Ch08 Importing Exporting and Sourcing Test

Global Marketing Chapter 8 Importing, Exporting, and Sourcing 1) The success of Chinese and Vietnamese exporters and the EU's subsequent imposition of tariffs, serves as a reminder of the impact exporting and importing can have on national and region economies. Answer: TRUE Page Ref: 236 2) The terms 'export selling' and 'export marketing' are interchangeable. Answer: FALSE Page Ref: 237 3) 'Export selling' involves tailoring various elements of the marketing mix to global market requirements. Answer: FALSE Page Ref: 237 4) Export marketing requires an understanding of the target market environment. Answer: TRUE Page Ref: 237 5) After the research effort has zeroed in on potential markets, there is no substitute for a personal visit to size up the market firsthand and begin the development of an actual export marketing program. Answer: TRUE Page Ref: 237 6) One way to visit a potential market is through a trade show or a state- or federally-sponsored trade mission. Answer: TRUE Page Ref: 238 7) Locating market is one of the potential export problems. Answer: TRUE Page Ref: 238 8) It was found by research that even the most experienced exporters express lack of confidence in their knowledge about shipping arrangements, payment procedures, and regulations. Answer: TRUE Page Ref: 239 9) Officially, the EU tariffs on Chinese and Vietnamese shoe imports are known as anti-dumping duties. Answer: TRUE Page Ref: 236 10) The four tigers — Singapore, South Korea, Taiwan and Hong Kong — learned from the Japanese experience and built strong export-based economies of their own. Answer: TRUE Page Ref: 240 11) Tax incentives treat earnings from export activities preferentially either by applying a lower rate to earnings from these activities or by refunding taxes already paid on income associated with exporting. Answer: TRUE Page Ref: 240 12) The WTO recently ruled that America's foreign sales corporation (FSC) law was acceptable to signatory countries. Answer: FALSE Page Ref: 240 13) The Common Agricultural Policy (CAP) determines the level of subsidies granted to farmers in Latin America. Answer: FALSE Page Ref: 241 14) In an effort to facilitate exports, countries are designating certain areas as 'free trade zones' (FTZ) or 'special economic zones' (SEZ). Answer: TRUE Page Ref: 241 15) Tariffs can be thought of as the "three R's" of global business: rules, rigor, and regulations of individual countries. Answer: FALSE Page Ref: 243 16) The Harmonized Tariff System (HTS) is currently the dominant system for determining tariffs. Answer: TRUE Page Ref: 243 17) Under the HTS, only U.S. exports valued at more than $2,500 are counted in export statistics. Answer: TRUE Page Ref: 243 18) The Harmonized Tariff System (HTS) has eliminated virtually all problems associated with assigning tariff classifications to new products. Answer: FALSE Page Ref: 243 19) According to the recent import regulations in the United States, action figures that represent non-human creatures such as monsters or robots are categorized as toys and qualified for lower duties than human figures that are classified as dolls. Answer: FALSE Page Ref: 244 20) A nontariff barrier (NTB) is a hidden trade barrier which is a deterrent or obstacle to the sale of products in a foreign market. Answer: TRUE Page Ref: 244 21) The Buy American Act of 1933 which stipulates that U.S. federal agencies must buy articles produced in the United States unless domestically produced goods are not available is an example of discriminatory procurement policies. Answer: TRUE Page Ref: 244 22) The Fly American Act is an example of a nontariff barrier. Answer: TRUE Page Ref: 244 23) The NTR (normal trade relations) status is really a misnomer since the United States has given that status to some 180 countries around the world. Answer: TRUE Page Ref: 245 24) A preferential tariff is a reduced tariff rate applied to imports from only GATT members. Answer: FALSE Page Ref: 246 25) When Honda's U.S. manufacturing subsidiaries purchase parts from Japan, customs authorities in the United States have the right to scrutinize the transfer price to make sure it is a fair reflection of market value. Answer: TRUE Page Ref: 247 26) An ad valorem duty is expressed as a percentage of the value of goods. Answer: TRUE Page Ref: 247 27) CVDs are duties imposed on imported videodiscs. Answer: FALSE Page Ref: 248 28) Foreign purchasing agents are also referred to as jobbers. Answer: FALSE Page Ref: 248 29) "Piggyback exporter," "cooperative exporter," and "export vendor" are all terms used to describe an export broker. Answer: FALSE Page Ref: 249 30) The cooperative exporters are sometimes referred to as 'mother hen.' Answer: TRUE Page Ref: 249 31) In an export/import transaction requiring a letter of credit (L/C), the exporter's (seller's) bank can be known as the "advising" bank, the "confirming" bank, or both. Answer: TRUE Page Ref: 252 32) When a letter of credit is used in an import/export transaction, the payment obligation lies with the importer's bank rather than the importer itself. Answer: TRUE Page Ref: 252 33) Goods that are sold on open account are paid for before delivery. Answer: FALSE Page Ref: 254 34) The Customs Trade Partnership Against Terrorism (C-TPAT) recognizes that U.S. Customs and Border Protection (CBP) is responsible for screening import cargo transactions. Answer: TRUE Page Ref: 255 35) Duty drawback refers to refunds of duties paid