International Business Powerpoint
sirhor
unitvi_chapter15presentation.pdf
International Business 8e
By Charles W.L. Hill
Chapter 15
Exporting, Importing, and Countertrade
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
15-3
Why Export?
Exporting is a way to increase market size and profits increasing thanks to lower trade barriers under the WTO and
regional economic agreements such as the EU and NAFTA
Large firms often proactively seek new export opportunities, but many smaller firms export reactively often intimidated by the complexities of exporting
Exporting firms need to identify market opportunities
deal with foreign exchange risk
navigate import and export financing
understand the challenges of doing business in a foreign market
15-4
What Are The Pitfalls Of Exporting?
Common pitfalls include poor market analysis
poor understanding of competitive conditions
a lack of customization for local markets
a poor distribution program
poorly executed promotional campaigns
problems securing financing
a general underestimation of the differences and expertise required for foreign market penetration
an underestimation of the amount of paperwork and formalities involved
15-5
How Can Firms Improve Export Performance?
Many firms are unaware of export opportunities available
Firms need to collect information
Firms can get direct assistance from some countries and/or use an export management companies both Germany and Japan have developed extensive
institutional structures for promoting exports
Japanese exporters can use knowledge and contacts of sogo shosha - great trading houses
U.S. firms have far fewer resources available
15-6
Where Can U.S. Firms Get Export Information?
The U.S. Department of Commerce - the most comprehensive source of export information for U.S. firms
The International Trade Administration and the United States and Foreign Commercial Service Agency - “best prospects” lists for firms
The Department of Commerce - organizes various trade events to help firms make foreign contacts and explore export opportunities
The Small Business Administration Local and state governments
15-7
What Are Export Management Companies?
Export management companies (EMCs) are export specialists that act as the export marketing department or international department for client firms
EMCs normally accept two types of assignments
1. They start export operations with the understanding that the firm will take over after they are established not all EMCs are equal—some do a better job than others
2. They start services with the understanding that the EMC will have continuing responsibility for selling the firm’s products but, firms that use EMCs may not develop their own export
capabilities
15-8
How Can Firms Reduce The Risks Of Exporting?
To reduce the risks of exporting, firms should hire an EMC or export consultant to identify
opportunities and navigate paperwork and regulations focus on one, or a few, markets at first enter a foreign market on a small scale in order to
reduce the costs of any subsequent failures recognize the time and managerial commitment
involved develop a good relationship with local distributors and
customers hire locals to help establish a presence in the market be proactive consider local production
15-9
How Can Firms Overcome The Lack Of Trust in Export Financing? Because trade implies parties from different
countries exchanging goods and payment the issue of trust is important
Exporters prefer to receive payment prior to shipping goods, but importers prefer to receive goods prior to making payments
To get around this difference of preference, many international transactions are facilitated by a third party - normally a reputable bank
By including the third party, an element of trust is added to the relationship
15-10
How Can Firms Overcome The Lack Of Trust in Export Financing?
The Use Of A Third Party
15-11
What Is A Letter Of Credit?
A letter of credit is issued by a bank at the request of an importer and states the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents
main advantage is that both parties are likely to trust a reputable bank even if they do not trust each other
15-12
What Is A Draft?
A draft (also called a bill of exchange) is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time
the instrument normally used in international commerce for payment
A sight draft is payable on presentation to the drawee while a time draft allows for a delay in payment - normally 30, 60, 90, or 120 days
15-13
What Is A Bill Of Lading?
The bill of lading is issued to the exporter by the common carrier transporting the merchandise
It serves three purposes 1. It is a receipt - merchandise described on document
has been received by carrier
2. It is a contract - carrier is obligated to provide transportation service in return for a certain charge
3. It is a document of title - can be used to obtain payment or a written promise before the merchandise is released to the importer
15-14
How Does An International Trade Transaction Work?
A Typical International Trade Transaction
15-15
Where Can U.S. Firms Get Export Assistance?
1. Financing aid is available from the Export-Import Bank (Eximbank) - an independent agency of the U.S. government provides financing aid to facilitate exports, imports, and the
exchange of commodities between the U.S. and other countries achieves its goals though loan and loan guarantee programs
2. Export credit insurance is available from the Foreign Credit Insurance Association (FICA) - provides coverage against commercial risks and political risks protects exporters against the risk that the importer will default
on payment
15-16
What Is Countertrade?
Countertrade refers to a range of barter-like agreements that facilitate the trade of goods and services for other goods and services when they cannot be traded for money emerged as a means purchasing imports during
the1960s when the Soviet Union and the Communist states of Eastern Europe had nonconvertible currencies,
grew in popularity in the 1980s among many developing nations that lacked the foreign exchange reserves required to purchase necessary imports
notable increase after the 1997 Asian financial crisis
15-17
What Are The Forms Of Countertrade?
There are five distinct versions of countertrade 1. Barter - a direct exchange of goods and/or services
between two parties without a cash transaction the most restrictive countertrade arrangement used primarily for one-time-only deals in transactions with
trading partners who are not creditworthy or trustworthy
2. Counterpurchase - a reciprocal buying agreement occurs when a firm agrees to purchase a certain amount of
materials back from a country to which a sale is made
3. Offset - similar to counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale difference is that this party can fulfill the obligation with any firm in the
country to which the sale is being made
15-18
What Are The Forms Of Countertrade?
4. A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant’s output as a partial payment for the contract
5. Switch trading - the use of a specialized third-party trading house in a countertrade arrangement when a firm enters a counterpurchase or offset agreement with a
country, it often ends up with counterpurchase credits which can be used to purchase goods from that country
switch trading occurs when a third-party trading house buys the firm’s counterpurchase credits and sells them to another firm that can better use them
15-19
What Are The Pros Of Countertrade?
Countertrade is attractive because
it gives a firm a way to finance an export deal when other means are not available
it give a firm acompetitve edge over a firm that is unwilling to enter a countertrade agreement
In some cases, a countertrade arrangement may be required by the government of a country to which a firm is exporting goods or services
15-20
What Are The Cons Of Countertrade?
Countertrade is unattractive because
it may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably
it requires the firm to establish an in-house trading department to handle countertrade deals
Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrade deals
15-21
Review Question
Which of the following is not a common pitfall
of exporting?
a) a product offering that is customized to the local market
b) a poor understanding of competitive conditions in he foreign market
c) poor market analysis
d) problems securing financing
15-22
Review Question
A _______ is an order written by an exporter
instructing an importer to pay a specified
amount of money at a specified time.
a) letter of credit
b) draft
c) bill of lading
d) confirmed letter of credit
15-23
Review Question
Which type of countertrade arrangement
involves the use of a specialized third-party
trading house?
a) a buyback
b) an offset
c) a counterpurchase
d) switch trading
15-24
Review Question
Which of the following is not a purpose of the
bill of lading?
a) It is a contract
b) It is a document of title
c) It is a form of payment
d) It is a receipt
15-25
Review Question
________ is the most restrictive countertrade
arrangement.
a) counterpurchase
b) switch trading
c) barter
d) offset
15-26
Review Question
Countertrade is attractive for all of the following reasons except a) It may involve the exchange of unusable or poor-
quality goods that the firm cannot dispose of profitably
b) It can give a firm a way to finance an export deal when other means are not available
c) It can be a strategic marketing weapon d) It can give a firm an advantage over firms that are
unwilling to engage in countertrade arrangements
