INTRODUCTION TO IMPORT & EXPORT

1. Import & Export basics:

● Exports: goods and services flowing out of a country → Exporting: the sale and delivery of goods and services by a
firm based in 1 country to customers residing in a different country.
- results in receipts from the customers;
- affords less control over the marketing function.
● Imports: goods and services flowing into a country → Importing: the purchase of goods and services by a firm
based in 1 country from sellers that reside in a different country.
- results in payments to the sellers;
- afford less control over the production function.
● Import - Export Management: all activities of a company which aim at:
- Strategic planning;
- Organizing, implementing;
- Supervising and controlling;
of all import/export activities from the beginning until the end of a business operation cycle.
● Opportunity cost: the cost that has to trade-off in return for something (exchange goods or services within the same
value of money)
Example 1: If I say 200 grams Beefsteak = 400 grams Pizza = 300,000 VND.
Therefore:
- Opportunity cost of 200 grams of Beefsteak in terms of Pizza = 400 grams (of Pizza).
→ To get 1 gram of Beefsteak, trade off (400)(1)/(200) = 2 grams (of Pizza).
- Opportunity cost of 200 grams of Beefsteak in terms of VND = 300,000 (VND).
→ To get 1 gram of Beefsteak, trade off (300,000)(1)/(200) = 15,000 (VND).
Example 2: Given:
- In The USA: 10 millions roses = 100,000 computers
- In Columbia: 10 millions roses = 30,000 computers
Therefore:

Country/Goods 1 Rose 1 Computer

USA 0.01 Computer 100 Roses

Columbia 0.003 Computer 333 Roses

→ Opportunity cost of roses in terms of computers in Columbia is lower (0.003 < 0.01), or, Columbia has
comparative advantage in producing roses.
→ Opportunity cost of computers in terms of roses in The USA is lower (100 < 333), or, The USA has comparative
advantage in producing computers.

Conclusion: The country should focus on the products in which they have comparative advantage.

2. Export
● Reason:
- Profitability: collect foreign currency with higher value (price);
- Establish international cooperation, relationships (weapon, mining…);
- Economies of scale in production and research (more production/ purchasing, cheaper cost);
 - Diversify markets;
- Alleviate excess capacity in domestic operations;
- Less risky (compared to license and foreign direct investment).
● Types:
- Direct exporting:
○ Exporting directly/through sales agents to distributors, foreign retailers, or final end-users;
○ Pros:
+ Greater control, higher earnings;
+ Closer relationship with the overseas buyer and marketplace.
○ Example: To distribute milk in Thailand, Vinamilk Vietnam can set up a Vinamilk office/distributors in
Thailand and the office will work with other supermarkets, retailers, etc. to distribute their dairy products.
→ Greater control over the office, more understanding about the target market in Thailand.
→ More risky but more profitable.
- Indirect exporting
○ Goods and services sold to or via an intermediary in the domestic market → selling them to a foreign
customer
○ Pros:
+ Concentrates on resources towards production;
+ Transfer risks to intermediary;
+ Little or no financial commitment/marketing effort.
○ Example: Vietnamese company (called Company X) buys products from Vinamilk Vietnam then exports
and distributes Vinamilk’s products to Thailand.
→ Vinamilk reduces the risk by transferring risks to Company X and has nothing to do with
shipping/contract/financial commitment/effort to marketing in Thailand.
→ Less risky but less profitable.

● 3rd intermediaries: independent, unrelated, firms that facilitate international trade transactions by assisting both
importers and exporters.
- Export intermediaries may perform any or all of the following functions:
+ stimulate sales, obtain orders, and conduct market research
+ perform credit investigations and payment-collection activities
+ handle foreign traffic arrangements and shipping details
+ provide support for a client’s sales, distribution, and promotion staff
- Export intermediaries:
○ Export Management Companies (EMC):
+ a firm that either acts as a manufacturer’s representative or buys merchandise from manufacturers
for international distribution;
+ generally operate on a contractual basis, provide exclusive representation in a well-defined foreign
territory, and act as the export arm of a manufacturer;
+ normally take title to the goods and assume all risks associated with doing business in other
countries.
+ Example: Company X as EMC: Works under Vinamilk brand name in Thailand: sells only products
of Vinamilk, run marketing program to promote Vinamilk brand name.
 ○ Piggyback Exporting
+ a foreign distribution operation where products are sold along with those of another manufacturer;
+ used by companies that have related or complementary but non-competitive products.
+ Example: Company X as a Piggyback: Works freely: can export any products from different
manufacturers/brands and distribute to Thailand.
- Preliminary considerations:
+ Products;
+ Volume;
+ Country market and product competitiveness research;
+ Identification of customers: end-users, distributors, and sales agents;
+ Compliance with foreign law: Industry standards, foreign customs laws, government contracting,
exchange controls and import licenses, value-added taxes, specialized laws;
+ Export controls and licenses;
+ Patent, trademark, and copyright registrations and infringements;
+ Confidentiality and non-disclosure agreements;
+ Utilization of freight forwarders and foreign customs brokers;
+ Export packing and labeling (hazardous materials);
+ Terms of sale (Incoterms), country of origin;
+ Marine and air casualty insurance, consignments;
+ Methods of transportation; booking transportation;
+ Export financing and payment insurance;
+ Tax incentives;
+ Translation.
- Sales Agreement:

