MKT310, EXAM4, Chapter 14

AN INTERNATIONAL COMPARISON

- One big impediment to exporting is the simple lack of knowledge of the opportunities available. - The way to overcome ignorance is to collect information

a need for firms to become more proactive about seeking export opportunities.

- One reason more firms are not proactive is that they are unfamiliar with foreign market opportunities; they simply do not know how big the opportunities actually are or where they might lie. Simple ignorance of the potential opportunities is a huge barrier to exporting - smaller firms, are often intimidated by the complexities and mechanics of exporting to countries where business practices, language, culture, legal systems, and currency are very different from the home market

Drawbacks of countertrade

1. Countertrade contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. 2. even if the goods it receives are of high quality, the firm still needs to dispose of them profitably.

Adv of Countertrade

1. it can give a firm a way to finance an export deal when other means are not available 2. a countertrade agreement may be required by the government of a country to which a firm is exporting goods or services.

LACK OF TRUST

Due to the (quite reasonable) lack of trust between the two parties, each has his or her own preferences as to how the transaction should be configured the problem is solved by using a third party trusted by both—normally a reputable bank—to act as an intermediary.

UTILIZING EXPORT MANAGEMENT COMPANIES

EMCs are export specialists that act as the export marketing department or international department for their client firms. EMCs normally accept two types of export assignments. 1. They start exporting operations for a firm with the understanding that the firm will take over operations after they are well established 2. In another type, start-up services are performed with the understanding that the EMC will have continuing responsibility for selling the firm's products.

Improving Export Performance

Inexperienced exporters have a number of ways to gain information about foreign market opportunities and avoid common pitfalls that tend to discourage and frustrate novice exporters

Sogo shosha

Japan's great trading houses. The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small - Japanese trading company

Export and Import Financing

Mechanisms for financing exports and imports have evolved over the centuries in response to a problem that can be particularly acute in international trade: the lack of trust that exists when one must put faith in a stranger.

Common pitfalls include poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, a lack of an effective distribution program, a poorly executed promotional campaign, and problems securing financing

Novice exporters tend to underestimate the time and expertise needed to cultivate business in foreign countries

Another government organization, the Small Business Administration (SBA), can help potential exporters (see the accompanying Management Focus for examples of the SBA's work).

The SBA also coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters

EXPORT CREDIT INSURANCE

The exporter can insure against this possibility by buying export credit insurance - In the United States, export credit insurance is provided by the Foreign Credit Insurance Association (FCIA), an association of private commercial institutions operating under the guidance of the Export-Import Bank. -

Within that department are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service.

Those agencies provide the potential exporter with a "best prospects" list, which gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and their contact person.

many large firms tend to be proactive about seeking opportunities for profitable exporting—systematically scanning foreign markets to see where the opportunities lie for leveraging their technology, products, and marketing skills in foreign countries—many medium-size and small firms are very reactive

Typically, such reactive firms do not even consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets.

INFORMATION SOURCES

U.S. firms can increase their awareness of export opportunities.

Time draft

allows for a delay in payment—normally 30, 60, 90, or 120 days.

Counterpurchase

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

Countertrade

is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent - denotes a range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money.

EXPORT-IMPORT BANK

is an independent agency of the U.S. government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries.

BILL OF LANDING

is issued to the exporter by the common carrier transporting the merchandise - it is a receipt, a contract, and a document of title

Sight draft

is payable on presentation to the drawee.

Barter

is the direct exchange of goods and/or services between two parties without a cash transaction.

Draft/ bill of exchange

is the instrument normally used in international commerce to effect payment. - A draft is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.

The great promise of exporting

large revenue and profit opportunities are to be found in foreign markets for most firms in most industries

Compensation or Buybacks

occurs 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 certain percentage of the plant's output as partial payment for the contract.

Switch Trading

refers to 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 what are called counterpurchase credits, which can be used to purchase goods from that country. Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them

Offset

similar to a counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale - can choose any goods

LETTER OF CREDIT

states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents