Exporting, Importing and Countertrade
Chapter 15
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Exporting
To ship to another country
for sale or exchange.
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15-1
Government Support for Exports
www.bundesregierung.de
www.miti.go.jp
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US Export Support
www.doc.gov
www.ita.doc.gov
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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.
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15-4
www.mmm.com
www.redspot.com
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Export/Import Financing
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.
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15-6
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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15-7
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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15-8
The Use of a Third Party
1. Importer Obtains Bank’s Promise
to Pay on Importers Behalf
French Importer
6. Importer Pays Bank
5. Bank Gives Merchandise
to Importer
Bank
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
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15-9
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
French Importer
6. Goods Shipped to France
7. Exporter
Presents
Draft to Bank
12. Bank Tells
Importer
Documents
14. B of NY Presents Matured Arrive
Draft and Gets Payment
Bank of New York
5. B of NY
Informs
Exporter
of LOC
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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15-10
Ex-Im Bank
www.exim.gov
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15-11
The Role of Government in the Export/Import
Environment
Political
Protecting jobs and industries.
National security.
Retaliation.
Economic
Develop/protect infant industry.
Strategic trade policy.
• First mover advantage.
• The ‘catch-up’ argument.
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15-12
Countertrade
Trade carried out wholly or partially
in goods rather than money.
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15-13
Countertrade as a Share of World Trade
Value
%
50
45
40
35
30
25
20
15
10
5
0
1975
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1985
1990
1992
2000 Est
15-14
Countertrade
Typically, 5 kinds of countertrade
Barter
Counterpurchase
Offset
Compensation trading or Buyback
Switch trading
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15-15
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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15-16
Why Countertrade?
Helps countries that don’t have sufficient
foreign currency reserves.
However:
How do you determine value?
Difficulties in disposition of goods.
Costs of engagement.
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15-17
Countertrade Practice
100
Percent of
80
companies
engaged in each
countertrade 60
practice
73
60
40
19
20
3
Figure 15-5
22
Offset
Switch Trading
Barter
Buyback
Counterpurchase
0
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15-18
Countertrade: Pros and Cons
Pro:
Provides business a way to finance an export
deal when other means are not available.
Con:
Business may receive unusable or poor quality
goods that can be disposed of profitably.
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