Chapter 16: Exporting, Importing, and Countertrade

Export-Import Bank

An independent agency of the US government

Draft (bill of exchange)

An order written by an exporter instructing an importer to pay a specific amount of money at a specified time

Forms of Countertrade

Barter Counterpurchase Offset Buyback Switch trading

Methods to Improve Export Performance

Collect local information, get direct assistance or use export management companies (get help from Department of Commerce, International Trade Administration, Department of Commerce, Small business Administration, Local and State Governments)

Export Management Companies

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

Pros of Countertrade

Gives a firm a way to finance an export deal when other means are not available

Sogo shosha

Great trading houses

Cons of Countertrade

Involves the exchange of unusable or poor-quality goods that firms cannot dispose of profitably Requires the firm to establish an in-house trading department to handle countertrade deals

Letter of credit

Issued by a bank at the request of an importer and states the bank will pay a specified sum of money to a beneficiary

Bill of lading

Issued to the exporter. Serves as a receipt, contract, and document of title

Buyback

Occurs when a firm builds a plant in a country and agrees to take a certain percentage of the plant's output as a partial payment for the contract

Pitfalls of Exporting

Poor market analysis, understanding of competitive conditions, lack of customization, poor distribution program, financing, underestimation of the amount of paperwork and formalities involved

FCIA

Provides coverage against commercial risks and political risks

Countertrade

Refers to 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

Switch trading

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

Trust Issues in exporting

Use bank as middle man

Barter

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

Sight draft

a draft payable on presentation

Counterpurchase

a reciprocal buying agreement

Offset

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