International Business Study Set Chapter 14

Exporting

A way to increase the revenue and profit base of a company

Time draft

Allows for a delay in payment (normally 30, 60, 90, or 120 days) Presented to the drawee

Service Corps of Retired Executives (SCORE)

Allows the the Small Business Administration oversees several thousand volunteers with international trade experience to provide one-on-one counseling

Countertrade

Arose in the 1960s as a way for the Soviet Union and the communist states of Eastern Europe, whose currencies were generally nonconvertible, to purchase imports

Drawbacks of countertrade agreements

Contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. Often requires the firm to invest in an in-house trading department dedicated to arranging and managing countertrade deals.

Simple barter

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

Types of Service Providers

Freight forwarder Export management companies (EMC) handle all aspects of exporting Export trading companies Export packaging companies Customs brokers Confirming houses Export agents and merchants Piggyback marketing Economic processing

Risk of a simple barter

If goods are not exchanged simultaneously, one party ends up financing the other for a period Firms engaged in barter run the risk of having to accept goods they do not want

The Export-Import Bank (ExIm Bank)

Independent agency of the U.S. government Provides financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries

Countertrade

Its principle is to trade goods and services for other goods and services when they cannot be traded for money

sogo shosha

Japan's great trading houses that are all over the world. They Proactively, continuously seek export opportunities for companies

Documents used in exports and international trade

Letter of Credit (LC) A draft (Bill of Exchange)

Why export?

Low commitment + easier for a large number of countries to Large revenue and profit opportunities SME'S prefer

Examples of small Japanese companies

Mitsubishi, Mitsui etc.

Firms engaged in international trade

Must trust someone (risk) Can become an obligation Since trust is such a major hurdle to doing business internationally, banks play an important role as intermediaries

Buybacks

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

Drawee

Person who stamps a notice of acceptance on the face of a draft

Common pitfalls for new exporters?

Poor market analysis 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 Poorly executed promotional campaign Problems securing financing.

Two categories of drafts

Sight drafts Time drafts

Forms of countertrade

Simple Barter Counter purchase Offset Switch trading Buybacks

Why not export?

Some find it intimidating + challenging

Letter of Credit (LC)

Stands at the center of international commercial transactions Issued by a bank at the request of an importer Pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents

The most comprehensive source of information is the

U.S. Department of Commerce and its district offices all over the country

Simple barter

Viewed as the most restrictive countertrade arrangement

Small Business Administration (SBA)

a government organization that can help potential exporters.

Countertrade

denotes a range of barter-like agreements

Countertrade is most attractive to

large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading

A draft (Bill of Exchange)

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

Many Japanese firms affiliate with

sogo shosha

Novice exporters

tend to underestimate time, expertise, and amount of management resources that have to be dedicated to this activity

Sogo Shosha

use their vast networks of affiliated companies to profitably dispose of goods acquired through countertrade agreements