Principles of foreign trade

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Preface

Assuming that an educational book is authoritative and that its author by training, experience, and study is qualified to instruct or is entitled to express his opinions, the value of the book then depends upon its timeliness and the thoroughness with which it discusses or teaches the particular subject matter.

Regarding the timeliness of this book, little need be said. The growing interest in foreign trade among even the smaller manufacturers and producers of the United States is largely the natural effect of two causes: first, the unprecedented demands of the war which led to an increase of facilities to fill these demands ; and second, now that the war is over, the necessity of finding outlets for the increased production brought about by the creation of these facilities.

The author recognizes the possibility of the criticism that much of his advice on the conduct of foreign trade is too ''ideal" in its tone, and that to carry out all the plans and suggestions in the ideal way outlined here is impracticable for the business with limited resources. This is perfectly true. In the smaller business, the "rule of thumb" method must of necessity obtain and the existing mechanism be expanded with but little special preparation to embrace the foreign exploitation. Nevertheless, it is always well to have a model, according to which action should be adjusted as nearly as possible.

It may also be said that the aim of the book is not primarily to teach the exporter how to sell abroad his particular goods. This he can readily learn after he has mastered the general principles and grasped the mechanism of the subject, adopting so far as applicable the same methods abroad that have proved successful at home.

Vi

PREFACE

The primary aim of the book is to set forth those general principles which tmderlie the building up of foreign trade, not merely of such trade as is a convenient outlet for a few superfluous home products, but as a part of a permanent and national foreign trade policy. It should not be understood from this that practical details are entirely omitted.

The volume is not a "how book," but nevertheless a considerable portion of it is devoted to a description of the mechanism used in the handling of imports and exports. Every care has been taken to indicate the source whence the information which the exporter is likely to require may be derived. Given this information and also knowledge of the essential mechanism and of fundamental principles, the exporter is then equipped to make profitable use abroad of the executive and sales ability which has brought him success at home.

There is no mystery and little intricacy attached to the methods of foreign trade development. Human nature is much the same the world over. Human needs can be developed anywhere by sound salesmanship and proper advertising. The Qiinese can as readily be "educated" to the advantages of cash registers as the Japanese to the superiority of the automatic screw machine ; and doubtless many a perspiring Hottentot swears by the special features of American agricultural machinery when he becomes acquainted with the ease and comfort of a National Harvester "sitting" plow. The biggest exporting firms in the world are the pre-eminently successful American concerns. Distinctive American goods, from raw steel to typewriters, are sold the world over by distinctively American selling methods. .

Methods, of course, must when necessary be adapted to idiosyncrasy and circumstance. But given a knowledge of, or the right point of view on, the fundamental matters discussed in this book, there should then be no difficulty in adapting means to the ends desired. Possibly the point of view

PREFACE vii

or the opinion of the author will not always coincide with that of the reader. If so, all that the writer can state is that his opinion has been formed after fifteen years of experience as an international salesman and sales investigator and as counsel for consulates and international traders.

The author wishes to express his warm appreciation of the many suggestions and criticisms which have helped so materially in the preparation of the present volume. He especially wishes to extend his thanks to Frank G. Conway of Street and Finney; Frederick Nash of the General Chemical Company; Alba B. Johnson, formerly with the Baldwin Locomotive Works ; James H. Carter of the National City Bank ; Harry A. Wheeler, President of United States Chamber of Commerce ; and to the Guaranty Trust Company and the Discount Corporation, both of New York City.

In conclusion, it may not be improper to observe that nations as well as individuals need special knowledge in order to gain and retain foreign trade. If America is to retain even her relative position in international commerce she must continually add to her present knowledge of foreign trade, and to the methods by which it is conducted. The author hopes that in some small measure this volume may contribute to this end.

NORBERT SaVAY.

New York City, May 8, 1919.

