Fourth Edition

InternationalBusiness

CHAPTER 15

Exporting, Importing, and Countertrade

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-3

Chapter Focus

Examine the “nuts and bolts” of exporting (and importing).Identify foreign market opportunities:

Avoid unanticipated problems.Be familiar with the mechanics of export and import financing.Learn where to get financing and export insurance.Deal with foreign exchange risk.

Countertrade.

Exporting

To ship to another country for sale or exchange.

15-4

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-5

Promise and Pitfalls of Exporting

Ignorance and

Intimidation

Poor marketanalysis

Poor understandingof competitive

conditions

Failure to customize product

offeringPoor distribution

program

Poorly executedpromotional

campaign

Problems securingfinancing

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-6

Improving Export Performance

Information fromgovernment sources

Export ManagementCompanies

Utilizing exportstrategies

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-7

Government Support for Exports

www.bundesregierung.de

www.miti.go.jp

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-8

US Export Support

www.doc.gov

www.ita.doc.gov

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-9

Utilizing Export Management Companies

EMCs:Export specialists who act as the export management department or international department for client firms.

Two types of assignment:Start operations for a firm with understanding the firm will take over after they are well established.Start-up services with continuing responsibility for selling the firms products internationally.

Exporting Strategy

It helps to hire an EMC or, at least, someone with experience.Focus on one or a few markets.Enter markets on a fairly small scale until you ‘learn the ropes’. Add new lines after initial success.Need to recognize the time and managerial commitment.Build strong and lasting relationships.Hire locals to help firm establish itself.Keep the option of local production in mind.

15-10

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Export/Import Financing

Letters of Credit (LOC)Bank guarantee on behalf of importer to exporter assuring payment when exporter presents specified documents

Drafts (Bill of Exchange)Written order exporter, telling an importer to pay a specified amount of money at a specified time.

Bill of LadingIssued to exporter, by carrier. Serves as receipt, contract and document of title.

Issue of TRUST

15-11

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-12

Preference of the US Exporter

French Importer American Exporter

1. Importer Pays for Goods

2. Exporter Ships Goods After Being Paid

Figure 15-1

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-13

Preference of the French Importer

Figure 15-2

French Importer American Exporter

1. Exporter Ships the Goods

2. Importer pays after the Goods are Received

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-14

The Use of a Third Party

Figure 15-3

1. Importer Obtains Bank’s Promise to Pay on Importers Behalf

5. Bank Gives Merchandise to Importer

6. Importer Pays Bank

3. Exporter Ships “to the Bank.” trusting Bank’s Promise to Pay

2.Bank Promises Exporter to pay on Behalf of Importer

4. Bank Pays Exporter

American Exporter

BankFrench Importer

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-15

A Typical International Transaction

Figure 15-4

French ImporterAmerican Exporter6. Goods Shipped to

France7. Exporter Presents Draft to

Bank

10 and 11

Exporter Sells

Draft to Bank

14. B of NY Presents Matured Draft and Gets

Payment

12. Bank Tells

Importer Documents

Arrive

13. Importer

Pays Bank

2. Exporter Agrees to Fill Order

1. Importer Orders Goods 3. Importer Arranges for LOC

5. B of NY

Informs Exporter of LOC

8. B of NY Presents Draft to Bank of Paris

9. Bank of Paris Returns Accepted Draft4. Bank of Paris Sends LOC to B of NY

Bank of New York Bank of Paris

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-16

Export Assistance

www.exim.gov

Foreign CreditInsurance Association

Countertrade

Trade carried out wholly or partially in goods rather than

money.

15-17

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Countertrade as a Share of World Trade Value

0

10

20

30

40

50

1975 1985 1990 1992 2000

%

15-18

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Countertrade Practice

Offse t S witc h T ra d in g B a rte r B u yb a c k C o u n te rp u rc h a se

73

3

19 22

60

0

20

40

60

80

100

Off set

Switch Trading

Barter

Buyback

Counterpurchase

Figure 15-5

Percent of companies engaged in each countertrade practice

15-19

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Countertrade

Typically, 5 kinds of countertradeBarterCounterpurchaseOffsetSwitch tradingCompensation or Buyback

15-20

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Definitions

Barter: direct exchange of goods and/or services without a cash transaction.

Counterpurchase: reciprocal buying agreement.

Offset: like counterpurchase, but can buy goods from any firm in country.

Switch trading: uses third-party trading house.

Buybacks: foreign plant takes products as contract payment.

15-21

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

Pros and Cons of Countertrade

Gives firms a way to finance an export deal when other means are unavailable.Foreign governments may require it.

Helps countries that don’t have sufficient foreign currency reserves.

However:May involve defective goods.Must invest in in-house trading department - expensive and time consuming.

Most attractive to large, diverse multinational enterprises.

15-22

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.