International Trade (Intl Trade) 101: Export Import Strategy - Export Marketing, Adapting Product, Promotion, Place, Price for Foreign Markets

What This Is

Export marketing is the process of adapting a product, promotion, place, and price to meet the needs of foreign markets. This involves understanding the cultural, economic, and regulatory differences between countries to successfully export goods and services. For instance, a US company exporting electronics to China may need to adjust its marketing strategy to appeal to Chinese consumers, who often prioritize quality and durability over price.

Key Terms & Rules

• Incoterms 2020: A set of international trade terms that define the responsibilities of buyers and sellers in the delivery of goods. Understanding Incoterms is crucial for international trade, as they determine the costs and risks associated with the sale of goods.
• FOB (Free on Board): A term that indicates the seller is responsible for delivering the goods on board a vessel at a specified port. The buyer is responsible for the main carriage and insurance.
• UCP 600 (Uniform Customs and Practice for Documentary Credits): A set of rules that govern the use of letters of credit (LCs) in international trade. UCP 600 ensures that LCs are used consistently and fairly across the globe.
• HS Codes (Harmonized System Codes): A standardized system of codes used to classify goods for customs purposes. HS codes determine the duty rates and taxes applicable to imported goods.
• Duty Calculation: The process of calculating the customs duty payable on imported goods. Duty calculation involves multiplying the value of the goods by the applicable duty rate.
• Export License: A permit issued by the government to export certain goods or services. Export licenses ensure that exports comply with regulations and laws.
• Country of Origin: The country where a product is manufactured or produced. Country of origin is important for labeling and regulatory purposes.
• Tariff Classification: The process of classifying goods according to their tariff classification. Tariff classification determines the duty rates and taxes applicable to imported goods.
• Commercial Invoice: A document that provides detailed information about the goods being exported, including their value, weight, and description. Commercial invoices are used to support customs clearance and LC transactions.
• Bill of Lading: A document that serves as a receipt for the goods being transported and as evidence of the contract of carriage. Bills of lading are used to transfer ownership of goods and to clear customs.

Step-by-Step Process

1. Conduct Market Research: Research the target market to understand its needs, preferences, and regulatory requirements.
2. Develop a Marketing Strategy: Create a marketing strategy that adapts to the target market's needs and preferences.
3. Classify Goods Using HS Codes: Classify the goods being exported using HS codes to determine the duty rates and taxes applicable.
4. Obtain Export Licenses: Obtain export licenses for goods that require them.
5. Prepare Commercial Documents: Prepare commercial documents, including commercial invoices and bills of lading.
6. Negotiate LCs: Negotiate LCs with the buyer to ensure that the payment terms are favorable.

Common Mistakes

• Mistake: Confusing CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid To).
• Correction: CIF means the seller is responsible for delivering the goods on board a vessel at a specified port, while CIP means the seller is responsible for delivering the goods to the buyer's premises.
• Example: A US company exports electronics to China under CIF terms. The buyer is responsible for the main carriage and insurance.
• Mistake: Assuming "open account" is risk-free.
• Correction: Open account means the buyer pays the seller after receiving the goods, but it does not guarantee payment.
• Example: A Chinese exporter sells electronics to a US buyer under open account terms. The buyer may not pay the seller if the goods are defective or not delivered on time.
• Mistake: Misusing "free on board" with air freight.
• Correction: Free on board means the seller is responsible for delivering the goods on board a vessel at a specified port. It does not apply to air freight.
• Example: A US company exports electronics to China by air freight under FOB terms. The seller is responsible for delivering the goods to the airport, not on board the aircraft.

Exam / Certification Tips

• Common Question Patterns: Questions may ask you to identify the correct Incoterm or to explain the difference between CIF and CIP.
• Tricky Distinctions: Be aware of the differences between FOB and FCA, confirmed and unconfirmed LCs, and DPU (Destination Port Unloaded) and DAT (Destination Arrival Terminal).
• Memory Aids: Use mnemonics to remember the Incoterms, such as "FOB" meaning "Free on Board" and "CIF" meaning "Cost, Insurance, and Freight".

Quick Practice Scenario

Scenario: A Chinese exporter sells electronics to a US buyer under FOB Shanghai terms. Who pays for the main carriage?

Answer: The buyer pays for the main carriage.

Explanation: FOB means the seller is responsible for delivering the goods on board a vessel at a specified port. The buyer is responsible for the main carriage and insurance.

Last-Minute Cram Sheet

• Incoterms 2020: A set of international trade terms that define the responsibilities of buyers and sellers in the delivery of goods.
• FOB (Free on Board): The seller is responsible for delivering the goods on board a vessel at a specified port.
• CIF (Cost, Insurance, and Freight): The seller is responsible for delivering the goods on board a vessel at a specified port, including the cost of insurance and freight.
• UCP 600 (Uniform Customs and Practice for Documentary Credits): A set of rules that govern the use of letters of credit (LCs) in international trade.
• HS Codes (Harmonized System Codes): A standardized system of codes used to classify goods for customs purposes.
• Duty Calculation: The process of calculating the customs duty payable on imported goods.
• Export License: A permit issued by the government to export certain goods or services.
• Country of Origin: The country where a product is manufactured or produced.
• Tariff Classification: The process of classifying goods according to their tariff classification.
• Commercial Invoice: A document that provides detailed information about the goods being exported, including their value, weight, and description.
• Bill of Lading: A document that serves as a receipt for the goods being transported and as evidence of the contract of carriage.
• Under FOB, risk transfers when goods are on board the vessel – not at the port gate or on the dock.
• CIF means the seller is responsible for delivering the goods on board a vessel at a specified port, including the cost of insurance and freight.
• UCP 600 governs LC transactions globally.
• HS codes determine the duty rates and taxes applicable to imported goods.