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.