HANDOUT (midterm)

INTERNATIONAL MARKETING

 International Entry Modes

 International Trade terms
 Rationale for export: the Philippine Experience
 Getting started in export
 The export merchandiser
 The market research
 Developing products for the foreign markets
 Export packing, marking and labeling
 Export distribution channels

Entry Modes in International Marketing

1. Franchising
 Is a form of business by which the owner (franchisor) of a product, service or method
obtains distribution through affiliated dealers (franchisees).
Advantages Disadvantages
Possibly easier to finance Onerous reporting requirements
Access to quality training and on- going Costs of supplies or materials may be more
support expensive
Established concept with reduced risk of Possible exaggeration of advantages by
failures franchiser
Access to extensive advertising Franchiser may saturate your territory
Access to lower cost and possibly centralized Cost of franchise and other fees may reduce
buying your profit margins
Few start-up problems Inflexibility due to restrictions imposed by
franchiser
Use of well-known trademark or trade name Termination policies of franchiser may allow
little security

2. Licensing
 On the other hand, entails only a part of a whole franchising aspect. A licensee may only
get the patent, trademark or the manufacturing know- how of the mother company. Still,
the licensee has to pay royalties due to the parent company.
The advantages of licensing are as follows:
 it requires little capital
 it is the quickest and easiest way to enter a foreign market
 it enables the firm to gain knowledge of and access to the local market
 It provides a means of entry when import restrictions forbid any other ways or when a country is
sensitive to foreign ownership.
 It offers savings on tariff, transport and local production costs.
However, licensing poses certain drawbacks:
 The licensor may establish his/ her own competitor.
 It provides limited returns
 Problem of control on license may arise

LCR
 3. Manufacturing
 Lumped into several categories, certain local companies are mostly concerned with the
manufacture of products. They serve as “satellite” or “extensions” of foreign “mother”
companies. These local firms can assume any of these forms:
 Assembly Plant
 Contract Manufacturing
 Wholly- owned Plant
Advantage of manufacturing, a company may engage in manufacturing if it wants to capitalize on low
cost labor, avoid high import taxes, reduce high cost of transportation to market, gain access to raw
materials and/or gain entry into other markets.
The major disadvantage of manufacturing is that it involves larger risks and investments.
4. Management Contracts
 Here, production is irrelevant to the mother companies. They merely supply management
know- how to a foreign company that is willing to supply the capital to them. The local
firm, on the other hand, export management services.
The advantage of management contracts is that local companies providing services need not risk setting
up operations in countries where the foreign clients are based.
5. Exporting
 Refers to the marketing of goods and services produced in one country into another
country. It allows a company to enter foreign markets with a minimum change in product
lines, company organization, investment or company mission exporting has several modes
of entry, namely, 1) producer- exporter, 2) exporter- trades, 3) selling agent, 4) buying
agent, 5) subcontractor.
Advantages constraints
Enhances domestic competitiveness Develop new promotional materials
Increases sales and profits Subordinates short- term profits to long- term
gains
Gains global market share Incurs added administrative costs
Exploits corporate technology and know- how Allocates personnel for travel
Extends the sales potential of existing products Waits longer for payments
Stabilizes seasonal market fluctuations Modifies product or packaging
Enhances potential for corporate expansion Applies for additional financing
Sells excess production capacity Obtains special export licenses
Gains information about foreign competition

International Trade Terms

Purpose of Inco terms
Trading with other countries, as earlier discussed, cuts across political and national boundaries.
Inevitably, as an exporter, you need to deal with different cultures, customs and traditions. What may be
true to the Philippines may not be true at all to other countries.
There also exist different trading practices among countries. In the Philippines, delay in delivery is
somehow reflective of its culture. In other countries, however, such practice is a sure sign of
unprofessionalism.
To facilitate better understanding among countries, the International Chamber of Commerce (ICC)
has provided a set of international rules for the interpretation of the most commonly used trade terms of
delivery in foreign trade. Thus, the uncertainties and arbitrariness of interpretations of such terms in
different countries are avoided, or at least, minimized to a considerable degree.

