1. International
Business
Fourth Edition

2. Exporting, Importing, and Countertrade
CHAPTER 15
Exporting, Importing, and Countertrade

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.

4. To ship to another country for sale or exchange.
15-4
Exporting
To ship to another country for sale or exchange.
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

5. Promise and Pitfalls of Exporting
Ignorance
and
Intimidation
Poor market
analysis
Poor understanding
of competitive
conditions
Failure to
customize product
offering
Poor
distribution
program
Poorly executed
promotional
campaign
Problems securing
financing

6. Improving Export Performance
Information from
government sources
Export Management
Companies
Utilizing export
strategies

7. Government Support for Exports

8. US Export Support

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.

10. 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.
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

11. Export/Import Financing
15-11
Export/Import Financing
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.
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

12. Preference of the US Exporter
French Importer
American Exporter
1. Importer Pays for Goods
2. Exporter Ships Goods After Being Paid
Figure 15-1

13. Preference of the French Importer
American Exporter
1. Exporter Ships the Goods
2. Importer pays after the Goods are Received
Figure 15-2

14. 1. Importer Obtains Bank’s Promise to Pay on Importers Behalf
The Use of a Third Party
1. Importer Obtains Bank’s Promise to Pay on Importers Behalf
5. Bank Gives Merchandise to Importer
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
American Exporter
Bank
French Importer
Figure 15-3

15. A Typical International Transaction
French Importer
American Exporter
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
5. B of NY Informs Exporter of 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
Bank of New York
Bank of Paris
Figure 15-4

16. Insurance Association
Export Assistance
Foreign Credit
Insurance Association

17. Trade carried out wholly or partially in goods rather than money.
15-17
Countertrade
Trade carried out wholly or partially in goods rather than money.
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

18. Countertrade as a Share of World Trade Value
15-18
Countertrade as a Share of World Trade Value %
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

19. Countertrade Practice
15-19
Countertrade Practice
Percent of companies engaged in each countertrade practice
Figure 15-5
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

20. Countertrade Typically, 5 kinds of countertrade Barter Counterpurchase
15-20
Countertrade
Typically, 5 kinds of countertrade
Barter
Counterpurchase
Offset
Switch trading
Compensation or Buyback
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

21. 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.
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© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

22. Pros and Cons of Countertrade
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.