Exports, Imports, Countertrade
Exports, Imports, Countertrade
 Opportunities
and risks of exporting
 Steps to improve export performance
 Information sources/programs on
exporting
 Financing exporting
 Countertrade as an export facilitator
Exporting Opportunities and Risks
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Perception: Exports
– Offer huge revenue / profit opportunities overseas
– Are “there for the pickings”
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Large firms are more successful
– Proactive about exporting to realize promise
– Systematic effort backed by knowledge of overseas markets
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Smaller firms are reactive
– Overseas markets are an afterthought
– Ad-hoc effort on an opportunistic and often naïve basis
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Exports require volumes of specialized paperwork
US Export Support
www.doc.gov
www.ita.doc.gov
Export Performance Improvement Factors
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Government information sources
– US: various parts of the Dept. of Commerce
– Other countries: similar entity
– Embassies and consulates: commercial
sections
 Export management companies
– Act as the export department of firms
– Experienced specialists
– Not exclusive
 Focused export strategy
Some Successful Export Strategies
 Enter on
 Add
a small scale to reduce risks
product lines after export
operations begin to be successful
 Hire
locals to promote the firm’s
products
Exporting Strategy
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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 Companies, Inc., 2000
Export Process
Evaluate export potential
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financial resources
management capability/experience
competitive advantages abroad
Steps in the Export Process
Evaluate export potential
Do country analysis (more later)
 country receptiveness to imports
and investment
 trade barriers/requirements
 infrastructure
Steps in the Export Process
Evaluate export potential
Do market analysis
 market size/product potential
 distribution channels
 needs for re-engineering etc. =
localization
Steps in the Export Process
Determine entry method
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goal of entry
select distribution “partner”
determine channel length
assess risks
determine costs
Steps in the Export Process
Determine entry method

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determine trade terms
(INCOTERMS: ex works, FOB, CIF,
etc.)
determine tasks to be performed in
the foreign market
Export/Import Financing
 Assures:
– Exporter of payment
– Importer of product
 Banks
offer financing intermediary service
– Letters 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
provide to the exporter
– Bill of lading: receipt, contract and document of title
Sources of Exporter
Financing
Financing exporter credit to the importer:
-
Bankers’ acceptance (of the draft)
Factoring
Forfaiting
EXIM loans
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 by 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 Companies, Inc., 2000
Exporters’ Problems with
Letters of Credit (L/C)

Shipment date or method required in L/C cannot
be met.
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Documents required by L/C cannot be obtained.
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Importer deliberately fills out L/C application
incorrectly (to stall or force a discount).
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Product description too detailed (exporter
compliance difficult).
Preference of the US Exporter
1. Importer Pays for Goods
French Importer
American Exporter
2. Exporter Ships Goods After Being Paid
Preference of the French
Importer
1. Exporter Ships the Goods
French Importer
American Exporter
2. Importer pays after the Goods are Received
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
A Typical International
Transaction
1. Importer Orders Goods
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
3. Importer
Arranges for
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
4. Bank of Paris Sends LOC to B of NY
Countertrade

Structures an international sale when means
of payment are difficult, costly, or nonexistent
– No currency convertibility
– Weak reserves prohibit access to hard
currency
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Barter-like agreements
– Trade goods and services for other goods and
services
– 8-10% or world trade by value is in the form
of countertrade (up from 2% in 1975)
Countertrade
 Main attraction:
– way to finance an export deal
– meet requirement of local government
to support exports
 Main drawback:
– risk of disposal / sale of goods at less
than full value
– disposal of imports may require
resources other than those that the firm
possesses
Types of Countertrade
 Barter
 Counterpurchase
 Offset
 Switch Trading
 Compensation
or Buyback
Barter

International Reciprocal Trade Association (IRTA)
– the industry trade organization - almost a half a
million small businesses use commercial barter
exchanges every year.
 Almost $10 billion in sales is transacted each year
by the commercial barter industry.
 Trades where no intermediary is used and the
global barter market may be 10 times that amount.
Barter
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International Reciprocal Trade Association
estimates that in 1998 over 470,000 companies
actively participated in barter in the US for a total
of over $16 billion in annual sales.
 Over 65% of the corporations listed in the New
York Stock Exchange are presently using barter to
reduce surplus inventory, bolster sales, and ensure
that production facilities run at capacity.
 U.S. Department of Commerce estimates that 20
to 25% of world trade is now barter, and corporate
barter is now a $20 billion industry.
Barter
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Conserve cash -- preserve cash-flow
Strengthen cash reserves -- use barter for the
goods & services most needed
Increase buying power -- access to goods &
services for growth
Increase customer base – may add new clients
Move surplus inventory
Finance -- new businesses can build credit
through barter Employee Incentives -- travel,
entertainment, gifts, perks & bonuses
Compensation
 Barter
with a combination of goods and
convertible currency
 Less risk than in straight barter
Counterpurchase – Parallel
Barter
 Parties
pay cash of goods
 Seller agrees to buy products/services
unrelated to its business
 Seller then sells products to third parties
Offset Purchase
 Usually
large projects, often involving
expenditure of buying government’s money
 A % of the selling price is required to be
purchased or sourced from the buying
country
Buyback
 The
seller agrees to buy a negotiated
quantity of the output from the buyer’s
output
Clearing Agreement
 A third
party brokers transactions between
parties, maintaining accounts for all
participants
 Typically are legal documents which
specify the details of the arrangements:
 Electrical power companies
 Stock brokers, on-line traders
Switch Trading
 Buyer
pays hard currency for unwanted
goods/services from seller
 Broker buys unwanted goods
 Broker sells goods to third parties