Export -- Import Operations

Export-Import Operations are the actions and decisions necessary to take a product or raw material from a source in one country to a market in another. This article will discuss export-import operations as a three part process: pre-shipment, transport, and after-sale. Each of the three will be considered in turn from the perspective of business professionals attempting to expand their companies' interests across national boundaries. Export-import can be considerably more complex than doing business in a single, domestic market, but the realities of a globalizing economy are such that most companies and most people must increasingly deal across frontiers whether they wish to or not.

Keywords Counter Trade; Customs Broker; Export; Export Management Company; Export Trade Company; Freight Forwarder; Import; Logistics; NAFTA; Trade Bloc

International Business > Export — Import Operations

Overview

Export-Import Operations are in some ways a misnomer given that, in a globalized economy, the distinctions between domestic and foreign trade are ever more indefinite. However, for the purposes of this article, we can consider them to be the sum total of the tactical and strategic decisions and actions necessary to take a product from a source in one country to a market in another.

As such, Export-Import Operations may be profitably considered a three-part process-1) actions that occur before the actual shipment of the product, 2) those that relate to the shipment of the product to a customer, and finally, 3) those that occur after the sale. For sake of simplicity, this article will refer to them as pre-shipment, transfer, and after-sales.

Many businesses (particularly American) have historically avoided participation in international markets. However, the reality is that we dwell in an increasingly global economy. Even the smallest, most "domestic" transaction may involve suppliers of raw materials in one country, production in another, value-added remarketing in a third, and final consumption in a fourth. Ergo, every business professional must have some idea of the factors involved in international trade, simply because more and more business happens there (U.S. Department of Commerce).

Applications

Pre-Shipment

While this taxonomy is in no way standard, export-import operations can be thought of as a three-part process. The first of these is pre-shipment, i.e, all operations that occur prior to the actual transport of the product, or even prior to the sale. Thus, it is possible to regard as a legitimate part of pre-shipment operations even so fundamental a thing as determining a company's seriousness about entering the import/export business. Fortunately, one of the first tasks of pre-shipment is also an easy and effective way for managers to test their companies' ability and willingness to enter the import-export business. To wit, they must determine how willing their companies are to modify their products (or assist a supplier to do so) for foreign markets. It is useful, then, to keep in mind the (perhaps apocryphal but still instructive) story of the American automakers who complained of Tokyo's barriers to their imports, but then declined to produce left-hand models of their cars when given a chance to enter the Japanese market.

If executives find that their companies and/or employers really are committed to import-export, and get genuine buy-in from top management, then the next issue is channels. As in most other business ventures, these boil down to just two-direct and indirect (Seyoum, 1998). The former is the option of companies that either have or are willing to invest in a sales force resident in the nations where they wish to do business. As such, it is often the best choice for larger concerns with deeper pockets, or which have some method of reaching individual consumers without a middleman. For example, the Internet, Web-based sales, and direct package shipping companies (Federal Express, UPS, etc.) have given some companies the ability to directly address individual customers no matter how far away they might be.

If the exporting or importing company does not have a direct sales option, then indirect sales are the obvious alternative, and import-export sales channels range from the familiar to the quite exotic. The former consists of the distributors and resellers, not greatly different from those of any other indirect channel, except that they may be based across national borders and must be handled with additional understanding of cultural differences. For example, a distributor located in a Muslim nation probably will not be available on Fridays, just as many American businesses do not operate on Sundays.

The more exotic, meanwhile, include specialist firms that do nothing but conduct international trade. The two most famed kinds of these, perhaps, are the Export Trading Company (ETC) and Export Management Company (EMC). An ETC, also called an International Trade Company (ITC), is a company that discovers customers in one nation, finds suppliers in another, purchases and takes title to products in the second country, and then arranges transport and sales to buyers in the first. EMCs are similar but do not take title to product and instead operate as a kind of out-sourced export department for other companies (Seyoum, 1998). In addition, there are various modifications of these two models. For example, a number of manufacturers may band together to co-operatively export their products.

Until very recently, American exporters could also set up a Foreign Sales Corporation (FSC), an export-oriented quasi-company based overseas. The benefit to the exporter was that the economic activity of the FSC was, in theory, conducted outside U.S. jurisdiction and therefore not as heavily taxed. However, the European Union objected on the grounds that this constituted an unfair trade advantage, the World Trade Organization concurred, and the U.S. government finally abandoned the FSC ("FSCs agreement," 2006). In 2004, as part of the Jobs Act, a temporary measure to give a tax break to small and medium U.S. companies with foreign sales was introduced. The Interest-Charge Domestic International Sales Corporation(IC-DISC) federal tax incentive was extended for two more years in December, 2010, but was allowed to expire at the end of 2012 (homas, 2012).