Pdrt I — General Chapter Pack

I The Opportunities of Foreign Trade • • . . 3 Advantages of Foreign Trade Requisites to Success Foreign Trade as a Career Foreign Trade and National Welfare The New Spirit of Foreign Trade

II Six Fundamentals of Foreign Trade . • • • 8

Fundamental Factors

Cajutal

Method of Distribution

The Terms of Sale

Miscellaneous Export Policies

III Foreign Trade Strategy and Its Essentials . . 15

Strategy in Foreign Trade

Definite Study Essential

The Collection of Information

Investigation on the Spot

What May Be Learned at Home

Study of the Psychology and the Structure of the

Market Charting the Results of Investigation The Formulation of Plans Recapitulation

IV Sources of Foreign Trade Information ... 23

Statistical Information ' Defects of Governmental Statistics

Miscellaneous Sources of Information • Consular Information Trade Discussions Governmental Trade Investigation Trade Representatives' Investigations Miscellaneous Printed Matter Original Information

X CONTENTS

Chapter Page

V Demand and Supply in the Foreign Market . . 29

The Principles of Demand

Tests of Demand

Quantitative Tests

Qualitative Tests

Potential Demand

How to Study Demand

The Relation of Demand and Supply

Tests of Supply

Overproduction

Domestic Supply

Foreign Supply

Price and Quality

Conclusion

VI The Psychology of the Foreign Market ... 39 Basic Principles

Commodities Pay for Commodities Commerce Rests Upon Comparative Needs and

Supplies Conditions of Society Determine Status of Market Structure of the Market Psychology of the Market Reciprocity Significant Civilizing Influences of International Trade

VII The Status op the Foreign Market .... 46

Knowledge of General Conditions

The Political Status

The Governmental Status

The Legal Status

The Economic Status

The Financial Status

The Social Status

The Commercial Status

VIII Principles of International Distribution . . 54

Factors of Distribution

Distribution and Trade Channels

Intermediaries in Foreign Trade

Fixing the Price

Comparative Costs

Dumping

Distribution and Credit

Distribution and Prices

Maximum and Minimum Efforts in Distribution

Mistaken Methods of Distribution

Acquaintance an Element in Distribution

CONTENTS xi

Chapter Page

IX The Best Markets for the American Exporter . 64

Trade Centers

London

Paris

"New" Markets

Latin America

Special Lines of Effort

General Conclusions

X The Commercial Policies of World Powers . . 70 The Development of Economic Thought The Ancient World Mercantilism

Eighteenth Century Laissez-Faire Nineteenth Century Protectionism Special Policies of World Powers Protective Tariff Systems Navigation Laws

Devices for Promoting Foreign Trade General Policies of World Powers United States Great Britain Germany France

Other Nations Knowledge of Special Trade Policies

XI Looking into the Future of Foreign Trade . . 80

What of the Future?

The Individualistic Nations Higher Standards of Living The Breaking Down of Barriers The Present Economic Situation Government Aid to Trade Expansion Sociological Aspects

Part II — ^Machinery of Foreign Trade XII The Exporter and His Staff 89

World Trade Machinery

The Exporter

Gasses of Exporters The Producer for Export The Export Commission House xii CONTENTS

Chapter Page

The Commission House as Buying Agent

The Export Merchant

The Export Agent

Co-operative Export Organizations

The Exfokter'8 Staff

The Export Manager

The Director of Foreign Sales

The Foreign Trade Manager

The Manufacturer's Export Representative

The Correspondent

Translators

The Co-operative Salesman

Local Selling Agent

The Shipping Clerk

The Traffic Manager

Advertising Expert

XIII Importing and the Importer loi

Interrelation of Exports and Imports

The Utility of Imports

International Exchange of Commodities

Dividing Lines — ^Legal and Economic

The Importer and His Staff

The Importer Proper

The Importer Improperly So-Called

Local Commission Houses

Local Wholesale Distributer or Jobber

The Importer for Retail

The Exporter-Importer

The Co-operative Importer

The Resident Buyer

The Importing Manufacturer

Custom House Broker

Warehouse

Drawback Broker or Specialist

Methods of Importation

XIV Chief Factors in the Machinery . . .- . ., in

Sources of Information Foreign Trade Publications Insurance and Freight Rates Parcel Post and Express Banks and Collections Forwarding Agents Foreign Exchange Broker The Investigator Foreign Trade Specialists

XUl

XV

Page The Foreign Trade Machinery of the United

States Government ii6

The Governmental Machinery Machinery of the State Department The Diplomatic Service The Consular Service The Office of Foreign Trade Advisers Machinery of the Department of Commerce Other Governmental Factors The Shipping Board The Federal Trade Commission United States Tariff Commission Co-ordinating Committee on Foreign Trade Federal Reserve Bank

Functions and Operation of the Federal Reserve Bank

XVI

XVII in the United

Foreign Trade Organizations States

Public Organizations National Organizations Local Organizations The International Organizations Private Organizations