3. Import
- Reasons:
+ Secure essential inputs and products
+ Decrease costs and increase competitiveness and profitability
+ Secure higher quality products, supplies, materials, and/or components
+ Less risky and investment
+ Diversify suppliers
 - Trade balance (CÁN CÂN THƯƠNG MẠI)

Trade Balance = country export - country import

● Trade balance > 0 → trade surplus (thặng dư);

● Trade balance < 0→ trade deficit (thâm hụt).
- Preliminary considerations:
+ Products;
+ Volume;
+ Country sourcing;
+ Identification of suppliers;
+ Compliance with foreign law: Foreign export controls, exchange control licenses, export quotas;
+ Utilization of Customs Brokers, Importer’s Liability, Ports of Entry, Import Quotas & other duties, HS
classification, Duty-Free and Reduced Duty Programs, Temporary Importations, Country of Origin,
Specialized Products, Customs Rulings;
+ Import Packing and Labeling;
+ Commercial Considerations: Industry Standards;
+ Terms of Purchase (INCOTERMS);
+ Consignments;
+ Marine and Air Casualty Insurance;
+ Method of Transportation; Booking Transportation;
+ Import Financing;
+ Patent, Trademark, and Copyright Registrations;
+ Confidentiality and Non-Disclosure Agreements;
+ Payment, Translation.

4. Trade Volume
● Geography (Distance) and Economy size (GDP) are the most important determinants of bilateral trade flows.
○ Larger economies produce more goods and services;
→ export capability.
○ Larger economies have higher buying power due to higher income;
→ import capability.
● The reason why trade is very concentrated among developed countries:
○ 50% of current world trade is between developed economies (countries in OECD & EU 25);
○ 12% of current world trade is between developing economies.

5. The Gravity Model for Bilateral Trade (Trade between 2 countries i and j)
● Empirically, one can predict bilateral volume of trade using the following “gravity” equation:

Tij is bilateral trade between countries i and j

Dij is the distance separating them
Y is country GDP
 A is constant term
Parameters a, b, and c are estimated from the regression (close to 1)
● Note:
- Trade is roughly proportional to country size (just like gravity);
- On average doubling, the distance between two countries of similar size will halve their bilateral trade;
- The effect of distance has not changed much over the last 50 years even with the substantial change in transportation
cost;
- Other factors affecting bilateral trade:
+ Sharing a common border (beyond the effect of distance);
+ Sharing a common language;
+ Former colonial ties;
+ Being part of a free-trade agreement (FTA);
+ Immigration flows;
+ Other cultural ties.
Example: Calculate the bilateral trade between Vietnam and other countries, assume A = 0.05

6. Parties involved in Im-Ex procedure

- Freight forwarder: person or company that organizes shipments for individuals or corporations to get goods from the
manufacturer or producer to a market, customer or final point of distribution. A forwarder does not move the goods
but acts as an expert in the logistics network.
Example: Expeditor, Uni Freight Vietnam, Damco Vietnam, etc.
- Carrier: Transport the goods using a variety of shipping modes, including ships, airplanes, trucks, and railroads, and
often use multiple modes for a single shipment.
Example: Maersk, Vietnam Airlines, Evergreen, etc.
- Third-party (3PL) Logistics: use of third-party businesses to outsource elements of its distribution, warehousing,
and fulfillment services.
Example: DHL, Nippon Express, Schenker, etc.
● One party can perform 1 role or many roles at the same time.
- Customs agent: law enforcement office working on behalf of the government to carry out inspections on goods and
people moving in and out of a country.
- Customs broker: Work directly with customs agents; clear shipments of imported goods, prepare required
documentation for export shipments and collect duties and taxes. They act as an intermediary between importers and
the government, helping companies deal with legislation; can work independently or work for Freightforwarder or
3PL Logistics.
7. Factors affecting Im-Ex practice