Lastly, the relative distance of customer from supplier means that managers doing international business need to be particularly careful about whom they sell to or buy from. It can be hard to collect an overdue account when the customer is not even on the same continent. Moreover, importers and exporters face a number of political problems. Americans, for example, cannot legally do business with a number of individuals or regimes around the world-those believed to be connected to terrorist organizations, for example. By like token, American businesses may be asked by some customers to honor boycotts against other buyers and sellers in third nations. Some nations, for example, have led a drive to boycott Israeli commercial interests. The U.S. government forbids its nationals to participate in such boycotts and, indeed, requires that requests to do so be reported to the proper authorities. For more on these and other issues regarding export controls, see the Department of Commerce's Bureau of Industry and Standard website (http://www.bis.doc.gov/index.htm).

Transport

Transport is the actual process of moving a product from point A to point B, as well as from country X to country Z. Transport across national borders is similar to any other problem in shipping. Indeed, most of the issues-logistics, deciding on proper modes of transport (bulk or piece, rail or air, etc.) are identical. The major difference is that in international trade, goods cross frontiers and the business professional has to consider a formidable host of additional documentation, tariff, and bureaucratic complexities.

Fortunately for the company that wishes to engage in transnational trade, there are many independent services and firms to assist navigating the logistical maze. These range from the ubiquitous package delivery services (which in recent years have added sophisticated logistics features to their core offerings) to more traditional Freight Forwarders. A Freight Forwarder is a firm or person who acts for the exporter or importer to ensure that shipments get from their sources to their destinations with a minimum of fuss. Forwarding is something of an arcane art, requiring its practitioners to be familiar with everything from the vagaries of international law to the mysteries of truck mechanics. As such, their services are invaluable and even very large and very sophisticated corporations employ them rather than attempting to develop similar expertise in house (Jones and Jones, 2004).

A similarly invaluable professional is the customs broker. A company employs the broker to manage a product's movement across national borders. The broker makes certain the merchandise is properly classified, that taxes and duties are properly paid, and that any refunds owed to the company are remitted to it. Again, customs brokerage requires a unique set of skills-nothing that a company could not learn of its own, but probably not worth the effort to obtain by a firm, whose core business is not customs brokerage.

However, the transnational executive does need to be aware of at least the broad outlines of international law and custom regarding international trade, as well as American law on the subject. Since these all can change at the whim of parliaments and tax authorities, the executive must become an habitué of the publications and websites of the relative parties. Regular visits to, for example, the websites of Export.gov (http://www.export.gov), which promotes U.S. exports by offering information from several different agencies; the U.S. Commercial Service (http://www.buyusa.gov), which works to link American companies to foreign partners; the U.S. Department of Commerce's International Trade Administration (www.trade.gov), which provides information about investments that are worth making. Equally useful are subscriptions to various private information services, newsletters, and trade magazines that keep abreast of changing laws and situations.

In addition, the executive should keep in mind the grander scheme of things in international trade. This includes knowledge of the multinational organizations and regimes that tend to set the rules for the game-for example, the World Trade Organization (http://www.wto.org). The WTO is perhaps the most important umpire in international trade today, but still, executives must keep in mind regional trading and tariff zones. The North American Free Trade Agreement (NAFTA), which seeks to remove most tariffs and other trade barriers between Canada, the United States, and Mexico; the venerable European Union; the Association of Southeast Asian Nations (ASEAN); along with a number of other trade blocs can significantly impact a multinational's strategy. For instance, in the case of North America, selection of a vendor or subcontractor in a NAFTA member state can make all the difference between a profit and a loss to someone selling into another NAFTA member state.

After the September 11 terrorist attacks in 2001, security advocates pushed for tamper-proof shipping containers and more inspections at the ports of arriving cargo containers. Customs-Trade Partnership Against Terrorism Guidelines were issued in November of that year, and all stakeholders in the importation business were invited to cooperate in a voluntary partnership to help reduce the inherent risk of terrorist violence being accomplished through more or less unsupervised ports. The Coast Guard instituted advance manifests for all containers bound for the U.S., a measure that met opposition for slowing just-in-time shipping. By 2011, container traffic was still relatively free from regulation by national security agencies (Odoyo, 2011).