LCR
 The International Rules for the Interpretation of Trade Terms (INCOTERMS or International
Commercial Terms) came into being in 1936 (Incoterms). To avoid misunderstandings, disputes and
litigations among nations, the international trade body decided to come up with a set of trade terms which
will serve as references for both seller and the buyer. In other words, the INCOTERMS delineate the
responsibilities of the seller (or exporter) to the buyer (or importer). They also become component or part
of a price quotation for the foreign buyer. The terms cannot stand alone as they are; there has to be a
delivery point, either the port of shipment or destination together with the price quoted in foreign
denomination.
According to the US export governmental portal (Incoterms), there are 13 INCOTERMS
categorized into four (4) groups. These groups are:
1. Departure (E)
2. Main carriage unpaid by the seller (F)
3. Main carriage paid by the seller (C)
4. Arrival at stated destination (D)
Each group’s letter makes up the first letter of the INCOTERMS.
 Example: if your agreement with a buyer calls for the release of goods by the seller to occur at the
seller’s location, the Ex-Works (EXW) INCOTERM will be used. This falls under the
Departure group and start with letter E.
 If the seller will deliver the goods to the buyer’s dock, including all carriage and insurance, a term
from the Arrival group such as DDP will be appropriate. The DDP stands for Delivery Duty Paid
which means that the seller will deliver goods to the buyer’s dock with all carriage, insurance and
duties paid. DDP represents the most obligations for the seller, whereas EXW represents the least
obligations.
The 13 INCOTERMS that fall under the mentioned four (4) groups are:
A. Departure (E)
1. EXW- Ex- Works Factory. The seller is responsible for the goods only inside/ within the factory
premises. The responsibility for the goods is transferred to the buyer once he/she picks it up from
the seller’s factory.
B. Main carriage unpaid by the seller (F)
2. FCA- Free Carrier. The arrangement between the seller and the buyer is just like FOB port of
shipment.
3. FAS- Free alongside Ship, named ocean port of shipment. This can only be used for LCL (less
than a container) shipments. It cannot be used containerized shipment.
4. FOB- Free on-board Vessel, named ocean port of shipment. This term is used for ocean
shipment only where it is important that the goods pass the ship’s rail.
C. Main carriage paid by the seller (C)
5. CFR- Cost and Freight, named ocean of destination. This term is used for ocean shipment not
containerized.
6. CIF- Cost, Insurance and Freight, named ocean of destination. This term is used for ocean
shipment not containerized.
7. CPT- Carriage paid to, named ocean of destination. This term is used for air or ocean
containerized and roll- on/ roll- off shipments.
8. CIP- Carriage and Insurance Paid to, named ocean of destination. This term is used for air or
ocean containerized and roll- on/ roll- off shipments.
D. Arrival at stated destination (D)
9. DAF- Deliver at Frontier, named place of destination, by land, not unloaded. This term is
used for any mode of transportation, but goods must be delivered by lands.
10. DES- Delivered Ex- Ship, named port of destination. This term is used for ocean shipment
only.

LCR
 11. DEQ- Delivered Ex- Quay, named port of destination. This term is used for ocean shipment
only.
12. DDU- Delivered Duty Unpaid, named port of destination. This term is used for any mode of
transportation.
13. DDP- Delivered Duty Paid, named port of destination. This term is used for any mode of
transportation.

