Page 103 - Introduction to Business

CHAPTER 2 The Environment of Business 77

Export-Import Business
As seen in Exhibit 2.2, the value of global merchandise trade (exports plus
imports) in 2001 was approximately $12.5 trillion. International trade offers
tremendous opportunities to firms interested in penetrating foreign markets (by
exporting) or importing merchandise at competitive prices for domestic con-
sumption. The export-import business is a relatively low-risk operation given export-import business A relatively
the fact that capital is not tied up and it is relatively easy to enter or exit out of this low-risk operation that involves
penetrating foreign markets (by
business. Furthermore, there are well-established techniques for financing inter-
exporting) or importing merchandise
national trade (called trade finance) that are aimed at facilitating trade on the one (of all kinds) at competitive prices for
hand and minimizing financial risk on the other. Simply stated, in trade finance, domestic consumption
the exporter is assured of receiving payment soon after the importer receives the
stated merchandise in good condition. This is accomplished with the help of doc-
uments (export invoice, insurance on goods, shipping documents, customs clear-
ance documents at foreign ports, etc.) that are made available to the importer’s
banks prior to payment. When the importer receives the stated documents, she or
he can take delivery of the merchandise only after making payment (to the bank)
for the imported goods. The importer’s bank then transfers the payment to the
exporter. There is, therefore, hardly any risk in this business, and banks play an
important role in facilitating international trade.
Firms can conduct export-import business with as little as three or four employ-
ees, as in the case of importing spices, groceries, or handicrafts from abroad. At the
other extreme, large trading companies (especially Japanese trading firms like Mit-
sui & Company) may employ hundreds or thousands of workers, since they trade in
high-cost and high-volume consumer durables (cars, washing machines, appli-
ances, consumer electronics, etc.) and industrial products (chemicals, minerals,
crude oil, etc.). In the United States, companies like Cargill, ADM, and Conagra are
major exporters of agricultural products. Furthermore, large corporations like Boe-
ing, General Electric, and Intel conduct their own export-import businesses. Still,
some 20 percent of U.S. international trade is conducted by small business.
The opportunity to participate in export-import business is significant, and var-
ious government and nongovernmental agencies offer specialized seminars and
programs on how to identify overseas markets and sell merchandise there. For
example, certification from the U.S. Department of Commerce can be obtained for
individuals enrolling in the Global Market Series Export Certificate Program
(www.exportimport.com). In order to facilitate and encourage small- and
medium-sized firms to penetrate emerging overseas markets, the U.S. government
(U.S. Agency for International Development) has set up the Global Technology
Network (www.usgtn.org), which is a network of domestic and international part-
ners. Furthermore, the U.S. government provides a wealth of information
(www.ita.doc.gov/td/industry/otea) on business conditions in various foreign
countries that can help entrepreneurs identify potential business opportunities
overseas. With the advent of the Internet, conducting international trade has
become even easier and more exciting. Companies, big and small, have installed
their own websites that detail all the products and services that they provide. Prod-
uct catalogs with detailed specifications, pictures, prices, shipping details, and so
on are made available on the website for the whole world to see and order from. The
websites are constantly updated so that interested customers are made fully aware
of what is available. The Internet has largely eliminated the need for printing
brochures, which invariably become outdated the moment they are printed! Also,
once orders are placed, both the buyer and seller can readily identify the location of
the product as it moves along the supply chain. However, since it is relatively easy

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