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 market
analysis
Poor understanding
of competitive
conditions
Poorly executed
promotional
campaign
Poor
distribution
program
McGraw-Hill/Irwin
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
22
Buyback
Counterpurchase
3
0
© 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.