International Bus 14

what are the export markets for US companies? (1-6)

1. Large US companies purchasing US goods for their own foreign affiliates 2. Large design and construction firms purchasing US goods for foreign projects awarded to them 3. U.S. branches of gigantic foreign trade com 4. Export merchants buying for their own account 5. Large foreign companies purchasing US goods through their US buying office or agent 6. US military purchasing for use abroad

U.S. exporters can draw on two forms of governmentbacked assistance to help their export programs. what are those 2 things?

1. They can get financing aid from the Export-Import Bank 2. They can get export credit insurance from the Foreign Credit Insurance Association

what are the export markets for US companies? (7-12)

7. US exporters seeking US goods to round out their own lines 8. UN members purchasing for development projects 9. Foreign government purchasing US goods 10. Foreign department store purchasing US goods through US buying office 11. Foreign buyers on purchasing trips 12. Aid-financed transactions requiring US goods.

Which of the following is an advantage of a letter of credit for an importer? A. The importer does not have to pay for the merchandise until the documents have arrived. B. Obtaining pre-export financing becomes easier. C. It helps the importer to get goods for a lower price. D. It results in lower shipping costs. E. The importer does not have to pay the third party a fee for facilitating the transaction.

A. The importer does not have to pay for the merchandise until the documents have arrived.

A(n) _____ refers to an export specialist that acts as an export marketing department for client firms. A. export management company B. export-import firm C. foreign direct investment management firm D. strategy management company E. association of export companies

A. export management company

export management companies?

Act as the export marketing department of firms • Domestic firms that specialize in performing global business services as commission representatives or as distributors. • Experienced specialists

_____, a type of countertrade, occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. A. Barter B. Counter purchase C. Compensation D. Switch trading E. Buyback

B. Counter purchase

Which of the following is an advantage of exporting? A. It helps in easy currency conversion. B. It provides large revenue and profit opportunities . C. It reduces the administrative costs incurred by a company. D. It helps companies increase their unit costs. E. It reduces paperwork and complex formalities.

B. It provides large revenue and profit opportunities

Firms engaged in international trade deal with people they may have never seen, who live in different countries, who speak different languages, and who abide by different legal systems. These factors result in: A. easy tracking of the parties involved. B. a lack of trust between the parties. C. strict enforcement of contractual obligations. D. rapid acculturation. E. better understanding of how transactions should be configured

B. a lack of trust between the parties.

In terms of using a third party in international trade, title to the products is given to a bank by the exporter in the form of a document known as a _____. A. merchandise bill B. bill of lading C. bill of exchange D. draft E. letter of credit

B. bill of lading

In international commerce, a _____ refers to an order written by an exporter instructing an importer to pay a specified amount of money at a specified time. A. bill of lading B. draft C. letter of credit D. Counter purchase E. buyback

B. draft

International Comparisons:

Both Germany and Japan have developed extensive institutional structures for promoting exports • Japanese exporters can also take advantage of the knowledge and contacts of sogo shosha, Japan's trading houses • U.S. has not developed an institutional structure for promoting exports similar to Germany or Japan

The direct exchange of goods and/or services between two parties without a cash transaction is referred to as _____. A. Switch trading B. Counter purchase C. Barter D. Offset E. Buyback

C. Barter

Which of the following is true of exporting? A. It takes a very short time before all foreigners are comfortable enough to purchase in significant quantities. B. Novice exporters tend to overestimate the time required to cultivate business in foreign countries. C. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. D. Large firms are usually unfamiliar with foreign market opportunities. E. Large firms do not consider exporting until their domestic market is saturated.

C. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors.