on imports that are processed or incorporated into other goods and then reexported. Answer: TRUE Page Ref: 255 36) Outsourcing means shifting undesirable jobs or work assignments to another company to cut costs. When the outsourced work moves to another country, the terms 'global outsourcing' or 'offshoring' are used. Answer: FALSE Page Ref: 255 37) One of the keys to the success of The Swatch Group's Swatch watch brand has been manufacturing in low wage Asian countries. Answer: FALSE Page Ref: 255-256 38) The application of advanced computer controls and other new manufacturing technologies has reduced the proportion of labor relative to capital for many businesses. Answer: TRUE Page Ref: 257 AACSB: Use of IT 39) Dell Computer recently rerouted some of its call center jobs back to the United States after complaints from key business customers that Indian tech support workers were offering scripted responses and having difficulty answering complex problems. Answer: TRUE Page Ref: 257 40) In deciding where to source a product or locate a manufacturing activity, a manger must take into account foreign exchange rate trends in various parts of the world. Answer: TRUE Page Ref: 260 41) Export marketing does not require: A) an understanding of the target market environment. B) the use of marketing research. C) identification of market potential. D) a selling approach. E) any decisions concerning product design. Answer: D Page Ref: 237-238 42) Which of the following is not true about trade shows? A) By attending, company representatives can find buyers outside the home country. B) They can provide important competitor information. C) The federal government has exclusive rights to sponsor U.S. trade shows. D) Company representatives can establish contacts with agents and distributors.. E) find distributors and agents Answer: C Page Ref: 238 43) According to percent market share of top ten apparel exporting countries to the United States, which country ranked as number one in 2008? A) Taiwan B) China C) Mexico D) India E) Honduras Answer: B Page Ref: 240 44) The Ministry of International Trade and Industry (MITI) has helped devise export strategies for companies in: A) Singapore. B) South Korea. C) Taiwan. D) Hong Kong. E) Japan. Answer: E Page Ref: 240 45) Which of the following was a major U.S. tax incentive for exporters that the WTO recently ruled was an illegal subsidy? A) NTR B) CVD C) FSC D) NTB E) HTS Answer: C Page Ref: 240 46) The export and import process can entail red tape and bureaucratic delays. In an effort to facilitate exports, countries are designating certain areas as: A) import control zone. B) special tariff zone. C) global business zone. D) free trade zone. E) duty free zone. Answer: D Page Ref: 241 47) Which of the following is described as the three R's of global business: rules, rate schedules, and regulations? A) quotas B) tariffs C) NTBs D) NTR E) Duties Answer: B Page Ref: 243 48) Which of the following refers to a system of farm subsidies in Europe? A) CVD B) FSC C) CAP D) HTS E) NTR Answer: C Page Ref: 241 49) Which of the following establishes classification numbers that must be used by importers and exporters? A) NTR B) CVD C) FSC D) NTB E) HTS Answer: E Page Ref: 243 50) In the mid-1990s, officials at South Korea's Shinsegi Telecomm were reportedly under pressure to restrict purchases of foreign-made equipment. Such pressure from the Ministry of Information and Communications would be consistent with plans to foster development of a domestic high-tech telecommunications industry. If allegations about such pressure were true, they would be evidence of ________ by the South Korean government. A) discriminatory procurement policies B) the use of piggyback marketing C) countervailing duties D) countertrade deals E) non-tariff barrier Answer: A Page Ref: 244-245 51) In an effort to attract assembly operations, Brazil allows certain product components to be imported at reduced tariff rates. This is an example of: A) offsets. B) preferential tariffs. C) the effect of the Customs Valuation Code. D) an EMC. E) discriminatory procurement. Answer: B Page Ref: 246-247 52) A duty that represents a certain percentage of the value of a particular product is a(n): A) specific duty. B) ad valorem duty. C) BTN duty. D) "schedule B" duty. E) antidumping duties. Answer: B Page Ref: 247 53) The "specific" duty is expressed as follows except: A) US$0.50 per pound. B) US$1.00 per pair. C) US$0.25 per square yard. D) US$0.50per cubic feet. E) none of the above Answer: E Page Ref: 247 54) Which of the following types of duties would be imposed on a company whose home country government provided export subsidies? A) ad valorem duty B) countervailing duty C) antidumping duty D) specific duty E) customs duty Answer: B Page Ref: 248 55) Sweden applies a system to certain categories of imported agricultural products which is referred to as: A) temporary surcharges. B) ad valorem duty. C) variable import levies. D) specific duty. E) countervailing duty. Answer: C Page Ref: 248 56) Which of the following is sometimes referred to as a 'buyer for export' or an 'export commission house' and operates on behalf of a buyer from a foreign country? A) foreign purchasing agent B) export broker C) export merchant D) export management company E) freight forwarder Answer: A Page Ref: 248 57) Which of the following receives a fee for bringing together an exporter and a buyer in another country? A) foreign purchasing agent