The Value op Co-operation in Foreign Trade

The American Trust Industrial Combinations Combinations Abroad Possibilities of Co-operation Co-operation Without Combination Possibilities of the Future

XVIII

XIX

Enactment of the Webb-Pomerene Law

General Provisions of the Law

Methods of Control

Forms of Combination

Wide Range of Possibilities

The Law Designed to Aid Foreign Trade

Advantages of the Law

Export Organizations and Combinations Growth of Foreign Sales Combines Specialty Foreign Sales Staple Foreign Sales

XIV CONTENTS

Chapter Page

Types of Sales Organizations Jointly Controlled Selling Organization Typical Plan of Jointly Controlled Selling Organization Co-operative Sales Organization Examples of Co-operative Sales Organization The Selling Combine Example of Selling Combine Form of Incorporation Agreements with Participating Concern Suggested District Sales Company

XX GOVERNMENTAI. SUPPORT OF FOREIGN TrADE . . l6l

An Achievement in Foreign Trade

Basic American Organization

Need of Governmental Help in Foreign Trade

Form of Organization

An American Board of Foreign Trade

Specific Activities of Board of Trade

Importance of Proper Organization

General Functions of the Board

Part III — Operating a Foreign Trade Organization XXI The Development of a Foreign Market . . 171

Attitude Toward .the Foreign Field

The Investigator

Investigation Procedure

Letters of Introduction

Deportment

Obtaining Da;ta

Time

Expense of an Investigator or a Sales Representative

Export Office

Expenses and Returns

Co-operation

Self-Developing Foreign Trade

XXII Preparing a Foreign Sales Plan 181

The Sales Plan

Information Required

Correlation of Selling Plan and Selling Organization

Elasticity of Selling Plan

Special Selling Plans

Local Sources of Information

Concentration

FoUow-Up Methods Advertising as a Follow-Up Closing Sales by Mail Co-operation in Foreign Sales The International Sales Manager

XV

Page

XXIII Selecting Men for Foreign Service

The Elements of Success

Aptitude and Adaptability

Special Knowledge and Training

Personality

The Right Man for the Right Field

Selecting the Man

Age and Experience

Tests of Candidates

• •

XXIV Education for Foreign Trade

Requisites for Salesmanship Success European Methods Technical Education Practical Education American Education in Foreign Trade Status of American Education in Foreign Trade Practical Training for Foreign Trade Natural Qualifications Required in Foreign Trade Haphazard Training for Foreign Trade Why We Have Few Salesmen Qualified for Foreign Trade

XXV Education for Foreign Trade (Continued)

The Export Office as a Training School The Sc>«ool and Shop Method Opportunities for Study of Foreign Trade A Practical Course in Foreign Trade Practical Experience in Foreign Trade

XXVI The Efficiency of the Organization •

Fundamental Efficiency Principles

Specialized Effort

Formulation of General Policies

Handling Salesmen

The Manager's Duty — Inspiration

Liberal and Fair Treatment

Keeping in TQUch

XVI

Chapter XXVII

XXVIII

XXIX

Selling Methods in Foreign Trade . .

Adaptability of Selling Methods

Selling Methods Must Conform to Custom

Suiting Methods to Conditions

The Leisurely Approach

Methods for Promoting Foreign Trade

Competitors' Methods

Suggestions for International Salesmen

The International Salesman

Aggressive Salesmanship

Overcoming Customers' Excuses

Offering Suggestions

Keeping a Customer

Approaching a Prospect

Gosing a Sale

What is Meant by Salesmanship as an Art?

Page

23«

Foreign Trade by Mail Order . . .

Status of Foreign Mail Order Trade

The Ordinary Type of Mail Order House

The Dealer and the Mail Order House

Mail Order Advertising

Good Service

Credits

The Local Representative

XXX Advertising in Foreign Trade . . . . , Purpose of Advertising Adapting the Advertisement to Conditions Channels for Foreign Trade Advertising Value of Advertising Mediums Advertising Specialists Circularizing

Local Advertising Agencies Exhibits Posters

Information as an Advertising Basis Preparation for Foreign Advertising

Part IV— The Technique of Foreign Trade

XXXI The Technicalities of Importing . . Interrelation of Foreign Trade Machinery Qasses of Importers Custom House Procedure Foreign Preliminaries xvii

XXXII

Page

Domestic Procedure Forms of Entry Blanks Storing and Bonding Undervaluation

Manufacturing for Export • .

