Chapter 16

Increased volume of exporting is facilitated by...

-A decline in trade barriers and increase in regional economic agreements. -Advances in technology and communication.

Export packaging companies

-Advise companies on appropriate design and materials for the packaging of their items. -Assist companies in minimizing packaging to maximize the number of items to be shipped.

Export-Import Bank

-An agency of the U.S. government whose mission it is to provide aid in financing and facilitate exports and imports. -Assists in the financing of U.S. exports of products and services to support U.S. employment and market competitiveness -Supplements private capital lending with various loan and loan-guarantee programs. -Guarantees repayment of medium- and long-term loans that U.S. commercial banks make to foreign borrowers for purchasing U.S. exports. -Also lends dollars to foreign borrowers for use in purchasing U.S. exports.

Pros of countertrade

-Can give a firm a way to finance an export deal when other means are not available. -A countertrade agreement may be required by the government of a country to which a firm is exporting goods or services. -Can be a strategic marketing weapon.

Freight forwarders

-Combine smaller shipments into a single large shipment to minimize the shipping cost. -Documentation, payment, and carrier selection.

Cons of countertrade

-Firms would normally prefer to be paid in hard currency. -May involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. -Most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading.

Exporting

-Large revenue and profit opportunities in foreign markets for most firms. -Economies of scale -Large firms tend to be proactive about exporting; medium-sized and small firms reactive (unfamiliar or intimidated by foreign market opportunities, etc.)

Draft (Bill of Exchange)

-Normally used in international commerce to effect payment. -Used to settle trade transactions. -In domestic transactions, the buyer can often obtain possession of the merchandise without signing a formal document acknowledging his or her obligation to pay. -In international transactions, payment or a formal promise to pay is required before the buyer can obtain the merchandise. -Sight draft -Time draft -When a time draft is drawn on and accepted by a bank, it is called a banker's acceptance. -When it is drawn on and accepted by a business firm, it is called a trade acceptance. -Negotiable instruments.

International comparisons

-One big impediment to exporting is the simple lack of knowledge of the opportunities available. -Need to collect information on how different countries operate. -Other countries may have more experience in trade (MITI, Sogo shosha.)

Piggyback marketing

-One firm distributes another firm's products. -Usually requires complementary products and the same target market of customers.

The Popularity of Countertrade

-Popular among developing nations that lack the foreign exchange reserves required to purchase necessary imports. -World trade covered by some sort of countertrade agreement range from highs of 8 and 10 percent by value to lows of around 2 percent.

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. -Issued by a bank at the request of the importer. -Companies are likely to trust reputable banks. -The importer must pay a fee.

Export Credit Insurance

-The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. -The exporter can insure against this possibility by buying export credit insurance (provided by the Foreign Credit Insurance Association (FCIA).)

Countertrade

-The trade of goods and services for other goods and services. -Alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent.

Export Strategy

1. Hire an EMC or at least an experienced export consultant to identify opportunities and navigate the paperwork and regulations in exporting. 2. Initially focus on one market or a handful of markets. 3. Enter a foreign market on a small scale to reduce the costs of any subsequent failure. 4. Recognize the time and managerial commitment involved in building export sales and hire additional personnel to oversee this activity. 5. Devote attention to building strong and enduring relationships with local distributors and/or customers. 6. Hire local personnel to help the firm establish itself in a foreign market. 7. Be proactive about seeking export opportunities. 8. Retain the option of local production.

Bill of Lading

A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title. -Three purposes: a receipt, a contract, and a document of title. -Can also function as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer.

Sight draft

A draft payable on presentation to the drawee.

Time draft

A promise to pay by the accepting party at some future date.

Counterpurchase

A reciprocal buying agreement.

Buyback

An agreement to accept a percentage of a plant's output as payment for contract to build a plant.

Offset

An agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from any firm in the country.

Export Management Company (EMC)

An export specialist that acts as an export marketing department for client firms.

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.

Export agents and merchants

Buy products directly from the manufacturer and package and relabel the products.

Export management companies

Deal with export documents and operate as the firm's agent and distributor.

Lack of Trust

Firms engaged in international trade have to trust someone: -They may have never seen. -Who lives in a different country. -Who speaks a different language. -Who abides by (or does not abide by) a different legal system. -Who could be very difficult to track down if he or she defaults on an obligation.

Economic processing zones

Include foreign trade zones (FTZs), special economic zones, bonded warehouses, free ports, and customs zones.

Customs brokers

Offer a firm a complete package of services that are essential in dealing with potential pitfalls when a firm is exporting to a large number of countries.

Export trading companies

Provide comprehensive exporting services, including export documentation, logistics, and transportation.

Confirming houses (buying agents).

Represent foreign companies that want to buy your products.

Barter

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

Bill of Exchange

The instrument normally used in international commerce to effect payment.

Switch trading

The use of a specialized third-party trading house in a countertrade arrangement.

Information sources

U.S. Department of Commerce (U.S. Export Assistance Centers, USEAC) -U.S. and Foreign Commercial Service and International Trade Administration (ITA) -District Export Councils Small Business Administration (SBA) -Small Business Development Centers (SBDC), Service Corps of Retired Executives (SCORE), and Export Legal Assistance Network (ELAN) -Centers for International Business Education and Research (CIBERs)

Company Readiness to Export (CORE) tool

Used to assess (1) a company's readiness to export a product and (2) the product's readiness to be exported. -Assists firms in self-assessment of their exporting proficiency. -Evaluates both the firm's and the intended product's readiness to be taken internationally. -Systematically identifies the firm's strengths and weaknesses within the context of exporting.