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Decision making in an export/import organization is a very important process in ensuring the success of the organization in the international market arena. The current global market has become more and more competitive as organizations transform their brands to have a more global appeal and also in their endeavor to accommodate technological advancement. The decision making process in an import/export organization entails taking into account the various aspects of import and export business such as use of middlemen versus importing/exporting directly, international market pricing, cost associated with the transactions, risks involved, expected profits, documentation requirements for transactions and the intergovernmental tariffs and regulation on the imports and imports.
To progress in the export/import market, business image is important. Therefore, the element of liability is important and should be clearly addressed. For instance, in sole proprietorship, the liability is unlimited and the owner is totally liable for any suit on the business such as offering substandard product and so on. However, in a limited company, the liability is limited to the shareholder’s contribution into the business and therefore tends to be safer as any suit will only affect the separate entity of the business.
Export/import potential of the product should be incorporated in decision making. If the product has been available in either countries or if the product has been successful in the home country, then, its success in the target market is more likely especially with proper market research to establish the market demand and segmentation. Market assessment is important to evaluate the foreign trade barriers, potential benefits, price controls and level of competition. This helps to formulate strategies to apply in international trade.
For an organization dealing with exports, decision on whether to export directly or use of foreign agents is important. Initial use of intermediaries is attractive due to the low cost involved and market knowledge of the middlemen in the target market. However, cost benefit analysis should be done considering the problem associated with identifying a reliable middleman as well as frequent changes in competition, trade policies and the channel system. Direct exports will be preferable where the two nations involved have relatively close or similar cultures
In terms of pricing, the market fundamentals and availability of standard pricing quotations are factored in the decision making process. The various pricing quotations to decide on are ex quotation (Ex factory, ex mill, ex warehouse), free on board (f.o.b), free along side (f.a.s) and cost, insurance, freight (c.i.f). These quotations are important in establishing the right price of the product for effective competition in the market.
Import/export organizations are faced with various risks and therefore the decision making process must address these risks which may include, political risks, foreign exchange risks nonpayment risks. Political risks may include, but not limited to, restrictions on imports/exports, license controls and currency controls – leading to inconvertibility of the currency. These risks can be hedged by regular monitoring of the political situations in the trading nations, and political insurance arrangements. Foreign exchange risks result from fluctuations in the exchange rates which may result to losses for the organization.
To hedge this, price quotation should be made on domestic currency especially when exporting. Nonpayment risks result from the failure by foreign partner to meet his obligation. To counter this, advance cash or confirmed letter of credit/bank guarantee can be beneficial methods.
In addition to insurance consideration of goods in transit, other logistic considerations like labeling, packaging, transport costs and regulations should be taken into account. Use of proper logistic systems not only reduce the transportation and inventory costs, but also ensures efficiency in production, transportation and distribution. Labeling that meets the import/export labeling laws reduces chances of delays in clearing, and proper packaging ensures that goods reach their destination in good condition with no breakages and pilferage.
The decision making process should include all the above elements and should be tailored to reflect well on the global market environment with focus on attaining a competitive advantage. Export/import business entails dealing with different cultures, legislations and environmental influences, all which should be addressed to mitigate the risks and gain a competitive edge over other competitors in the market.
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