Equally important are finance and risk management. Transnational trade is, of course, inherently risky. When one sends merchandise overseas, they are to be subject to the whims of nature or foreign governments, and there is always a chance that ships will sink or cargo will be seized. As such, particularly smaller exporters and importers (but sometimes large as well) have had significant problems financing their operations. Banks and other lenders have simply not wanted to buy into the problems of international trade. Again, fortunately, governments have stepped in where private lenders have feared to tread or to trade. American exporters, for example, can take advantage of the Export-Import Bank (Ex-Im) which provides such things as "working capital guarantees (pre-export financing); export credit insurance; and loan guarantees and direct loans (buyer financing)" (http://www.exim.gov). Ex-Im, in other words, does not compete with private lenders, but will step in if there are none in sight, and, preferably, assume enough of the risk of a failed transaction to make private lenders willing to become involved with exports.

After-Sale

After the sale, the chief concern of the importing company is to gain possession of the products it has bought. By contrast, the exporting company's chief concern is getting paid. Both can be somewhat less simple than might seem. For the company or individual importing goods into the United States, particularly after 9-11, moving products through customs can be time-consuming. Again, if the importer can afford it, then the services of a customs broker and/or freight forwarder are invaluable. If not, then the business professional must become proficient in the use of the Department of Homeland Security's Customs and Border Protection webpage (www.cbp.gov), as well as the Department's other publications and services. There the reader can garner information on everything from the requirements for a custom's broker's license to the wait times at major ports. Particularly important for the importer is the CBP website's section on import quotas-certain items, many textiles for example, are subject to import restrictions. As importantly, the individual who is moving cargo into the United States (or the other way) should make frequent visits to the U.S. International Trade Commission (USITC)'s tariff database (http://www.usitc.gov/tata/hts/other/dataweb/) to determine the tariffs and other fees due on their products.

The exporter's goal of being paid, meanwhile, can also be complicated. A company based in the United States, for example, attempting to settle accounts with a firm located thousands of miles away, in a nation with a radically different legal system, and which may or may not have special or even familial connections with the government, is not in an enviable position. However, there are resources at hand. First, of course, the American firm should not have done business without doing a diligent background and credit check on the potential partner ("Background," 2006). Second, even if it had, the exporting company might find considerable benefits in seeking ways of reducing its risk. Letters of Credit (LOC) are thus a mainstay of international trade. Also known documentary credit, an LOC is issued by a bank or other financial institution as a guarantee that a debt owned by a client of that institution will, in fact, be made. If the client can't make the payment, the institution provides the necessary funds. Thus, in a transaction backed up by a LOC, the seller can rest assured that, so long as the buyer's bank is solvent, its bill will be paid.

Also useful are the services of Factors and Forfeiters. These sorts of companies, in effect, purchase other business' accounts receivable at a discount. The exporter thus gets its money up front, and off loads any difficulties in the collection to the Factor or Forfeiter. (A Factor and Forfeiter perform the same function. However, a Factor tends to be a company which is in business to do nothing but Factoring. A Forfeiter may be, for example, a banker or other financial professional who puts together the resources for a one-time deal.)

Another middleman that importers and exporters may need to consult is the countertrade specialist. In recent years, multinational deals have been increasingly structured around barter or the premise that if a customer in country A is to buy something from an exporter in country B, than the exporter must also buy something from country A, or at least take one of country A's products as payment. This means that an exporter of, for example, farm equipment may find itself in possession of large amounts of sugar or copper ore. The exporter can then attempt to market these materials itself, or, as is rather more likely, will turn to one of the many counter-trade management specialists who will handle the transaction for a fee or commission.

Currency value is yet another factor to consider. The transnational business professional faces the grim fact that a price negotiated yesterday in Pounds or Dollars may not be worth the same thing tomorrow in Yen or Euros. Again, fortunately, there are specialists who can offer some relief. Many banks and other financial institutes can offer access to hedging deals where-by a set price for one currency can be locked in for a transaction to take place at some specified future date.

Conclusion

Thus, to restate, Export-Import Operations can be defined as all those actions which are required to take goods and services from producers in one country to customers in another. These can be grouped into three distinct sorts of acts and decisions: pre-shipment, transfer, and after-sales. Pre-shipment is everything up to the actual transport of products and services. It includes even such fundamental things as determining the willingness and ability of a firm to export, learning the ins and outs of international trade, and deciding on the appropriate sales channel (viz., direct, indirect, etc.).

