International Business Management MS 34 B Export Marketing

International Business Management (MS 34 B) Export Marketing and Finance Strategy Facilitator: Densil A. Williams MS 34 B, UWI Mona, Department of Management Studies

Contents Models of Export Market Development - Stage Model - Born Globals n Export Marketing Challenges n Response to Challenges n Export Financing n Risk analysis in export financing n - Options for reducing risks n Export Finance Challenges n Concluding Remarks n MS 34 B, UWI Mona, Department of Management Studies

Models of Export Development Market Stage Model n Stage 1 – Importer Pull (exporter responsible for only cost and partially responsible for design) n Stage 2 – Basic Production (also responsible for local promotion) n Stage 3 – Advanced Production (also responsible foreign promotion to importer) MS 34 B, UWI Mona, Department of Management Studies

Models of Export Development n n n Market Stage 4 – Channel Push (also responsible for distribution to wholesaler) Stage 5 – Consumer Pull (fully internalised all marketing functions, except partial responsibility for price to consumer). Operational risk decreases from Stage 1 to 5 because of increased internalisation of marketing, but financial risk increases proportionately. MS 34 B, UWI Mona, Department of Management Studies

Models of Export Development n n n Market Born Globals With the improvements in information and communication technologies, firms now enter export markets in more unorthodox ways i. e. less incremental than before. Firms start out as exporters even before they build domestic operations (international new ventures or born globals) Some characteristics of these firms are: cadre of managers with wide range of international experience, technologically intensive, generally service oriented etc. t Studies

Export Marketing Challenges for Developing Country Firms n n n Supply - improvement in design, packaging, utilitarian and aesthetic functions of products. Demand – market intelligence, distribution channels, overcome protectionism. Transportation and logistics - including government bureaucracy, customs, infrastructure. MS 34 B, UWI Mona, Department of Management Studies

Response Challenges n n n to Marketing Lobby host government for assistance. Attend trade shows or export fairs (Remember Blooming Things? !!!!!). Gain technical assistance from foreign firms or individuals. MS 34 B, UWI Mona, Department of Management Studies

Export Finance n n n The long lead times between the shipping of an order and the receipt of payment for the order can impose capital constraints on exporters. Export financing is therefore critical in order to deal with working capital management Financing generally used for retooling and export marketing activities. MS 34 B, UWI Mona, Department of Management Studies

Usage of Funds from Export Financing n n n Funding for Retooling/Capital Expenditure Funding for Marketing Expenditure Working Capital Financial Management n n n Management of credit risk. Management of elongated payment cycles. Management of exchange risk. MS 34 B, UWI Mona, Department of Management Studies

Sources of Funding for the Exporter n n n Equity - tap into local or even international stock markets, personal savings or family wealth etc. Debt - commercial banks, financing institutions etc. development Grants - government financing programme, multilateral financing programmes etc. MS 34 B, UWI Mona, Department of Management Studies

Risk Analysis in Export Financing n n n The methods used to gain financing for trade activities can be categorised based on the extent to which the exporter bears the risk. The exporter can either bear all the risk or relieve himself of all risk- extreme cases. In the more likely cases, the exporter can share risk with the government, banks or insurance institutions. MS 34 B, UWI Mona, Department of Management Studies

Risk Analysis in Export Financing Options for Reducing Financing Risk n Exporter bears Risk Exporter Transfers n. Consignment transactions n. Sales on open account n. Sales on Sight/Time draft n. Secured Bank Overdraft n. Forfaiting Exporters Shares Risk Third Party takes Risk n. Factoring n. Discounting of Time Drafts n. Private Insurance n. Confirming n. Government Insurance Facilities House operating through letter of credit transactions MS 34 B, UWI Mona, Department of Management Studies

Options for Financing Risk Reducing Forfaiting n n n Buyer pays exporter with promissory note which has been guaranteed by a bank in the importer’s home country. The exporter sells the guaranteed promissory note to a forfaiter for a discount. The discount reflects the credit ratings of the buyer, the credit rating of the guaranteeing bank, and the time value of money between the time the note is purchased and when it becomes due for payment. MS 34 B, UWI Mona, Department of Management Studies

Risk analysis in Export Financing Options for Reducing Financing Risk Letters of credit n n Bank, in buyer’s home country confirms, by letter, that it will accept liability for payments on orders placed by buyer with the exporter. Confirmed LC: Bank in exporter’s home country guarantees to pay export order on proof of exporter’s compliance with terms of LC. MS 34 B, UWI Mona, Department of Management Studies

Risk analysis in Export Financing Options for Reducing Financing Risk Letters of credit n n n Revocable LC: Importer cancel LC up until shipment of goods. Negotiable LC: Exporter can present LC to any bank for payment. Revolving LC: Can be used to pay for multiple shipments. MS 34 B, UWI Mona, Department of Management Studies

Examples of Export Documents-Letter of Credit MS 34 B, UWI Mona, Department of Management Studies

Examples of Export Documents-Letter of Creidt MS 34 B, UWI Mona, Department of Management Studies

Examples of Export Documents- Bill of Lading MS 34 B, UWI Mona, Department of Management Studies

Concluding Remarks n n n Export marketing requires significant financial resources because of the cost involved in doing market research and gathering intelligence on overseas markets. The delay in the lead time between shipment and payment can result in serious cash flow problems for exporters. As a result, they have to find ways to finance their export trade. This financing is generally used for retooling and marketing which are critical for building a competitive export business. MS 34 B, UWI Mona, Department of Management Studies