Chapter 16

The International Trade Administration and the United States and Commercial Service Agency

"best prospects" list for firms

Barter

A direct exchange of goods and/or services between two countries without a cash transaction. The most restrictive countertrade arrangement. Used primarily for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy.

Countertrade

A range of barter-like agreements that facilitate the trade of goods and services for other goods and services when they cannot be traded for money. Emerged as a means in the 1960s when the USSR and Communist States had nonconvertible currency. Grew in the 1980s when many developing nations lacked the foreign exchange reserves to purchase necessary imports, notable increase after 1997 Asian Financial crisis

Counterpurchase

A reciprocal buying agreement. Occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

Time draft

Allows for a delay in payment 30, 60, 90, or 120 days, once accepted can be used as a negotiable instrument that can be sold at a discount from its face value

Export-Import bank (Ex-Im bank)

An independent agency of the U.S. government. Provides financing aid to facilitate exports, imports, and the exchange of commodities between the U.S. and other countries. Achieve its goals through loan and loan guarantee programs

Draft

An order written by an exporter, instructing an importer, or an importer's agent, to pay a specified time

Bill of exchange

Another term for a draft, the instrument normally used in international commerce for payment.

Export management companies (EMC)

Export specialists that act as the export marketing department or international department for client firms.

Available U.S. export assistance

Financing aid is available from the Export-import bank, export credit insurance is available from the Foreign Credit Insurance Association (FCIA),

Improve exporting performance

Firms needs to collect information, can get direct assistance from some countries and/or use export management companies. Both Germany and Japan have developed extensive institutional structures from promoting exporters, U.S. firms have far less resources

Advantages of countertrade

Gives firms a way to finance an export deal when other means are not available, it gives a firm a competitive edge over a firm that is unwilling to be a part of a countertrade agreement. Can be required by some governments in some countries in which a firm is exporting goods and services.

Sogo shosha

Great trading house, where Japanese exporters can get knowledge and contacts

Reduce risks for exporting

Hire an EMC or export consultant to identify opportunities and navigate paperwork and regulations, focus on one, or fewer markets at first, enter a foreign market on a small scale in order to reduce the costs of any subsequent failures, recognize the time and managerial commitment involved, develop a good relationship with local distributors and customers, hire locals to help establish presence in the market, be proactive, and consider local production.

Exporting firms need too

Identify market opportunities, deal with foreign exchange risk, navigate import and export financing, and understand the challenges of doing business in a foreign market.

A letter of credit

Issued by the bank at the request of the importer, states bank will pay a specified sum to the beneficiary, normally the exporter, on presentation of specified documents.

Bill of lading

Issued to the exporter by the common carrier transporting the merchandise, serves 3 purposes.

Purposes of bill of lading

It is a receipt- merchandise described on document has been received by carrier, it is a contract- carrier is obligated to provide transportation service in return for a certain charge, it is a document of title- can be used to obtain payment or written promise before the merchandise is released to the importer

Disadvantages of countertrade

It may involve the trade of some poor quality or unusable goods, that the firm cannot dispose of profitably. It also requires a firm to establish an in-house trading department to handle countertrade deals.

Countertrade is most beneficial

Large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods in countertrade deals. (Sogo Shosha)

Buyback

Occurs when a firm builds a plant in a country or supplies technology, equipment, training, or other services to the country. Agrees to take a certain percentage of the plant's output as a partial payment for the contract.

The Department of Commerce

Organizes various trade events to help firms make foreign contacts and explore export opportunities

Sight draft

Payable on presentation to the drawee

Disadvantages of exporting

Poor market analysis, poor understanding of competitive conditions, a lack of customization for local markets, a poor distribution program, poorly executed promotional campaigns, problems securing financing, a general underestimation of the differences and expertise required for foreign market penetration, and an underestimation of the amount of paperwork and formalities involved.

Foreign Credit Insurance Association (FCIA)

Provides coverage against commercial risks and political risks, protects exporters against the risk that the importer will default on payment

Offset

Similar to counterpurchase- one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. Difference is that this party can fulfill the obligation with any firm in the country to which the sale is being made.

Assignments of EMC

Start export operations with the understanding that the firm will take over after they are established, some are better than others. Start services with the understanding that the EMC will have continuing responsibility for selling the firm's products, firms that use EMCs may not develop their own export capabilities.

Information for U.S. exporters

The U.S. Department of Commerce, the International Trade Administration, the United States and Commercial Service Agency, the Department of Commerce, the Small Business Administration, and local and state governments

U.S. Department of Commerce

The most comprehensive source of export information for U.S. firms

Reputable bank

The third party to help with international trade, adds an element of trust t the relationship

Switch trading

The use of a specialized third-party trading house in a countertrade arrangement. When a firm enters a counterpurchase or offset agreement with a country, it often ends up with counterpurchase credits which can be used to purchase goods from that country. Switch trading occurs when a third-party trading houses buys the firm's counterpurchase credits and sells them to another firm that can better use them

Forms of countertrade

barter, counterpurchase, offset, buyback, switch trading