B) export broker C) export merchant D) export management company E) freight forwarder Answer: B Page Ref: 248 58) Which of the following, sometimes known as a 'jobber,' buys staples or unbranded products that are in demand in various parts of the world? A) foreign purchasing agent B) export broker C) export merchant D) export management company E) freight forwarder Answer: D Page Ref: 248-249 59) Which of the following acts as the export arm of one or more U.S. manufacturers and helps establish an overseas market for a company's products? A) foreign purchasing agent B) export broker C) export merchant D) export management company E) freight forwarder Answer: D Page Ref: 248-249 60) Which of the following specializes in traffic operations, customs clearance, and tariff rates and schedules? A) foreign purchasing agent B) export broker C) export merchant D) export management company E) freight forwarder Answer: E Page Ref: 249 61) The possible arrangements of the responsibilities for handling exports include all of the following except: A) as a part-time activity performed by domestic employees. B) through an export partner affiliated with the domestic marketing structure. C) through an export department within an international division. D) through an export department that is independent of the domestic marketing structure. E) through an export department of an embassy in foreign country. Answer: E Page Ref: 249-250 62) Direct representation, as opposed to representation by independent intermediaries for exporting in the market country, has several advantages which does not include: A) facilitates control and communications. B) allows decisions concerning program development and resource allocation. C) benefits when a product is not yet established in a market. D) ensures marketer's interest and special efforts. E) helps selling products directly to the consumer in the market country. Answer: E Page Ref: 251 63) Which of the following offers a company the best assurance of being paid for exported goods? A) a letter of credit B) a "piggyback" arrangement C) a swap D) an in-house export organization E) a certified check Answer: A Page Ref: 252-253 64) An irrevocable letter of credit transfers the payment obligation for an export deal from the buyer to the buyer's _______: A) in-house export organization B) bank C) freight forwarder D) credit union E) checking account Answer: B Page Ref: 252-253 65) The international standard by which letters of credit (L/Cs) are interpreted is known as the ________ 500. A) UCP B) NTR C) FSC D) NTB E) HTS Answer: A Page Ref: 252-253 66) Which set of documents generally represents the minimum documentation required to clear a shipment through customs? A) packing list, commercial invoice B) bill of exchange, commercial invoice C) certificate of origin, bill of exchange D) packing list, insurance certificate E) letter of credit, commercial invoice Answer: B Page Ref: 252-253 67) Which of the following correctly states the role of banks in import/export transactions involving a letter of credit (L/C)? A) The importer's bank is the advising and/or confirming bank; the exporter's bank is the issuing bank. B) The exporter's bank is the advising and/or confirming bank; the importer's bank is the issuing bank. C) The exporter's bank is the advising, confirming, and issuing bank. D) The importer's bank is the advising, confirming, and issuing bank. E) none of the above Answer: B Page Ref: 252-253 68) In which of the following forms of export financing does a bank assume a financial obligation? A) with an L/C but not a documentary collection. B) with a documentary collection but not an L/C. C) neither an L/C nor a documentary collection requires a bank to assume financial obligation. D) with either an L/C or a collection letter E) with both an L/C and a documentary collection. Answer: B Page Ref: 252-253 69) Which of the following correctly states the role of banks in import/export transactions involving a letter of credit (L/C)? A) The importer's bank is the advising and/or confirming bank; the exporter's bank is the issuing bank. B) The exporter's bank is the advising and/or confirming bank; the importer's bank is the issuing bank. C) The exporter's bank is the advising, confirming, and issuing bank. D) The importer's bank is the advising, confirming, and issuing bank. E) The exporter's bank is neither advising nor confirming bank. Answer: B Page Ref: 252-253 70) Which of the following documents represents title to goods in an export transaction? A) bill of lading B) invoice C) packing list D) certificate of origin E) insurance certificates Answer: A Page Ref: 254 71) Which of the following financing methods would be used by an exporter that enjoys good relations with a buyer in a well-established market? A) letter of credit B) cash in advance C) sales on open account D) barter E) arrival draft Answer: C Page Ref: 254 72) Which of the following arranges export financing payment methods in descending order starting with the most secure/reliable and ending with the least secure/reliable: A) sales on open account?cash in advance?documentary credit (L/C) ?documentary collection (draft) B) documentary credit (L/C)?sales on open account?documentary collection (draft)?cash in advance C) documentary collection (draft)?documentary credit (L/C)?cash in advance?sales on open account D) cash in advance?documentary credit (L/C)?documentary collection (draft)?sales on open account E) none of the above