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with conditions. Very frequently the formation of a separate company is the most practical way of promoting export business. The new organization may be an allied company, a joint selling company, an independent company, or any type of combination permitted under the Webb Law.

In the case of the allied company, the name of the parent house may be used for the company which is organized abroad to handle the trade in the particular territory. Such company may or may not be controlled by the producing concern and the whole risk of selling for export in a particular territory is frequently assumed by the allied organization. It is a matter of business and legal detail to decide whether or not in a given case the formation of an allied company is best and to what extent independent or exclusive rights should be granted it.

A joint selling company, such as the United States Steel Products Company, can be said to be merely an export department acting as a separate sales organization for a number of competing manufacturers. The advantages of such an organization in selling the products of a number of producers are manifold. It usually buys goods from the concern or associated concerns for which it is acting at prices allotted in advance or during the year, with a periodic settlement of accounts according to previously arranged plans.

An independent company organized for export may take numerous forms-it may be essentially a commission house or an agency handling the products of different manufacturers, as in the case of the North American Copper Company; it may be a co-operative company representing various manufacturers in non-competitive lines in foreign markets, as the National Paper and Type Company; it may act as a selling agent for a company made up of allied manufacturers, as is the case of the American International Corporation in connection with the Allied Machinery Company of America. Further discussion of this subject appears in Chapter XIX.

The type of export organization to be created or adopted will naturally depend upon the nature of the product, the financial resources of the manufacturer, the condition of the markets, and the general financial situation throughout the world. For a small concern entering the export field, even the creation of a separate sales organization is usually unnecessary. The foreign department of a large company should be fitted to transact every kind of export business for foreign countries. A large concern would not think of giving up indefinitely its selling rights to a separate organization, but would devise a flexible plan adaptable to the varying conditions under which the particular product has to be handled abroad. The laws of the country where export business is to be transacted will have much to do with determining the plans for a separate selling organization abroad.

The Terms of Sale

The terms of sale constitute a very important point in connection with foreign trade. No other question so interests the foreign purchaser. His first demand in every market will be for long-time credits, and the American exporter must be prepared for it. The bulk of our foreign trade is at present conducted on what is practically a cash basis, the commonest form of payment being the bank acceptance. Of late a revival of the trade acceptance has had its enthusiastic supporters. The details of the operation of these methods of financing foreign trade need not concern the reader at this point. Suffice it to say here that from the buyer's viewpoint they offer all the time required for payment, while to the seller they mean cash as soon as the goods are placed on the vessel.

One of the chief elements of success in export trade is for the seller to discover a way of giving credit to his customers or to some of his customers without being himself the sufferer, for credit has been in the past and will be increasingly in the

future, a leading factor in overcoming competition and in extending trade. To that end the seller should, through the agency of his bank, arrange for the acceptance of his draft by the buyer, the bank meanwhile advancing the greater part of the value of the shipment on the security of the documents which give title to the goods.

Certain specific methods will be discussed later. In the meantime it seems self-evident that so long as European exporters continue to grant the more attractive credits the American exporter faces a disadvantage, unless he is able to outsell his European competitor through the superiority of his product, or the efficiency of his service.

Miscellaneous Export Policies

Next in importance to the credit policy comes the determination of the quality of the article sold and the margin of profit to be earned. The greater the margin of profit the greater may be the extension of credit and the selling expenditures. In fixing the selling price abroad the exporter should be governed as much by local conditions as by his previous experience in the domestic field. Whether his price be higher or lower than at home, his margin of profit should be large enough to permit of its reduction under the stress of foreign competition.

If the goods have been manufactured for export and with a view to the requirements of each market, they will generally stand an increase in the margin of profit over and above the normal. For it must never be forgotten that next to extended credit what the foreign buyer wants from the exporter is quality, and the concern which happily combines these two finally determining factors is on the way to certain success.

There are other policies less fundamental but sometimes no less vital, the most important of which will be discussed later. The proper methods of choosing and training men for foreign

service, the methods of packing and shipping merchandise, the wrapping of packages for display, etc., the reliability of the exported article, the rate of discount for cash, the expense and the methods of selling all these are determining factors in the policies of the exporting concern.

CHAPTER III

FOREIGN TRADE STRATEGY AND ITS

ESSENTIALS

Strategy in Foreign Trade

Recent events have demonstrated that war may be a business, and there is much in business which resembles war. Every business campaign to be sound, should, like a military campaign, be based on strategy. That is the most vital principle in war and business alike. But although to a military man the word strategy has a world of meaning, to a man of affairs it is still vague and uncertain. He grasps its full significance only after he has resolved a proposition into its component parts.

Military strategy is the art by which Scipio conquered Carthage, Caesar Gaul, and Napoleon the greater part of Europe. It is the science of military movements in the game of war, and not the mere theory of the scholar, nor the inspiration of genius. To be scientific, strategy must be based on exact knowledge, systematized and brought to a perfect focus. In business, strategy is the art of commercial conquest. It is the science of mercantile operations, by virtue of which Rockefeller extended his commercial organization throughout the world. It is the science by which the modern captains of finance and industry everywhere have accumulated their untold millions.

Commercial strategy is based upon the knowledge of the factors which underly mercantile and financial movements. directed toward overcoming competition and extending operations to their utmost capacity. In foreign trade, strategy is by

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