A(n) _____ refers to a buying agreement similar to counter purchase, but the exporting country can then fulfill the agreement with any firm in the country to which the sale is being made. A. Barter B. Counter purchase C. Offset D. Switch trading E. Buyback

C. Offset

The use of a specialized third-party trading house in a countertrade arrangement is known as _____. A. counter purchase B. offset C. switch trading D. buyback E. barter

C. switch trading

Many medium-sized and small firms are not proactive in seeking export opportunities because: A. they are familiar with the foreign market and do not find it challenging enough. B. the export market is similar to the home market in terms of legal and business practices. C. they are intimidated by the complexities and mechanics of exporting to foreign countries. D. domestic regulations limit their ability to export profitably. E. they overestimate the time and expertise needed to cultivate business in foreign countries.

C. they are intimidated by the complexities and mechanics of exporting to foreign countries.

what are the pros and cons of countertrade? (hint: Unattractive)

Countertrade can be unattractive ( • Most firms prefer to be paid in hard currency0 (• It may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably) • Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrade (japan's sogo shosha are masters at countertrade)

what are the pros and cons of countertrade?

Countertrade is a way for firms to finance an export deal when other means are not available • Firms that are unwilling to engage in countertrade may lose an export opportunity to a competitor that will • Countertrade may be required by the government of a country to which a firm is exporting goods or services

The principle of _____ is to trade goods and services for other goods and services when they cannot be traded for money. A. a letter of credit B. countervailing duty C. a bill of exchange D. countertrade E. the Export Legal Assistance Netwrok

D. countertrade

Exporting is nearly always a way to increase the revenue and profit base of a company because: A. there is little competition in the international market. B. foreign governments encourage imports from other countries. C. international markets are less complex than their domestic counterparts. D. the international market is much larger than the domestic market. E. it does not involve wasting resources on paperwork.

D. the international market is much larger than the domestic market.

A(n) _____ occurs when a firm builds a plant in a country and agrees to take a certain percentage of the plant's output as partial payment for the contract. A. Barter B. Counter purchase C. Offset D. Switch trading E. Buyback

E. Buyback

Which of the following is true of an export management company (EMC)? A. It coordinates the Export Legal Assistance Network, a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. B. It provides a potential exporter with a "best prospects" list. C. It assembles a "comparison shopping service" for 14 countries. D. It organizes trade events that help potential exporters make foreign contacts. E. It specializes in serving firms in particular industries and in particular areas of the world.

E. It specializes in serving firms in particular industries and in particular areas of the world.

Which of the following stands at the center of international commercial transactions and is issued by a bank at the request of an importer? A. merchandise bill B. bill of lading C. bill of exchange D. draft E. letter of credit

E. letter of credit

both small and large firms benefit from?

Firms

Government information sources:

In US various parts of the Department of Commerce - In other countries similar organization - Embassies and consulates have commercial sections

what is an international trading company and what does it provide?

Is a firm directly engaged in importing and exporting a wide variety of goods for its own account. • Provides - Market research - International transportation - Custom documentation - Financing - Host country distribution - Overseas promotional activities • Sogo Sosha

why do many firms fail consider export opportunities?

Many firms fail to consider export opportunities simply because they lack knowledge of the opportunities available

what is a draft?

Most export transactions involve a draft: an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount at a specified time • Also called a bill of exchange

information sources?

The U.S. Department of Commerce is the most comprehensive source of information for U.S. firms • U.S. and Foreign Commercial Service and International Trade Administration • Firms can get a "best prospects" list of potential foreign distributors • Firms can also participate in trade events or get assistance from the Small Business Administration • State and local trade commissions • Private organizations

what is a bill of lading and its purpose?

The bill of lading is issued to the exporter by the common carrier transporting the merchandise • It serves three purposes: • Receipt • Contract • Document of

what is the globalEDGE Exporting tool?