RISK INVOLVED IN THE INCOTERMS

Ex- works Factory
 The seller fulfills his/ her obligation when he/ she have made the goods available at his/ her
premises.
He/she is not responsible for loading the goods on the vehicle provided by the buyer or for
clearing the goods for export, unless otherwise agreed upon.
 The buyer bears all cost and risk involved in taking the goods from the seller’s premises to the
specified destination.
 This term represent the minimum obligation of the seller. In short, as the seller, you only have to
manufacture and present the goods in your warehouse with the corresponding export packaging
for secured transport, and the rest of the costs, risks, insurance and documentation will be
shouldered by the buyer including the name and contacting of carriage that will bring the goods to
his/ her country.
In a price quotation, the term using the EXW term appears as follows: USD3.50 EXW…
(warehouse or factory location)
 From the exporter’s point of view, Ex- Work Factory is the most convenient
INCOTERM since one does not have responsible for costs and risks beyond the
factory.
Free On Board (FOB) Port Shipment
 The seller fulfills his/ her obligations to deliver when the goods have passed the ship’s rail at the
named port of shipment.
This means that the buyer has to bear all the costs and risks of loss or damage to the goods
from that point.
 As the exporter, you must not only bear the manufacturing costs and attend to the
packaging and transfer of goods from your factory to the pier, but also pay for the
“lifting” of goods from quay grounds until they are brought inside the ship. After
that, the responsibility is transferred to the buyer.
 The buyer again, names the carriage (ship) and pays the freight cost.
As an item in the price quotation, the INCOTERMS should read: USD4.10 FOB….
(named port of shipment)
FOB port of shipment should only be used for sea shipments. For a shipment scheduled for
delivery by air, rail or some other form of transportation with the same agreement as FOB,
one would need to use the INCOTERM FCA. FCA can include other modes of
transportation such as road, rail, interisland waterway and air.
 Whereas the risk is transferred to the buyer under FOB when the cargo passes the
ship’s rails, the risk is transferred to the buyer under FCA when delivery of goods
has been made at a destination previously outlined by the buying party.
 In the Philippines, FOB port of shipment is most commonly used term in the price
quotation. Even statistical report show figures in “FOB Million or Billion Dollars”.
This is for practical purposes. With the FOB term, the exporter is only bound to
compute the prices until the port of shipment, which is usually Manila or Cebu.
Cost and Freight (CFR) Port of Destination

LCR
  The seller must pay the costs and freight necessary to bring the goods to the named port of
destination, but the risk of loss or damage to the goods, as well as any additional costs due to any
event occurring after the time the goods have been delivered on board the vessel, is transferred
from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.
 CFR port of destination is actually FOB Port of shipment plus the freight cost.
 Meaning, it carries the same responsibilities as those under FOB, but unlike FOB
the seller now has to pay the freight cost of bringing the goods to the country of
destinations. In effect, the price of the product for export becomes more expensive
since the exporter will put cost as part of the quoted price. CFR Port of destination
is used for LCL shipment.
When a CFR port of destination is quoted, it should appear, for example, as USD5.10
CFR… (named port of destination).
Cost, Insurance and Freight (CIF) port of Destination
 The seller has the same obligations as those under CFR port of destination, but with the addition
that he/ she has to procure marine insurance against the buyer’s risk insurance and pays the
insurance premiums.
 The buyer should note that under the CIF term, the seller is only required to obtain insurance on
minimum coverage. The CIF term requires the seller to clear the goods for export.
 CIF port of destination is an extension of the CFR port of destination with marine
insurance included. Thus, the insurance cost is an added increase again on the price
of the product for export. CIF port of destination, just like FOB port of shipment,
can only be used for LCL ocean- bound freight.
A CIF port of destination quote reads: USD5.20 CIF… (named port of destination)

LCR
 EX FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

LCR
W
SERVIC EX- FREE FREE FREE COS COST CARR CARRI DELIV DELIV DELIV DELIV DELIV
E WO CARR ALON ON T INSUR IAGE AGE ERED ERED ERED ERED ERED
WAREH Selle Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
OUSE r
WAREH Selle Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
OUSE r
EXPORT Selle Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
PACKIN r
LOADIN Buye Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
G r
INLAND buyer Seller/ Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
FREIGH buyer
TERMIN buyer buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
AL
FORWA buyer buyer buyer buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller
RDER’S
LOADIN buyer buyer buyer buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller
G ON

Section III: Export Marketing

OCEAN/ buyer buyer buyer buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller
AIR
CHARG buyer buyer buyer buyer buyer buyer Seller Seller buyer buyer Seller Seller Seller
ES ON
DUTY buyer buyer buyer buyer buyer buyer buyer buyer buyer buyer buyer buyer Seller
TAXES
DELIVE buyer buyer buyer buyer buyer buyer buyer buyer buyer buyer buyer Seller Seller
RY TO
Rationale for Export: The Philippine Experience
The Need to Export
If you have already considered a career in exporting, you, at least, need to have and follow a
master plan when you venture into it. Basically, this plan should include these considerations.

