Module 12: Exporting, Importing, and Countertrade

U.S. exporters can draw on two forms of government‐backed assistance to help their export programs

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

To improve their success, exporters should

Acquire more knowledge of foreign market opportunities Consider using an export management company Adopt a successful export strategy

countertrade

Can use when conventional means of payment are difficult, costly, or nonexistent 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

globalEDGE Diagnostic Tool

Four diagnostic tools that focus on helping companies export CORE PARTNER DISTRIBUTOR FREIGHT

Export Strategy

Hire an EMC to help identify opportunities and navigate paperwork and regulations Start by focusing initially on just one or a few markets Enter a foreign market on a small scale in order to reduce the costs of any subsequent failures Recognize time and managerial commitment involved in building export sales Devote a lot of attention to building strong and enduring relationships with local distributors and/or customers Hire local personnel to establish firm in foreign market Be proactive about seeking export opportunities Exporter should retain the option of local production

Export Credit Insurance

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

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

Barter

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

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

time draft

allows for a delay in payment ‐normally 30, 60, 90, or 120 days •Time drafts are negotiable

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 of money at a specified time •Also called a bill of exchange

Export management companies (EMC)

handle all aspects of exporting

Export Import Bank (Ex‐ImBank)

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

Bill of lading

is issued to the exporter by the common carrier transporting the merchandise It serves three purposes It is a receipt It is a contract It is a document of title

A sight draft

is payable on presentation to the drawee

Compensation or Buybacks

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

Switch Trading

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

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

The U.S. Department of Commerce

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 fairs or get assistance from the Small Business Administration

Many firms fail to consider export opportunities simply because

they lack knowledge of the opportunities available. 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 Jap

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 Countertrade can be unattractive Most firms prefer to be paid in hard currency 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 count

Common pitfalls for exporters

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