine produced by indigenous African vintners and decided to fill it. She started her company with $70,000, financed through her savings and credit cards. (In\u00a0the section\u00a0\"What Options Do Companies Have for Export and Import Financing?\" you\u2019ll learn about other sources of financing available to entrepreneurs and small businesses as well as to larger enterprises.) In the first year, sales were only $100,000 but then jumped to $1 million in the second year, when Cuffe sold to more than one thousand restaurants, retailers, and grocery stores.[footnote]South African Chamber of Commerce in America, \u201cHeritage Link Brands, Connecting U.S. Palates to African Wines,\u201d profile, May 4, 2010, accessed September 4, 2010, http:\/\/www.sacca.biz\/?m=5&idkey=637<\/a>.[\/footnote]<\/span> Even better, American Airlines began carrying Cuffe\u2019s imported wines on flights, thus providing a steady flow of business amid the more uncertain restaurant market.[footnote]American Airlines, \u201cServing Up Wines That Invest in Our Communities,\u201d American Airlines Corporate Responsibility page, accessed September 4, 2010, http:\/\/www.aa.com\/i18n\/aboutUs\/corporateResponsibility\/caseLibrary\/supporting-our-communities.jsp<\/a>.[\/footnote]<\/span> Cuffe has attributed her success to passion as well as to patience for meeting the multiple regulations required when running an import business.[footnote]Maritza Manresa, How to Open and Operate a Financially Successful Import Export Business<\/em> (Ocala, FL: Atlantic Publishing, 2010), 101.[\/footnote]<\/span> (You\u2019ll learn more about these regulations in Section 9.4 \"Managing Export and Import.\")\r\n\r\n<\/div>\r\nExporting is an effective entry strategy for companies that are just beginning to enter a new foreign market. It\u2019s a low-cost, low-risk option compared to the other strategies. These same reasons make exporting a good strategy for small and midsize companies that can\u2019t or won\u2019t make significant financial investment in the international market.\r\n\r\nCompanies can sell into a foreign country either through a local distributor or through their own salespeople. Many government export-trade offices can help a company find a local distributor. Increasingly, the Internet has provided a more efficient way for foreign companies to find local distributors and enter into commercial transactions.\r\n\r\nDistributors<\/span><\/span> are export intermediaries who represent the company in the foreign market. Often, distributors represent many companies, acting as the \u201cface\u201d of the company in that country, selling products, providing customer service, and receiving payments. In many cases, the distributors take title to the goods and then resell them. Companies use distributors because distributors know the local market and are a cost-effective way to enter that market.\r\n\r\nHowever, using distributors to help with export can have its own challenges. For example, some companies find that if they have a dedicated salesperson who travels frequently to the country, they\u2019re likely to get more sales than by relying solely on the distributor. Often, that\u2019s because distributors sell multiple products and sometimes even competing ones. Making sure that the distributor favors one firm\u2019s product over another product can be hard to monitor. In countries like China, some companies find that\u2014culturally\u2014Chinese consumers may be more likely to buy a product from a foreign company than from a local distributor, particularly in the case of a complicated, high-tech product. Simply put, the Chinese are more likely to trust that the overseas salesperson knows their product better.\r\n\r\n<\/div>\r\n
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    Why Do Companies Export?<\/h2>\r\nCompanies export because it\u2019s the easiest way to participate in global trade, it\u2019s a less costly investment than the other entry strategies, and it\u2019s much easier to simply stop exporting than it is to extricate oneself from the other entry modes. An export partner in the form of either a distributor or an export management company can facilitate this process. An export management company (EMC)<\/span><\/span> is an independent company that performs the duties that a firm\u2019s own export department would execute. The EMC handles the necessary documentation, finds buyers for the export, and takes title of the goods for direct export. In return, the EMC charges a fee or commission for its services. Because an EMC performs all the functions that a firm\u2019s export department would, the firm doesn\u2019t have to develop these internal capabilities. Most of all, exporting gives a company quick access to new markets.\r\n
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    Benefits of Exporting: Vitrac<\/h3>\r\nEgyptian company Vitrac was founded by Mounir Fakhry Abdel Nour to take advantage of Egypt\u2019s surplus fruit products. At its inception, Vitrac sourced local fruit, made it into jam, and exported it worldwide. Vitrac has acquired money, market, and manufacturing advantages from exporting:[footnote]Japan External Trade Organization, \u201cBig in Japan,\u201d case study, accessed August 27, 2010, http:\/\/www.jetro.go.jp\/en\/reports\/<\/a>.[\/footnote]<\/span>\r\n