1. Decision to go into export

 Ask yourself whether you are ready to export or not by answering SWOT (strengths,
weaknesses, opportunities and threats) analysis. To do the latter, you have to consider the
following:
o Do you have the finances?
o Do you think you are very creative person and have product in mind that the foreign
market will buy?
 The positive answer to these question are your strengths
 On the other hand, insufficient starting capital and lack of experience on your
part can be you weaknesses.
 The external strength and opportunities represent a bigger framework from
which your export business will operate.
o So how do you tie up the SWOT components to the process of deciding whether you are
going into export marketing or not?
2. Decision on the mode of venturing into Export
 This decision will depend on your SWOT analysis.
3. Decision to conduct an export market research
Export market research aims to find out the appropriate product and market for you. This
market research plus the SWOT analysis would finally give you an idea and make you
decide whether to go into export or not.
a. Preparation of the Business Plan- this activity involves the following:

Financial Management
 How much is your capital outlay?
 Where are you going to borrow your capital?
 How long will it take before your investment pays off? (ROI)
Production Management
 Where should your factory be located?
 Should you produce the products or just buy finished products instead?
 How many workers do you need?
 How long will the production process take?
 What should be the quality of your products?
Marketing Management
 What is product for export?
 To which country should you market?
 What should be your promotional materials?
 How will you price your products?
 What will your distribution channel be?
 Do you sell to wholesalers or direct to retail chain stores?
Administrative Management
 Will your business be a sole proprietorship, partnership or corporation with
some family members or friends?
 Will you be the owner and the manager at the same time?

LCR
  Will you create an organizational chart to determine how many
administrative staff you need?
 Can you tap your brothers and sisters as your other managers?
 Should you get a secretary?

IMPORTANCE OF EXPORT IN THE PHILIPPINE SETTING: THE GOVERNMENT AND

THE PRIVATE SECTOR
The government, through the DTI has a goal to make exporting a crucial part of the country’s
economic growth.
In the 1950’s and the early 1960’s, the industrialization drive of the Philippines was realized
through the import- substitution scheme. The country produced import- substituting products. There was a
massive importation of machineries needed to produce these products. Imported goods were discouraged
through high tariffs.
The objective was to make Filipinos self- reliant. Once the domestic market was satisfied, the
excess products were exported. The Philippine was not the only country that undertook this strategy.
Countries like Japan, South Korea and Thailand also adopted the same strategy. Why then, you might ask,
did the Philippines lag behind this aforementioned countries?
The reason was that the Philippines held on too long with the import- substitutions scheme. Japan,
Thailand and South Korea knew well the perfect time to embark on export promotion. As a result, the
Philippine experiment resulted in inefficient industries. Infant industries were pampered rather than
nourished. Monopolies and cartels were the offshoots of the whole program.
Realizing the situation, the Philippines rallied in the late 1960’s and 1970’s. The country had her
heyday in exports. This was augmented by a very favorable international market environment which saw
the rise of the dragon economies of Taiwan, Hong Kong, South Korea and Singapore.
World recession was felt during the early 1980’s, slumping most of the economies, including that
of the Philippines. The political turmoil’s which ensued in the country did not help any; they only made
the already bad situation worse.
The latter part of the 1980’s saw the resurgence of the Philippine economy, and somehow, the
export sector was at the forefront of that performance. There was a slowdown in 1990- 1991 due to the
recession. The shift to non- traditional manufacturers such as electronics, garments, furniture, etc.
occurred in the early 1990’s. The power crisis affected exports from 1992- 1993. However, exports
experience bullish growth from 1994- 1997. The Asian financial crisis in 1997 took its toll on exports
until 1999. The year 2000- 2005 showed increased in exports.
From the private sector’s point of view, the objectives for going into export are very practical. For
manufacturers, the domestic market is too limited; thus, there is no need to explore other markets.
The export market is very competitive one. The more productive the firm- in efficiently utilizing
its resources, the more competitive advantage it has. This means, that a firm can produce at a lower cost,
reduce reject rates, and come up with better quality goods to generate better profits.
Aside from efficient asset utilization, one of the most effective ways of improving productivity is
through the acquisition and use of technology. Competitiveness is enhanced by automation, improved
production process and better communication and transportation facilities.
Unfortunately, in certain cases, Philippine products made for the domestic market are not highly
regarded in terms of quality and in meeting product and market standards. Once you decide to start
serving the international market where quality is a must and not to be taken lightly, the product must be
improved to conform to the safety and technical standards of that market.
Above all these, the compelling justifications of the private sector to go into exports are the
opportunity to earn foreign exchange.
To further boost exports, the EXPORT DEVELOPMENT ACT (EDA) of 1994 created an Export
Bank. The export bank plays a crucial role in the anticipated increase of Philippine global trade. The
EXPORT DEVELOPMENT COUNCIL (EDC) was also established to strengthen and institutionalize the
LCR
national export drive. The Export Development Act recognized the key role of exports in national
development. As stated in the provision of the Export Development Act, exporting is the means by which
the development goals of increased employment and enhanced income can be achieved.

