Chapter 17 Pricing Strategies: Countertrade and Terms of Sales/Payment.

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Presentation transcript:

Chapter 17 Pricing Strategies: Countertrade and Terms of Sales/Payment

Chapter Outline Countertrade -Types of Countertrade -Problems and Opportunities Price Quotation Terms of Sale -Trade Terms -Quotation Guidelines

Chapter Outline Methods of Financing and Means of payment -Consignment -Open Account -Cash in Advance -Bill of Exchange (Draft) -Bankers' Acceptance -Letter of Credit

Countertrade goods for goods trade (vs. monetary trade) government mandate to pay for goods and services with something else other than cash

Countertrade Advantages serving as trade financing buyer getting rid of surplus of own products no concern for fluctuation of exchange rates

Countertrade Disadvantages cumbersome and time-consuming costly inferior form of exchange -requiring "double coincidence of wants"

Types of Countertrade Barter - single transaction of direct exchange of products of equal value Counterpurchase (Parallel Barter) -two transactions of cash sales agreements (of unrelated products) Compensation Trade (Buyback) -products sold and later bought by a party are related

Types of Countertrade Offset -for the rights to sell its product in a foreign market, the seller must manufacture the product locally (in the host country) Clearing Agreement -line or credit established in central banks of two countries -use "clearing account units" for exchange of products

Trade Terms EXW (Ex Works) -price of product only; nothing else being included FAS (Free Alongside Ship) -EXW + local transportation in seller's country FOB (Free on Board) -FAS + loading onto the vessel CFR (Cost & Freight) -FOB + international transportation

Trade Terms CIF (Cost, Insurance, and Freight) -CFR + insurance DEQ (Delivered Ex Quay) -CIF + unloading DDP (Delivered Duty Paid) -DEQ + local transportation in buyer's country

Methods of Financing & Means of Payment Consignment Open Account Cash in Advance Bill of Exchange (Draft) -Sight Draft -Time Draft

Methods of Financing & Means of Payment Bankers' Acceptance Letter of Credit (L/C) -Revocable vs. Irrevocable -Unconfirmed vs. Confirmed -Standby -Back-to-Back -Transferable

Export Payment Terms and Risk Level Open account (highest risk for exporter) Sight draft Time draft Irrevocable L/C Confirmed irrevocable L/C Cash in advance (least risk)

Export Payment Terms and Cost Open account (least cost for importer) Sight draft Time draft Irrevocable L/C Confirmed irrevocable L/C Cash in advance (highest cost)

L/C: Advantages/Disadvantages Advantages – Security (for both parties) – Seller receiving early payment by discounting L/C Disadvantages – Lacking flexibility – Complex and potentially costly