Meeting the Customer's Demands

The American Manufacturing System

Manufacturing Details

Latent Demand

Production and Local Methods

Price and Quality

Conclusion

XXXIIT

XXXIV

XXXV

XXXVI

From Factory to Seaport

The Technicalities of Exporting

Packing

General Conditions to be Considered in Packing

Special Conditions to be Considered in Packing

General Instructions for Packing

Marking

Railroad Transportation of Exports

Transfer at the Port of Shipment

Shipping Arrangements at the Port ....

What the Shipping Arrangements Include

Choosing the Steamship Company

Rates

Regulations Pertaining to the Handling of Freight

Shipping Permit

The Bill of Lading — Export Invoice

Custom House Procedure • .

Shipper's Export Declaration

Shipping Through an Agent

Shipments from the Interior

Clearance

Drawback

Shipping in Bond

The Principles and Laws of Marine Insurance 291

The Origin of Marine Insurance

Fundamental Regulations

The Agents

Important Features of Marine Insurance

XVUl

Page

XXXVII

XXXVIII

Liability of Steamship Companies Abandonment Settlements of Averages Valued and Open Policies

Methods of Export Payment

Cash With Order

Bank Credit

Open Accounts

Bills of Exchange

Negotiable Instruments

Trade Acceptance

The Use of Trade Acceptances

Documentary Drafts

Bank Acceptance

Financing the Import Shipment

Foreign Credits and Collections

Credit Information

Discounting Drafts

International Banking

Effect of Federal Reserve Act

Trust Receipts

Finance Bills

XXXIX Foreign Commerce Laws ....•••• 316 Necessary for an Elementary Knowledge The Commercial Codes Registration

Miscellaneous Provisions Bankruptcy Laws Compulsory Bookkeeping General Governmental Supervision Commercial Paper Peculiar Trade Customs Commercial Travelers Law of Agency Sources of Information

XL Summary op Trade-Mark^ Patent^ and Tariff

Laws

A Knowledge of Trade-Mark Laws Essential in

Foreign Trade Gasses of Trade-Mark Laws Regulations of the International Convention

Registration

What May Nat be Registered

Rules Regarding Registration

Patent Laws

Tariff Laws

Part V— Trade Regulations Knowledge of Regulations Indispensable to the

Exporter License Fees and Taxes

Recent Treaties with South American Countries Documents Required Admission and Sale of Samples Other Important Factors New Republics and Enemy Countries Regulations in Individual Countries

XLII Commercial Travelers (Continued) .

Regulations in Individual Countries

XIX

Page

XLI

XLIII Consular and Shipping Requirements in World

Trade 390

Requirements in Individual Countries

XLIV Credit Customs of the World 404

Customs of Individual Countries

Appendix A — Governmental Enactments and Agencies . . 417

Text of the Webb-Pomerene Law

Law of Drawback

Federal Reserve Act

Work of the Bureau of Foreign and Domestic Commerce

Work of the Office of Foreign Trade Advisers

Federal Trade Commission — Rules of Practice

Appendix B — Diplomatic Representation, Parcel Po si- Countries, and Shipping Distances 43^

Foreign Cities in Which There Are American Consulates Embassies and Legations Maintained Abroad by the United States Parcel Post Countries Distances from New York to Principal Ports of the WorH

XX CONTENTS

Pagb Appendix C — Cuwuency and Weight Equivalents . . • . 447 Foreign Currency Equivalents Values of Foreign Coins Conversion Tables

Appendix D — Suggestive Investigation Charts • • • . 453

Investigator's Instruction Sheets Investigator's Analysis Sheet Investigator's Summary of Analysis Sheet Supplementary Topics for Investigation

Appendix £ — Bibliography •••••• 463

Appendix F — Glossary • • • • • 465

Principles of Foreign Trade

Chapter I The Opportunities Of Foreign Trade

Advantages of Foreign Trade

Why should any American manufacturer or producer, who has a satisfactory business at home, enter the foreign field? Even when he is convinced that foreign trade would be advantageous, how shall he set about it and how can he avoid the obstacles and overcome the handicaps that confront the stranger in a strange land ? These questions this book purposes to answer.