PHILIPPINE TADE PERFORMANCE THROUGHT HE YEARS

Philippine export increased from USD32 Billion in 2001 to USD41.22 Billion in 2005. Although
exports grew by a mere 3.9% in 2005 compared to 2004, this growth was below the government’s
10%growth target (Makati Business Club, Inc.,). The export growth below the 10% target was due to the
poor performance of the electronics sectors which accounted for 70% of Philippine exports. Table below
shows the earnings of Philippine exports from 2001- 2005.

PHILIPPINE EXPORTS IN BILLION U.S. DOLLARS FROM 2001- 2005

Year 2001 2002 2003 2004 2005

Total Exports 32 35 36 40 41

VALUE OF EXPORTS BY COMMODITY GROUP (FOB VALUE IN MILLION U.S. DOLLARS)

January to January to December January to November

December 2003 2004 2005
Total Exports to all Countries 36, 231, 205 39, 680, 530 37, 394, 153
Consumer Manufactures
Garment 2, 179, 049
House wares 179, 048
Holiday Decorations 54, 757
Toys and Dolls 14, 659
Fashion Accessories 239, 808
Furniture 277, 997
Builders Woodworks 102, 755
Wood Products, NES 2, 430
Footwear 45, 956
Giftware 74, 693
Other Consumer Manufacturer 350, 480
Food and Food Preparation
Processed Foods
Fresh Foods
Marine Foods
Resource- based Products
Coconut Products
Mineral Products
Forest Products
Tobacco
Seaweeds
Carrageen
Marble products
Cut Flowers/ Ornamental
Plants

LCR
 Textile Yarns, Twine and
Cordages
Non- metallic Minerals
Petroleum Products
Other Source based
Commodities
Industrial Manufacturers
Electronics
Machineries/ Transport
Equipment
Metal Manufactories
Constructional Materials
Chemicals
Other Industrial Manufactures
Special Transactions

Table above reveals that electronics comprised 66% of Philippine exports from 2003- 2005.
Electronics has been the major dollar earner since the early 1990’s. Next to electronics, garment exports
was the second major dollar earner in 2003. However, machineries and transport equipment displaced
garments as the second biggest dollar earner in 2004 and 2005.

PROFILE OF FILIPINO EXPORT

Composed of more than 7, 100 islands, the Philippines has three major islands: Luzon, Visayas,
Mindanao. Luzon is composed of Ilocos Region, Cagayan Valley, Central Luzon, CALABARZON,
MIMAROPA, Bicol Region, Cordillera Administrative Region, and the National Capital Region. Visayas
is composed of Western Visayas, Central Visayas and Eastern Visayas. On the other hand, Mindanao is
composed of Zamboanga, Peninsula, Northern Mindanao, Davao Region, SOCCSKSARGEN, CARAGA
and the Autonomous Region of Muslim Mindanao.
The brochure of the National Trade Fair held from March 15 to 19, 2006 at SM Megamall listed
some of the important products per region:

Products of Philippine Regions

CAR Vegetables, Mineral Reserves such as Gold, Copper, Silver, Zinc,
Non- metallic such as sand, gravel, sulphur
Region 1 Agro- industrial products such as boneless bangus and tobacco
Region 2 Agricultural Product
Region 3 Rice, corn sugar, furniture
NCR Electronics, gifts and house ware, furniture
Region 4a CALABARZON Rice, coconut, sugarcane
Region 4b MIMAROPA
Region 5
Region 6
Region 7
Region 7
Region 8
Region 9
Region 10
Region 11
Region 12
LCR
Region 13

Getting Started in Export

Modes of Venturing into the export Business

Entry Mode #1: Producer- Exporter
Entry Mode #2: Exporter- Trader
Entry Mode #3: Subcontractor
Entry Mode #4: Selling Agent
Entry Mode #5: Buying Agent

LCR