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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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-4

Exporting To ship to another country for sale or exchange.

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-5

Promise and Pitfalls of Exporting

Ignorance and Intimidation

Poor distribution program

McGraw-Hill/Irwin

Poor market analysis

Poor understanding of competitive conditions Poorly executed promotional campaign Failure to customize product offering Problems securing financing

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-6

Improving Export Performance

Information from government sources

McGraw-Hill/Irwin

Export Management Companies

Utilizing export strategies

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-7

Government Support for Exports

www.bundesregierung.de

www.miti.go.jp McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-8

US Export Support

www.doc.gov www.ita.doc.gov McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-16

Export Assistance

Foreign Credit Insurance Association

www.exim.gov

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-17

Countertrade Trade carried out wholly or partially in goods rather than money.

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-18

Countertrade as a Share of World Trade Value %

50 40 30 20 10

0 1975 McGraw-Hill/Irwin

1985

1990

1992

2000

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

15-20

Countertrade Typically, 5 kinds of countertrade Barter Counterpurchase Offset Switch trading Compensation or Buyback

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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.

McGraw-Hill/Irwin

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.