Transfer is, of course, the actual shipment of goods. This is almost identical to shipping in domestic sales, except that the exporter-importer faces much additional documentation, tariff, and bureaucratic difficulties. To deal with these, the business professional may wish to turn to the host of independent services and firms that exist to make business across national frontiers less complex-freight-forwarders, customs brokers, and so on. However, traders should also keep well informed of international regulations and practices, something they can do with regular visits to U.S. and other governmental websites dealing with international trade.

Finally, after-sales is everything that happens once an imported or exported good has arrived at its destination. For importers, this means gaining access to their purchases. Once again, the services of a licensed customs broker are invaluable. However, the importer who cannot afford one, or who merely wishes to be well-informed about the process, can go to the Department of Homeland Security's Customs and Border Protection webpage (www.cbp.gov), as well as the Department's other publications and services, for additional information.

The exporter, meanwhile, is chiefly interested in being paid. Traditionally, international trading has been done with letters of credit (LOC)s. However, factors and forfeiters (companies which purchase the accounts receivable of other companies) can also be important partners for any professional in the import and export business.

Quite simply, import-export is risky. The fact of the matter is that any time one does business across oceans or national boundaries, one faces dangers ranging from ship-wrecks to civil wars. Yet, in an economy that is now world-wide, anyone in business anywhere is ever more doing business across borders. As such, it is no longer a question of whether or not one is going to enter the "international" market, but rather how one may prosper in a "domestic" market that stretches from Siberia to Tasmania.

Terms & Concepts

Counter-trade: Trade in which the exporter agrees to take good or services from the importer or the importer's country as partial or complete payment.

Export-Import Bank: A United States government institution designed to encourage exports by providing such financial services as working loan guarantees, export credit insurance; and, when necessary, direct loans.

Export Management Company (EMC): A business venture that manages export sales for other companies.

Export Trade Company (EMC) or International Trade Company (ITC): A company that purchases goods in one country for subsequent sale in others.

Freight Forwarder: A company or individual who assists an exporter-importer in the movement of cargo from one location to another. Freight Forwarders can assist with such things as documentation and the selection of a carrier.

Letter of Credit or Documentary Credit: a letter issued by a bank or other financial institution guaranteeing that a payment made that bank or institution's client will, in fact, be made. If the client can't make the payment, the institution provides the necessary fund and then charges the client. LOCs are used extensively in international trade.

North American Free Trade Agreement: A trade bloc established by the United States of America, Mexico, and Canada to encourage the free exchange of goods and services between them.

World Trade Organization (WTO): A multinational organization that attempts to regulate world trade and encourage the free exchange of goods and services.

Bibliography

Background checks reduce risk of int'l partnerships. (2006). Managing Exports & Imports, 2006, 1-15. Retrieved April 15, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=19642751&site=ehost-live

A basic guide to exporting. (1998). U.S. Department of Commerce with the assistance of Unz & Co., Inc. Retrieved April 13, 2007, from http://www.unzco.com/basicguide/index.html

FSCs agreement breaks out. (2006). Accountancy, 137(1354), 107-107. Retrieved April 13, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21324847&site=ehost-live

Jones, D. and Jones, S. (2004). Coping with licensing and customs. Export Wise, Spring2004, p14-15. Retrieved April 13, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=13071390&site=bsi-live Odoyo, S. (2011). The effects of U.S. anti-terrorist laws on international business and trade. Syracuse Journal of International Law & Commerce, 38, 257-294. Retrieved October 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=62528158&site=ehost-live

Seyoum, B. (2000). Export-Import: Theory, practices, and procedures. New York: International Business Press.

Thomas, M. K. (2012). IC-DISC offers tax advantages for closely held export companies. Tax Adviser, 43, 509-510. Retrieved October 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=79170357&site=ehost-live

United States Department of Commerce Spokesperson, Personal Communication, April 13, 2007.

Suggested Reading

Aristei, D., Castellani, D., & Franco, C. (2013). Firms' exporting and importing activities: Is there a two-way relationship?. Review Of World Economics, 149, 55-84. Retrieved October 21, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=85386510&site=ehost-live

Fast. (2006). Managing Exports & Imports, 2006, 9. Retrieved April 20, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=19642761&site=bsi-live

Morris, L. (2007). Shipping out. Incentive, , 32-35. Retrieved April 15, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24667110&site=bsi-live

Online trade resource: Tradestats express. (2007) Managing Exports & Imports, 2007, 8. Retrieved April 20, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23850664&site=bsi-live