The globalEDGETM Exporting Tool • Top-ranked website for international business resources • Free site • Company Readiness to Export (CORE) tool • Assesses company's readiness to export • Assesses the product's readiness to be exp

Barter: is?

a direct exchange of goods and/or services between two parties 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

what is a 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

what are the types of countrtrade?

barter counterpurchase offset switch trading compensation or Buybacks

Exporters can use countertrade when ...

conventional means of payment are difficult, costly, or nonexistent

The volume of export activity in the world economy is increasing as

exporting has become easier

what is a compensation or buyback?

occur when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a percentage of the plant's output as a partial payment for the contract

what is a switch trading?

occurs when a specialized third-party trading house buys a firm's counterpurchase credits and sells them to another firm

A slight draft is..

payable on presentation to the drawee

what is an offset?

similar to counterpurchase—one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale • This party can fulfill the obligation with any firm in the country to which the sale is being made

what is 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 • Example: Philip Morris shipped cigarettes to Russia, for which it received chemicals that can be used to make fertilizer. Philip Morris shipped the chemicals to China, and in return, China shipped glassware to North America for retail sale by Philip Morris

a time draft..

• A time draft allows for a delay in payment • 30, 60, 90, or 120 days • Time drafts are negotiable

What assistance can exporters get from export management companies?

• Export management companies: export specialists that act as the export marketing department or international department for client firms 1. Start exporting operations for a firm with the understanding that the firm will take over operations after they are well established 2. Start services with the understanding that the EMC will have continuing responsibility for selling the firm's products

lack of trust in export and import financing?

• Exporters and importers have to trust someone who may be difficult to track down if they default on an obligation • Each party has different preferences • Exporters prefer to be paid in advance, while importers prefer to pay after shipment arrives • Problems arising from the lack of trust can be solved by using a third party—typically a reputable bank

: What do firms that want to export need to do?

• Firms wishing to export must: • Identify export opportunities • Avoid a host of unanticipated problems associated with doing business in a foreign market • Become familiar with the mechanics of export and import financing • Learn where to get financing and export credit insurance • Learn how to deal with foreign exchange risk

service provider:

• Freight forwarder • Export management companies (EMC) handle all aspects of exporting • Export trading company • Export packaging company • Customs brokers • Confirming houses (buying agents) • Export agents, merchants, remarketers • Piggyback marketing • Economic processing zones (EPZs)

what is the Export Strategy ?

• Hire an EMC to help identify opportunities and navigate paperwork • Start by focusing initially on just one or a few markets • Enter a foreign market on a small scale • Recognize time and managerial commitment involved • Devote a lot of attention to building strong and enduring relationships with local distributors and/or customers • Hire local personnel • Be proactive about seeking export opportunities • Retain the option of local production

what is the history of the popularity of countertrade/

• In the 1960s, the Soviet Union and the Communist states of Eastern Europe, whose currencies were generally nonconvertible, turned to countertrade to purchase imports • A short-term spike in the volume of countertrade can follow periodic financial crises • Notable increase in the volume of countertrade after the Asian financial crisis of 1997

what is export credit insurance?

• Insures exporter against risk that foreign importer will default on payment • Provided by Foreign Credit Insurance Association • Provides coverage against commercial and political risks

what is a letter of credit?

• Issued by a bank at the request of an importer stating the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents • This system is attractive because both parties are likely to trust a reputable bank even if they do not trust each other

Common pitfalls for exporters:

• Poor market analysis • Poor understanding of competitive conditions • Failure to customize the product offering • Lack of an effective distribution program • Poorly executed promotional campaign • Problems securing financing • Voluminous paperwork, complex formalities, potential delays and errors

what is making exporting easier?

• Regional economic agreements • The decline in trade barriers under the WTO • Modern communication and transportation technologies have alleviated logistical problems

what is the export-import bank?

• The Export Import Bank (Ex-Im Bank) is a wholly owned U.S. government corporation • Established in 1934 • Designed to supplement, not compete, with capital lending • Provides financing aid that will facilitate exports, imports, and the exchange of commodities between the U.S. and other countries • Has a direct lending operation to lend dollars to foreign borrowers for use in purchasing U.S. exports

What are the benefits of exporting?

• The benefits from exporting can be great--the rest of the world is a much larger market than the domestic market • Larger firms may be proactive in seeking out new export opportunities, but many smaller firms take a reactive approach to exporting • Many novice exporters have run into significant problems when first trying to do business abroad, souring them on following up on subsequent opportunities