Transcript Exporting, Importing, and Counter-trade
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
CHAPTER
12
Exporting, Importing and Countertrade
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-1
Key Issues
• What are the opportunities and risks associated with exporting?
• How can companies improve their export performance?
• What information programs and government resources can help exporters?
• What are the basic steps in financing exporting?
• How can countertrade facilitate exporting?
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-2
Exports, FDI, or Licensing?
Are home manufacturing costs and transportation costs high?
Yes
Is know-how easy to license?
No No
Import Barriers?
Yes
FDI
No
Export
Yes
Tight control over foreign ops required?
Yes
FDI
No
Is know-how valuable and is protection possible?
Yes
FDI
No
License
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-3
Exporting Promises and Pitfalls
• Uninformed view that huge revenue and profit opportunities overseas “there for the pickings” • Large firms may realize promise – are proactive about exporting – systematic with exporting effort – have knowledge of overseas markets – Can see where they can leverage their technology, products and marketing skills • Smaller firms are more likely to stumble – reactive and seek overseas markets as an afterthought – effort ad-hoc, opportunistic and often naïve
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-4
Exporting Pitfalls
• Poor market analysis • Superficial understanding of competitive conditions • Underestimation of time and expertise needed to develop a foreign export market – Some customers require face-to-face interactions – Lack of allocation of sufficient managerial resources – Underestimation of need/value to develop local relationships (“let the agent deal with this”) • Failure to customize the product to the needs of foreign users (industrial or consumer) • Ineffective distribution system • Weak promotion program
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-5
Exporting Pitfalls (cont.)
• Poor understanding of involved logistics – specialized paperwork – labyrinthian regulations that may involve for typical transaction • 30 parties, 60 original documents, 360 document copies • need to have staff competent to produce and check – Can by up to 10% of cost of exported product • Lack of excellent documentation system
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-6
Export Performance Improvement
• Government information sources – In US various parts of the Department of Commerce – In other countries similar organization – Embassies and consulates have commercial sections • Export management companies – Act as the export marketing department of firms – Experienced specialists – However, not exclusive • Focused export strategy
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-7
Export/Import Financing
• Service that allows exporter to be assured of payment and importer to be assured of product • Banks offer financing intermediary service – Letter-of-Credit: bank guarantee of payment to exporter “bought” by the corresponding importer – Draft or Bill-of-Exchange: instructions to bank to pay at a certain time based on certain documentation • Carriers move product from A to B – Bill-of-Lading issued to exporter by the carrier: is a receipt, a contract and a document of title issued to the exporter by the carrier
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-8
Export Assistance
• Export-Import Bank (Eximbank) – Independent agency of US Government – Provides financing for US exports, imports, and exchange of commodities – Guarantees repayment of medium, long term loans to foreign borrowers for purchasing US exports • Export Credit Insurance – Covers the exporter who must deal with an importer who insists on no letter-of-credit – Issued by the Foreign Credit Insurance Association • Grouping of private commercial banks • Under the guidance of Export-Import Bank • Coverage against commercial and political risk
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-9
Countertrade
• A range of barterlike agreements – Trade goods/services for other goods/services – Used when currencies not convertible – Used when the currencies are too unstable • Types of Countertrade – Barter: direct exchange of goods – Counterpurchase: reciprocal buying agreement – Offset: similar to Counterpurchase but more than one set of exchanges can be involved – Switch trading: involves the use of a specialized third party trading house in a countertrade agreement – Buybacks: a firm builds a plant, supplies technology or equipment or training or other service in a country and agrees to take percentage of output as partial payment
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide 12-10
Countertrade: Pros and Cons
• Pros – Can offer a way to finance exports when other forms of financing are not available – Can be the preferred financing method in cases where cash deals are too risky – May satisfy the need to build good will with the host government • Cons – May involve the exchange of poor quality goods – Importing firm must find a market for goods in an unrelated industry • Can involve building a marketing infrastructure to dispose of a stream of such goods • More suitable to large firms
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.