Foreign trade offers to the American producer an opportunity for greater profit, for greater independence, and for greater service. The exporter who discovers and develops a new market is as much a creator of wealth for himself and his country as is the miner or the farmer. Nor do the advantages cease with his increased income. His foreign trade will tend to make him independent of domestic conditions. He can weather a period of national financial depression without reducing his force or curtailing his output. High wages may continue and the cost of doing business may rise, but his increased production to meet his foreign orders will keep down the cost price of his goods. Here he will find a profitable use for the new factories and machinery bequeathed him by the war. Here is emplo)mient for his surplus labor and here are real careers for those of his employees who can qualify. Finally if he will properly equip himself, he will be in a position to grasp the greatest opportunity that has ever been offered the American trader.

Now, if ever, is the time to establish overseas a permanent market for American goods and to lay the foundations of a trade that will give the United States the place among the world's exporting nations to which it is entitled by reason of its size and resources. The shelves of the world are empty. It will be years before the nations of Europe will be able to provide for more than their own needs. It should be possible for this country, if its business men utilize their opportunity, not only to maintain the remarkable trade it has gained during the war, but still further to develop and stabilize this avenue of industry. Such a development would vastly increase the national wealth. The task for a few years to come will be comparatively easy, though sooner or later the American exporter will find himself in competition with the world's best international traders. Only if he will properly equip himself can he then hold the position he has gained.

Requisites to Success

The price of success in the foreign field is most careful and constructive preparation. Foreign trade is not adapted to getrich-quick methods. It has a technique of its own which must be mastered. The trader must studv his market. He must build for the future. He must not treat his foreign department as a dumping ground for what he cannot easily dispose of at home. He must seek business intelligently, for no longer does foreign trade come unsolicited. He must be ready to make a substantial investment of time, money, and energy. The results will amply justify the expenditure.

One of the American trader's chief requisites for success is knowledge — specialized, expert knowledge. He needs no less the establishment of direct selling facilities, only possible to the average trader through co-operative effort. Above all he needs the support of a strong, aggressive, organized, and continued effort for the sale of American goods abroad and for the protection of commercial integrity in foreign lands.

OPPORTUNITIES OF FOREIGN TRADE 5

When to these requisites is added a proper individual equipment, the road to success is c^en.

Foreign Trade as a Career

It is not only to the capitalist and the established producer that foreign trade presents its opportunities. To the young man with heahh and ambition, energy and intelligence, if he is foot-loose, if he has imagination, and above all, if he is touched by the spirit of adventure, it offers a career whose attractions are strong. The spirit which may have lured his grandfather to ship before the mast, or his father to forsake the village store for the life of the commercial traveler, beckons him to a greater opportunity than they ever dreamed of. It is not merely a chance to see the world and to earn a good living, but a call to act as his country's emissary. The work of extending America's market is a pioneer work worthy of comparison with that of the early pathfinders who extended her boundaries.

The opportunities are not restricted to salesmanship. Many a successful salesman returns to the office from which he started, to fill one of the executive positions which are the big prizes of the calling — ^big not only in their material rewards but in the chance they offer him to do constructive work of a high order both for his products and for the welfare of his country.

The positions in the office of the foreign trader call for trained men. Here the habitual job-hunter meets his Waterloo. Mere willingness and general education are not sufficient Special training and technical knowledge are indispensable. Vocational education for foreign trade is one of the great needs of the moment. If without such training a young man can secure a foothold in an export office he is indeed fortunate. If he hopes to advance or even to remain, he will at once set about the acquisition of the special knowledge that he needs.

Here is a vocation that is not yet overcrowded. Here is a real future for the man who will do his part.

Foreign Trade and National Welfare

Foreign trade has begun to be conscious of a new spirit. The day of the individualist is waning. The interests of the foreign trader are closely knit with those of his native land and of the country with which he deals, and whether he is conscious of it or not his activities have an important bearing on their prosperity and welfare. The national advantages of foreign trade may be summed up as follows:

1. Foreign trade stimulates national progress and steadies

prices.

2. It creates national wealth by widening the circle of

exchanges.

3. It brings about a better adjustment of the creative

forces of the nation.

4. It disposes of surplus products and gives emplo)mient

to surplus labor.

5. It offers a new field in which the country's capital may

replace itself with profit.

6. It improves the distribution as well as the production

of wealth.

7. It tends to reduce the cost of money and it improves

the national credit.

In a word, foreign trade is among the most powerful factors in creating and multiplying the wealth of the nation.

