© McGraw Hill Companies, Inc., 2000 Exporting, Importing and Countertrade Chapter 15

Exporting To ship to another country for sale or exchange. © McGraw Hill Companies, Inc.,

© McGraw Hill Companies, Inc., 2000 Government Support for Exports

© McGraw Hill Companies, Inc., 2000 US Export Support

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 Companies, Inc.,

© McGraw Hill Companies, Inc.,

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. © McGraw Hill Companies, Inc.,

© McGraw Hill Companies, Inc., 2000 Preference of the US Exporter French ImporterAmerican Exporter 1. Importer Pays for Goods 2. Exporter Ships Goods After Being Paid Figure

© McGraw Hill Companies, Inc., 2000 Preference of the French Importer French ImporterAmerican Exporter 1. Exporter Ships the Goods 2. Importer pays after the Goods are Received Figure

© McGraw Hill Companies, Inc., 2000 The Use of a Third Party Figure 15-3 French ImporterAmerican Exporter 1. Importer Obtains Bank’s Promise to Pay on Importers Behalf 5. Bank Gives Merchandise to Importer Bank 6. Importer Pays Bank 3. Exporter Ships “to the Bank.” Trusting Bank’s Promise to Pay 2. Bank Promises Exporter to Pay on Behalf of Importer 4. Bank Pays Exporter 15-9

© McGraw Hill Companies, Inc., 2000 A Typical International Transaction French ImporterAmerican Exporter Bank of New YorkBank of Paris 6. Goods Shipped to France 7. Exporter Presents Draft to Bank 10 and 11 Exporter Sells Draft to Bank 14. B of NY Presents Matured Draft and Gets Payment 12. Bank Tells Importer Documents Arrive 13. Importer Pays Bank 2. Exporter Agrees to Fill Order 1. Importer Orders Goods 3. Importer Arranges for LOC 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 5. B of NY Informs Exporter of LOC Figure

© McGraw Hill Companies, Inc., 2000 Ex-Im Bank

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. © McGraw Hill Companies, Inc.,

Countertrade Trade carried out wholly or partially in goods rather than money. © McGraw Hill Companies, Inc.,

Countertrade as a Share of World Trade Value % © McGraw Hill Companies, Inc.,

Countertrade  Typically, 5 kinds of countertrade  Barter  Counterpurchase  Offset  Compensation trading or Buyback  Switch trading © McGraw Hill Companies, Inc.,

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 Companies, Inc.,

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. © McGraw Hill Companies, Inc.,

Countertrade Practice © McGraw Hill Companies, Inc., 2000 Figure Percent of companies engaged in each countertrade practice

© McGraw Hill Companies, Inc., 2000 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