Answer: D Page Ref: 252-254 73) Which of the following methods of payment is also known as a "draft"? A) letter of credit B) documentary collection C) cash in advance D) sales on open account E) L/C Answer: B Page Ref: 254 74) Which of the following completely eliminates the risk of nonpayment by an importer or a bank in an international transaction? A) documentary credit (letter of credit) B) documentary collection C) cash in advance D) sales on open account E) draft Answer: C Page Ref: 254 75) Which of the following methods of financing would be used if the exporting and importing parties had a strong, long-standing relationship? A) documentary credit (letter of credit) B) documentary collection C) cash in advance D) sales on open account E) bank draft Answer: D Page Ref: 254 76) In the post-September 11 business environment in the United States, imports have come under increased security. One of the initiatives taken in the interest of national security is: A) NAFTA. B) C-TPAT. C) WTO. D) NTB. E) FSC. Answer: B Page Ref: 255 77) The organizational decision to purchase production inputs, components, or finished goods from domestic or foreign producers is known as the ________ decision: A) import/export B) NTB C) preferential D) sourcing E) security Answer: D Page Ref: 255-256 78) The chief executives of Swiss Swatch Group and Japanese Canon would like to: A) outsource all of the manufacturing units overseas in order to save money. B) outsource a majority of the manufacturing functions overseas. C) retain a majority, if not all, of the manufacturing in home country. D) establish "call centers" in developing countries in order to save labor costs. E) outsource a full line of new products only. Answer: C Page Ref: 256-257 79) The furniture industry has become one of the fastest-growing sectors of China's economy. Furniture imports are flooding into the United States from China. This can be attributed to: A) the quality of furniture is better than those made in Europe. B) American tastes in décor have changed. C) China's low labor rates translate into reasonable prices for consumers. D) China can survive tough competition. E) replacement parts are readily available from China. Answer: C Page Ref: 258 80) If the dollar, the yen, or the euro becomes seriously overvalued, a company with a production capacity in other locations can achieve competitive advantage by: A) buying different currencies before major fluctuations take place. B) conducting transactions in different currencies of the world. C) shifting production among different sites. D) cutting down production and waiting until the currency rate is reasonable. E) reducing production and labor force simultaneously. Answer: C Page Ref: 260 81) The success of Chinese and Vietnamese exporters and the EU's subsequent imposition of tariffs serve as a reminder of the impact exporting and importing can have on national and regional economies. Discuss the importance of export marketing and show how it differs from export selling. What are the requirements that have to be met in order for a company to be successful in export marketing? Answer: Export marketing is the integrated marketing of goods and services that are destined for customers in international markets. Export selling does not involve tailoring the product, the price, or the promotional material to suit the requirements of global markets. The only marketing mix that gets impacted is location or place. As companies mature in the global marketplace or as new competitors enter the market, export marketing becomes important. Export marketing targets the customer in the context of the total market environment. The export marketer does not simply take the domestic product "as is" and sells it to the international customers. The product offered in the home market is just the starting point. Based on the preferences of the international target markets, many modifications and adaptations are necessary. Also, the export marketer sets prices to fit the market and does not merely sell at the home-country price. There are several charges in export such as packaging, transportation, and financing that have to be taken into account, which in turn will have an impact on the prices charged in other markets. The price charged in one market may be completely different than the one that is charged in another country, for the same product. The export marketing requires: (a) a thorough understanding of the target market environment; (b) the use of marketing research; (c) the identification of market potential; and (c) decision concerning product design, pricing, distribution and channels, advertising, and communication. Page Ref: 236-237 82) Governments in Japan, Singapore, South Korea and China have supported exports for years which have tremendously helped their economies. Since exporting is a very important component of a countries' business strategy many government programs are offered that support exports. Describe ways by which governments can support exports. Answer: Countries benefit a lot based on their facilitating of export and import business. For example, China has attracted increased foreign investment from DaimlerChrysler, Hewlett-Packard, GM, and other similar corporations by accommodating them to set up production facilities that will support local sales, as well as exports to world markets. Governments commonly use four activities to support and encourage firms that engage in exporting. These are tax