The New Spirit of Foreign Trade

It is in the exporter's attitude towards his foreign market that the new spirit is most manifest. He not only regards himself as the custodian of his country's honor, but he has begun to build for the future. He is no longer satisfied to grasp an

OPPORTUNITIES OF FOREIGN TRADE 7

immediate profit and to seek pastures new. Today he is aiming to lay the foundations of a permanent trade. He wants the confidence of his market and he is seeking to cultivate it. He realizes, finally, that the highest business ethics and good business policy are as closely identified abroad as they are at home.

The exporter who, while he piles up his profits, thinks and speaks of himself as a missionary who is extending the fruits of this country's civilization and who therefore should be considered a benefactor of mankind, may evoke a smile, nevertheless there is much to be said for his point of view. It may be that he is raising the standard of living and of civilization itself and is helping to equalize the chances of all peoples in the pursuit of happiness. If the exporter really believes in his products and is successful in introducing them among people who but for him would never know them, the financial returns may well be the lesser part of what he has brought about.

The new spirit of foreign trade is born of a consciousness of the opportunity for service and of the responsibility which it involves. The trader who seeks success today must deserve it.

Chapter II Six Fundamentals Of Foreign Trade

Fundamental Factors

There are six factors in foreign trade which may be considered as fundamental. They are:

1. Capital

3. Method of distribution

5. Terms of sale

6. General policies

Capital

Capital must be considered first, for on the amount of capital the exporter has at his disposal will depend the character of the other factors. Large capital is not always necessary. If he is satisfied to grow slowly, but little if any additional capital is needed to start. When more rapid progress is desired a few thousand dollars will often suffice when the exporter does not depend entirely on his export business for his maintenance. Generally speaking, however, unless he is prepared to make a substantial outlay for the development of the business, it would be better not to enter the field.

The amount of information necessary for an exporter depends entirely on the other factors. If the exporter is satisfied with the occasional order through a commission house which the casual advertisement in an export paper may bring, exten-

SIX FUNDAMENTALS OF FOREIGN TRADE 9

sive information is superfluous. But if direct trade is contemplated, with a special organization to conduct it, all the information available becomes an absolute necessity. In the chapters which follow the kinds of information needed and the ways in which it may be acquired will be fully discussed.

Method of Distribution

There are, six general methods or channels of distribution:

1. Export houses (merchant and commission)

2. Mail order

3. Travelers

4. Local agents abroad

5. Branch office or special organization or arrangement

abroad

6. Co-operation

The choice of the method depends on what the exporter aims to accomplish, on the amount of capital at his disposal, the kind of merchandise he handles, and many similar factors. Usually more than one and sometimes all of these six methods of distribution are adopted simultaneously.

If the would-be exporter is merely experimenting or making the preliminary moves, he may choose to solicit orders from a local export house. He may also use an occasional advertisement in an export paper, at the same time corresponding with foreign buyers and, agents. Little outlay is required for such a procedure, but the results are extremely slow and uncertain. This course is wise in case a manufacturer wishes to dispose of a small production which he fears home markets will not absorb. It is wise if he wishes merely to develop inquiries from abroad and to establish foreign connections slowly and at little expense. But he should not expect large results from this method or become discouraged if the process is much slower than he originally anticipated. This method lO GENERAL CONSIDERATIONS

has been pursued by most of the manufacturers in this country who are engaged in exporting — which in a measure explains why our direct export trade has not been larger.

At the same time it must be remembered that cautious procedure is much more desirable than that of the man who tries to do too much with too little — too little knowledge, too little capital, and too little organization. Such a man usually attempts to sell through commission houses, mail orders, travelers and local importers, or agents abroad — through nearly all the principal channels of trade, without first studying the requirements. He soon comes to the conclusion that the game is not worth the candle ; he finds the expenditures altogether out of proportion to the profits and he concludes that there is nothing in the export trade. There will never be anything in export trade for men who aim to do business in a rush and attempt everything without first testing anything.

The only wise courses to pursue are either to enter exporting with thorough equipment, or to begin on the very small scale indicated in the first instance. Should the first method be selected the exporter will need sufficient capital, complete knowledge of the field, the establishment in foreign countries of branch offices, agencies, or subsidiary organizations, the adoption of proper terms of sale, and the formulation of policies that will stand the test of time.

If the resources of the concern are not large enough to enable it to stand alone, co-operation should be sought with other exporters in similar or non-competing lines with a view to a joint investigation and exploitation of the field by means of the combined resources in distribution, advertising, selling, and branch office administration.

In direct exporting the manner of developing and handling business is important. The type of organization must vary

SIX FUNDAMENTALS OF FOREIGN TRADE il

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.