2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 15-3. Chapter
Focus. Examine the “nuts and bolts” of exporting (and importing). Identify foreign
...
International Business Fourth Edition
CHAPTER 15 Exporting, Importing, and Countertrade
15-3
Chapter Focus Examine the “nuts and bolts” of exporting (and importing). Identify foreign market opportunities: Avoid unanticipated problems. Be familiar with the mechanics of export and import financing. Learn where to get financing and export insurance. Deal with foreign exchange risk.
Countertrade. McGraw-Hill/Irwin
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15-4
Exporting To ship to another country for sale or exchange.
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15-5
Promise and Pitfalls of Exporting
Ignorance and Intimidation
Poor distribution program
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Poor market analysis
Poor understanding of competitive conditions Poorly executed promotional campaign Failure to customize product offering Problems securing financing
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15-6
Improving Export Performance
Information from government sources
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Export Management Companies
Utilizing export strategies
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15-7
Government Support for Exports
www.bundesregierung.de
www.miti.go.jp McGraw-Hill/Irwin
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15-8
US Export Support
www.doc.gov www.ita.doc.gov McGraw-Hill/Irwin
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15-9
Utilizing Export Management Companies EMCs: Export specialists who act as the export management department or international department for client firms.
Two types of assignment: Start operations for a firm with understanding the firm will take over after they are well established. Start-up services with continuing responsibility for selling the firms products internationally. McGraw-Hill/Irwin
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15-10
Exporting Strategy It helps to hire an EMC or, at least, someone with experience. Focus on one or a few markets. Enter markets on a fairly small scale until you ‘learn the ropes’. Add new lines after initial success. Need to recognize the time and managerial commitment. Build strong and lasting relationships. Hire locals to help firm establish itself. Keep the option of local production in mind. McGraw-Hill/Irwin
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Export/Import Financing
15-11
Issue of TRUST
Letters of Credit (LOC) Bank guarantee on behalf of importer to exporter assuring payment when exporter presents specified documents
Drafts (Bill of Exchange) Written order exporter, telling an importer to pay a specified amount of money at a specified time.
Bill of Lading Issued to exporter, by carrier. Serves as receipt, contract and document of title. McGraw-Hill/Irwin
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15-12
Preference of the US Exporter 1. Importer Pays for Goods
French Importer
American Exporter
2. Exporter Ships Goods After Being Paid Figure 15-1
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15-13
Preference of the French Importer 1. Exporter Ships the Goods
French Importer
American Exporter
2. Importer pays after the Goods are Received
Figure 15-2
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15-14
The Use of a Third Party 1. Importer Obtains Bank’s Promise to Pay on Importers Behalf
French Importer
Bank
6. Importer Pays Bank
5. Bank Gives Merchandise to Importer
2.Bank Promises Exporter to pay on Behalf of Importer
American Exporter 4. Bank Pays Exporter
3. Exporter Ships “to the Bank.” trusting Bank’s Promise to Pay
Figure 15-3 McGraw-Hill/Irwin
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15-15
A Typical International Transaction 1. Importer Orders Goods
3. Importer Arranges for LOC
2. Exporter Agrees to Fill Order
American Exporter 10 and 11 Exporter Sells Draft to Bank
6. Goods Shipped to France 12. Bank Tells Importer Documents 14. B of NY Presents Matured Arrive Draft and Gets Payment
7. Exporter Presents Draft to Bank
Bank of New York 5. B of NY Informs Exporter of LOC McGraw-Hill/Irwin
French Importer 13. Importer Pays Bank
Bank of Paris
8. B of NY Presents Draft to Bank of Paris 9. Bank of Paris Returns Accepted Draft
Figure 15-4
4. Bank of Paris Sends LOC to B of NY
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15-16
Export Assistance
Foreign Credit Insurance Association
www.exim.gov
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15-17
Countertrade Trade carried out wholly or partially in goods rather than money.
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15-18
Countertrade as a Share of World Trade Value %
50 40 30 20 10
0 1975 McGraw-Hill/Irwin
1985
1990
1992
2000
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15-19
Countertrade Practice 100 Percent of companies engaged in each countertrade practice
80
73 60
60
19
20
McGraw-Hill/Irwin
Switch Trading Barter
40
Figure 15-5
Offset
Buyback
22
Counterpurchase
3
0
O ffse t
S w itc h T ra d in g
B a rte r
B u yb a c k
C o u n te rp u rc h a se
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15-20
Countertrade Typically, 5 kinds of countertrade Barter Counterpurchase Offset Switch trading Compensation or Buyback
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15-21
Definitions Barter: direct exchange of goods and/or services without a cash transaction.
Counterpurchase: reciprocal buying agreement. Offset: like counterpurchase, but can buy goods from any firm in country.
Switch trading: uses third-party trading house. Buybacks: foreign plant takes products as contract payment.
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15-22
Pros and Cons of Countertrade Gives firms a way to finance an export deal when other means are unavailable. Foreign governments may require it. Helps countries that don’t have sufficient foreign currency reserves.
However: May involve defective goods. Must invest in in-house trading department expensive and time consuming.
Most attractive to large, diverse multinational enterprises. McGraw-Hill/Irwin
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