incentives, subsidies, export assistance, and free trade zones. Tax incentives treat earnings from export activities preferentially either by applying a lower rate to earnings or by refunding taxes already paid on income associated with exporting. Also, tax benefits are offered by governments which may include tax exemption or tax deferral on export income, accelerated depreciation of export-related assets, and generous tax treatment of overseas market development activities. Governments also support export performance by providing outright subsidies. Subsidies are direct or indirect financial contributions or incentives that benefit producers. Governments also provide assistance to exporters. Companies can avail themselves of a great deal of governmental information concerning the location of markets and credit risks. Assistance may also be oriented toward export promotion. Various agencies at different levels hold trade fairs and trade missions designed to promote sales to foreign customers. In an effort to facilitate exports, countries are designating certain areas as "free trade zones" and particular "special economic zones." These zones are geographic entities that offer manufacturers simplified customs procedures, operational flexibility, and a general environment of relaxed regulations. Thus, these ways are very helpful and have helped several companies. Page Ref: 240-242 83) Governmental actions at times are designed to discourage imports and block market access. Why do governments want to curtail imports? Explain some of the barriers that are placed to discourage imports. Answer: In order to promote domestic industries and agriculture, and restrict the inflow of materials from un-favored nations, some governments impose certain barriers. The tariffs which can be regarded as the three R's of global business: rules, rate schedules, and regulations are imposed by countries. Duties can be imposed on goods and services, thereby making it difficult for importers to import as well as for consumers to buy. A Harmonized Tariff System (HTS) bas been adopted by the majority of trading nations, under which importers and exporters have to determine the correct classification number for a given product or service that will cross borders. This classification helps in the identifying of the product and applicable tariff. A nontariff (NTB) can also be imposed which is any measure other than a tariff that is a deterrent or obstacle to the sale of products in a foreign market. This includes quotas, discriminatory procurement policies, restrictive customs procedures, arbitrary monetary policies, and restrictive regulations. A quota is a government-imposed limit or restriction on the number of units or the total value of a particular product or product category that can be imported. In addition, discriminatory procurement policies can take the form of government rules and administrative regulations specifying that local vendors or suppliers receive priority consideration. Customs procedures are also considered restrictive if they are administered in a way that makes compliance difficult and expensive. Discriminatory exchange rate policies are imposed to distort trade in much the same way as selective import duties and export subsidies. Finally, restrictive administrative and technical regulations can create barriers to trade. These may take the form of antidumping regulations, product size regulations, and safety and health regulations. Some of these regulations are intended to keep out foreign goods; others are directed toward legitimate domestic objectives. Page Ref: 243-245 84) Why does the tariff system vary from country to country? Explain, giving examples of tariffs imposed by the United States with particular emphasis on preferential tariffs. What are the conditions under which GATT allows the use of preferential tariffs? Answer: Tariff systems provide either a single rate of duty for each item applicable to all countries or two or more rates, applicable to different countries or groups of countries. The single-column tariff is the simplest type of tariff. It includes a schedule of duties in which the rate applies to imports from all countries on the same basis. Under the two-column tariff the first column includes "general" duties plus "special" duties indicating reduced rates determined by tariff negotiations with other countries. Rates agreed upon by "convention" are extended to all countries that qualify for normal trade relation (NTR). The United States have given NTR status to some 180 countries around the world. A preferential tariff is a reduced tariff rate applied to imports from certain countries. GATT prohibits the use of preferential tariffs, with three major exceptions. First are historical preference arrangements such as the British Commonwealth preferences and similar arrangements that existed before GATT. Second, preference schemes that are part of a formal economic integration treaty, such as free trade areas or common markets, are excluded. Third, industrial countries are permitted to grant preferential market access to companies based in less-developed countries. Page Ref: 245-247 85) What are customs duties? How do they work in controlling imported goods? Discuss in light of the different categories of customs duties. Answer: There are two main categories of customs duties. Their calculation method is the differentiating factor. They may be calculated either as a percentage of the value of the goods (ad valorem duty), as a specific amount per unit (specific duty), or as a combination of both of these methods. An ad valorem duty is expressed as a percentage of the value of goods. The definition of customs value varies from country to country. An exporter has to determine the duty applicable and the method used for calculations. For countries under GATT conventions the customs value is landed cost, insurance, and freight amount at the port of importation. On the other hand a specific duty is expressed as a specific amount of currency per unit of weight, volume, length, or other units of measurement. Specific duties are usually expressed in the currency of the importing country, but there are exceptions, particularly in countries that have experienced sustained inflation. Both ad valorem and specific duties are occasionally set out in the custom tariff for a given product. Compound or mixed duties provide for specific, plus ad valorem, rates to be levied on the same articles. Page Ref: 247 86) What are the differences between antidumping and countervailing duties? Under what conditions are these duties imposed? Answer: Dumping essentially refers to the sale of merchandise in export markets at unfair prices. In order to offset the impact of dumping and to penalize guilty companies, most countries have introduced legislation providing for the imposition of antidumping duties. These duties are levied if injury is caused to domestic producers. Such duties are normally imposed as special additional import charges equal to the dumping margin. They are almost invariably applied to products that are also manufactured or grown in the importing country. In the United States, antidumping duties are assessed after the commerce department finds a foreign company guilty of dumping and the International Trade Commission rules if the dumped products injured American companies. Countervailing duties, on the other hand, are additional duties levied to offset subsidies granted in the exporting country. In the United States, countervailing duty legislation and procedures are very similar to those pertaining to dumping. The U.S. Commerce Department and the International Trade Commission jointly administer both the countervailing duty and antidumping laws. Page Ref: 247-248 87) What are some of the entities that an exporter should be familiar with? Describe and explain the role played by each of these entities, separating those that have responsibilities from exporters from those that have no responsibilities from the exporters. Answer: Key export entities include purchasing agents, export brokers, and export merchants. They have no responsibility from the client. Others are export management companies, manufacturer's export representatives, export distributors, and freight forwarders. They are assigned responsibilities by the exporter. Foreign purchasing agents operate on behalf of, and are compensated by, an overseas customer known as a "principal." They generally seek out the manufacturer whose price and quality match the specifications of their principal. They often represent governments, utilities, railroads, and other large users of materials. Purchases may be completed as domestic transactions with the purchasing agent handling all export packing and shipping details or the agent may rely on the manufacturers to handle the shipping arrangements. The export broker receives a fee for bringing together the seller and the overseas buyer. This fee is usually paid by the seller. The broker takes no title to the goods and assumes no financial responsibility. A broker usually specializes in a specific commodity, such as grain or cotton, and is less frequently involved in the export of manufactured goods. Export merchants are sometimes referred to as "jobbers" and they identify market opportunities in one country or region and make purchases in other countries to fill these needs. They typically buy unbranded products directly from the producer or manufacturer. The export merchant then brands the goods and performs all other marketing activities, including distribution. Export Management Company is the term used to designate an independent marketing intermediary that acts as the export department for two or more manufacturers whose product lines do not compete with each other. It may act as an independent distributor, purchasing and reselling goods at an established price or profit margin. It may also act as a commission representative taking no title or financial risk. Manufacturer's export agent act as an export distributor or as an export commission representative. On the other hand, an export distributor assumes financial risk; whereas the export commission representative assumes no financial risk. The cooperative exporter is an export organization of a manufacturing company retained by other independent manufacturers to sell their products to foreign markets. Freight forwarders are licensed specialists in traffic operations, customs clearance, and shipping tariffs and schedules. A licensed forwarder receives brokerage fees or rebates from shipping companies for booked space. Page Ref: 248-249 88) An executive is undecided whether to rely on in-house or external export specialists/ intermediaries in home country. He is leaning towards direct representation in a market. What are the benefits of going forth with direct representation? Answer: It is a common problem faced by many executives planning on exporting goods and services