International Business Ch 10/14 - Exporting, Importing, and Countertrade

Steps managers can take to improve their firm's export performance.

1. Hire an EMC to identify opportunities and handle paperwork. 2. Focus initially on just one or two markets. 3. Enter on a small scale to test. 4. Recognize time and commitment involved. 5. Build relationships with local distributors and customers. 6. Hire local personnel 7. Keep the option to produce locally.

Basic steps in export financing.

1. Importer places order. 2. Exporter accepts order. 3. Importer arranges for a letter of credit. 4. Bank of Paris sends letter of credit to Bank of New York. 5. Bank of New York informs exporter of letter of credit. 6. Goods shipped to France. 7. Exporter presents draft to bank. 8. Bank of New York presents draft and bill of lading to Bank of Paris 9. Bank of Paris returns accepted bank draft. 10, 11. Exporter sells draft to bank. 12. Bank tells importer documents arrive. 13. Importer pays bank. 14. Bank of New York presents mature draft and gets payment.

Benefits of exporting.

1. Larger firms are proactive looking for opportunities. 2. Large revenue and profit opportunities.

Pitfalls and risks associated with exporting.

1. Poor market analysis. 2. Poor understanding of competitive positions/realities. 3. Lack of customization for local markets, poor distribution arrangements, bad promotional campaigns. 4. General underestimation of the differences and expertise required for foreign market penetration 5. Difficulty dealing with the paperwork and formalities involved.

Offset

A buying agreement to counterpurchase, but the exporting country can then fulfill the agreement with any firm in the country to which the sale is being made.

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.

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. Occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

When would a country want to engage in countertrade?

A way for firms to finance an export deal when other means are not available and may be required by the government of a country to which a firm is exporting goods or services. Large, diverse multinational enterprises that can use their worldwide network of contracts to dispose of goods.

Export-Import Bank

Agency of the US government whose mission is to provide aid in financing and facilities exports and imports; also referred to as Ex-Im Bank.

How can countertrade be used to facilitate exporting.

Alternative means of payment when traditional means are difficult, costly, or nonexistent. i.e. currency convertability

Bill of exchange

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.

Benefits of using an EMC

Experienced specialists that can help the neophyte exporter identify opportunities and avoid common pitfalls. They have a network of contacts in potential markets, multilingual employees, a good knowledge of different businesses mores and fully conversant with the ins and outs of the exporting process and local regulations.

Export Management Company

Export specialists who act as an export marketing department for client firms.

Information sources and government programs that exist to help exporters.

Financing from Ex-Im Bank and export credit insurance from the Foreign Credit Insurance Assocation.

Letter of credit

Issued by a bank, indicating that the bank will make payments under specific circumstances.

What is the function of a bill of lading?

It acts as a receipt/contract.

MITI

Japan's Ministry of International Trade and Industry

Sogo Shosha

Japan's great trading houses.

What are the drawbacks of countertrade?

Most firms prefer to be paid in hard currency. May involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably.

Risks of using an EMC

Qualities vary. The company can fail to develop its own exporting capabilities.

Draft

Same as bill of exchange.

Barter

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

Countertrade

The trade of goods and services for other goods and services when they can't be traded for money.

Switch trading

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

Buyback

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