Seeking profit opportunities in export trade, a number of U.S. companies have faced foreign competition head-on and successfully established themselves in world markets. Many businesses, however, lack the resources or expertise to export on their own. By exporting together, American firms can increase their competitiveness and each firm can benefit from lower individual export costs and increase its efficiency in every phase of exporting. Possible sources of savings include sharing the costs of transportation, insurance, overseas warehousing, overseas representation and after sales servicing.
COMPETITIVE ADVANTAGES FROM JOINT EXPORTING
Export joint ventures offer firms the opportunity to reduce costs by capturing economies of scale. Joint ventures also enable participating firms to spread risks. These benefits are likely to be greatest for small and medium-sized firms that are either new to exporting or have limited export experience. However, firms of all sizes and levels of international business experience can use joint exporting to reduce per unit export costs and develop proactive export strategies which may not be feasible for individual exporters. The ability to reduce export costs and risks is especially important when considering entry into a new or complex export market.
Specific areas in which gains can be obtained will vary with the nature of the product and the targeted foreign markets. The following examples are suggestive of the kinds of things potential joint venture partners should consider.
Market Research: U.S. firms can join together to share the costs of foreign market research (including hiring expertise), travel, and overseas activities.
Market Development: U.S. firms can reduce the average costs of overseas trade shows and missions through joint activities. Firms with complementary products can offer more attractive "full line" packages to prospective buyers. Cost reductions can also be achieved by jointly conducting generic advertising intended to cultivate or increase demand for American products.
Overseas Bidding: U.S. firms can increase sales and profits through joint bidding. As a group, the joint venture can respond to foreign orders requiring quantities beyond the productive capacity of the individual member firms, and it can accomplish sales while frustrating a foreign buyer's ability to play U.S. sellers off against one another.
Non-Tariff Barriers: Joint exporting agreements can be effective in overcoming some non-tariff trade barriers, such as specific labeling, packaging, and quality control requirements, as well as certification standards imposed by foreign governments. By jointly operating a one-stop facility, firms can reduce average costs of compliance. In addition, by joining together, U.S. firms secure increased leverage to work for the reduction of non-tariff barriers.
Transportation and Shipping: Volume discounts can be negotiated with carriers. Through an export joint venture, firms can guarantee carriers sufficient cargo to make these discounts available. In some cases, longer-term contracts with carriers might be negotiated, enabling export firms to quote delivered prices to foreign buyers with greater certainty.
Joint bidding and Selling Arrangements: Any number of joint venture partners may join together and submit a single bid on a particular project or tender. The partners can use the same overseas representative, agree to sell separate products as a unit, prepare joint catalogs, and allocate among participating partners the sales which result from joint bidding or selling arrangements.
Pricing Policies: Two or more joint venture partners might agree to establish uniform minimum export prices for particular products in order to avoid price rivalry with each other. For some joint ventures, higher profits might be secured through joint negotiations on prices and on terms of sale with foreign buyers.
Service and Promotional Activities: Joint venture partners may jointly engage in a variety of activities that will promote or support their combined export sales. These activities might include establishing joint warranty service and training centers, conducting joint trade shows or missions, and joint advertising. In addition, the pooling of information may open up new avenues for export finance.
Joint export ventures undertaken by domestic competitors might raise questions under U.S. antitrust laws. Fortunately, there is a program that enables U.S. exporters to obtain antitrust protection. Under Title III of the Export Trading Company Act, any U.S. resident, business association or state and local government entity may apply to Export Trading Company Affairs in the Department of Commerce for an Export Trade Certificate of Review . A Certificate of Review provides exporters with immunity from federal and state government antitrust suits with regard to all export activities specified in the Certificate.
With a growing need to sharpen competitive skills in world markets, it is time to consider an Export Trade Certificate of Review. For further information call the office of Export Trading Company Affairs at (202) 482-5131, or email ETCA