to foreign countries. There are two specific advantages to direct representation in a market. It allows decisions concerning program development, resource allocation, or price changes to be implemented unilaterally. Thus, control and communication aspects are major benefits. This is very significant when a product is not yet established in a market. It will require special marketing efforts for which direct efforts will be necessary rather than relying on intermediaries. Also, the marketer's investment ensures special efforts that are undertaken to achieve sales. With indirect or independent representation, such efforts and investment may not be that effective due to lack of incentives. It is also advantageous to get feedback and first-hand information related to the market. This information can greatly improve export marketing decisions concerning product, price, communications, and distribution. In essence, all operational parameters are under control. However, it should be noted that direct representation will depend on the size of the market. It may not be possible to have it when market size is small. Page Ref: 249-250 89) What do you understand by "documentary credit?" How does "documentary collection" differ from "cash in advance" and "sales on open account?" Answer: Documentary credits, also referred to as letters of credit (L/C), relates to a document stating that a bank has substituted its creditworthiness for that of the importer-buyer. Next to cash in advance, an L/C offers the exporter the best assurance of being paid. Since the payment obligation under an L/C lies with the buyer's bank and not with the buyer, it is an assured form of payment. After an exporter and an importer have established a good working relationship, it may be possible to have a documentary collection or open-account method of payment. In this method of payment a bill of exchange, also known as a draft, is used. A bill of exchange is a negotiable instrument that is easily transferable from one party to another. With a documentary draft, the exporter delivers documents such as the bill of lading, the commercial invoice, a certificate of origin, and an insurance certificate to a bank in the exporter's country. The shipper or bank prepares a collection letter (draft) and sends it via courier to a correspondent bank in the importer-buyer's country. The draft is presented to the importer and payment takes place in accordance with the terms specified in the draft. Cash in advance refers to whole or partial payment in advance of shipment. When the exporter/importer is in the beginning stages of business, cash in advance is usually the method of financial transactions. It is also used when exchange restrictions are present in a country or an unusually long period of time for financial transactions is involved. A company that manufactures a unique product for which there are no substitutes available can also use cash in advance method. On the other hand, goods that are sold on open account are paid for after delivery. Open-account terms generally prevail in areas where exchange controls are minimal and exporters have had long-standing relations with good buyers in nearby or long-established markets. Page Ref: 252-254 90) Recently "Call Centers" have mushroomed in countries like India, China, and Philippines due to the outsourcing by many Western countries. What are the benefits and disadvantages to this method of sourcing? What factors should be taken into account when deciding to outsource? Answer: Outsourcing refers to shifting production jobs or work assignments to another company in order to cut costs. When the outsourced work moves to another country it becomes "global outsourcing" or "offshoring." Due to intense competition in the marketplace, more and more companies are under pressure to lower costs. One way to do this is to locate manufacturing or consumer relation activities in China, India, Philippines, or other low-wage countries. In theory, this situation bestows great flexibility on companies and in reality, the consumer is unaware of the country where a product is manufactured or service is delivered. However, in the case of call centers, consumers get in direct contact with the service provider or its representative. Call centers also perform outbound services such as telemarketing. A variety of tasks such as airline reservation, completing tax returns, reading medical charts, and drawing up manufacturing blueprints are done by persons who do the job at a fraction of the cost compared to what it will cost in the home country. The decision to use outsourcing requires careful analysis since saving cost may not be the only factor for success of many products or services. This requires careful consideration of management's vision, costs and conditions, customer needs, logistics, country infrastructure, political factors, and foreign exchange rates. In formulating a sourcing strategy, company managers and executives should also recognize the declining importance of direct manufacturing labor as a percentage of total product cost. For example, Compaq found that the human labor portion in manufacturing a PC is only about 15 minutes. Thus, the cost involved in saving human labor is not as high as one would imagine and outsourcing may not be the best choice for all products or services. Also, the company image and customer loyalty can be adversely affected if outsourced services are not quality conscious. Page Ref: 255-256