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    Chapter 15 Exporting Importing and Countertrade

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    VINITHA
    This chapter discusses exporting, importing, and countertrade. It explains that exporting allows firms to access larger markets and profits. However, exporting involves risks such as poor market analysis and underestimating differences in foreign markets. Firms can improve export performance by collecting market information, working with export management companies, and entering foreign markets gradually. The chapter also describes international payment methods like letters of credit and bills of exchange that help overcome lack of trust between trading partners. Finally, it defines countertrade as barter-like agreements that facilitate trade without cash and discusses different forms of countertertade.

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    Chapter 15 Exporting Importing and Countertrade

    Uploaded by

    VINITHA
    105 views5 pages
    This chapter discusses exporting, importing, and countertrade. It explains that exporting allows firms to access larger markets and profits. However, exporting involves risks such as poor market analysis and underestimating differences in foreign markets. Firms can improve export performance by collecting market information, working with export management companies, and entering foreign markets gradually. The chapter also describes international payment methods like letters of credit and bills of exchange that help overcome lack of trust between trading partners. Finally, it defines countertrade as barter-like agreements that facilitate trade without cash and discusses different forms of countertertade.

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    This chapter discusses exporting, importing, and countertrade. It explains that exporting allows firms to access larger markets and profits. However, exporting involves risks such as poor market analysis and underestimating differences in foreign markets. Firms can improve export performance by collecting market information, working with export management companies, and entering foreign markets gradually. The chapter also describes international payment methods like letters of credit and bills of exchange that help overcome lack of trust between trading partners. Finally, it defines countertrade as barter-like agreements that facilitate trade without cash and discusses different forms of countertertade.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    105 views5 pages

    Chapter 15 Exporting Importing and Countertrade

    Uploaded by

    VINITHA
    This chapter discusses exporting, importing, and countertrade. It explains that exporting allows firms to access larger markets and profits. However, exporting involves risks such as poor market analysis and underestimating differences in foreign markets. Firms can improve export performance by collecting market information, working with export management companies, and entering foreign markets gradually. The chapter also describes international payment methods like letters of credit and bills of exchange that help overcome lack of trust between trading partners. Finally, it defines countertrade as barter-like agreements that facilitate trade without cash and discusses different forms of countertertade.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    lOMoARcPSD|6941793

    Chapter 15 - Exporting, Importing, and Countertrade

    International Business (Universitas Indonesia)

    StuDocu is not sponsored or endorsed by any college or university


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    lOMoARcPSD|6941793

    Chapter 15 - Exporting, Importing, and Countertrade


    Why Export? Exporting is a way to increase market size and profits 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 and 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
    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
    How Can Firms Improve Export Performance? Firms need to collect information, they 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
    What Are Export Management Companies? EMCs are export specialists that act as the
    export marketing department or international department for client firms. They 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
    How Can Firms 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
    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, an element of trust is added to the relationship

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    lOMoARcPSD|6941793

    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
    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
    The bill of lading is issued to the exporter by the common carrier transporting the merchandise.
    It serves three purposes -> a receipt - merchandise described on document has been received by
    carrier, a contract - carrier is obligated to provide transportation service in return for a certain
    charge, a document of title - can be used to obtain payment or a written promise before the
    merchandise is released to the importer
    How Does An International Trade Transaction Work?

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    lOMoARcPSD|6941793

    Where Can Firms Get Export Assistance?


    1. Financing aid is available from the Export-Import Bank (Eximbank) or equivalent
    agency in different countries It provides financing aid to facilitate exports, imports, and
    the exchange of commodities between the U.S. and other countries It achieves its goals
    though loan and loan guarantee programs
    2. Export credit insurance - provides coverage against commercial risks and political risks,
    and protects exporters against the risk that the importer will default on payment
    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. It 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, and has notable increase after the 1997 Asian financial crisis
    There are five distinct versions (forms) of countertrade
    1. Barter - a direct exchange of goods and/or services between two parties without a cash
    transaction. The most restrictive countertrade arrangement and 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. The difference
    is that this party can fulfill the obligation with any firm in the country to which the sale is
    being made
    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
     Countertrade is attractive because it gives a firm a way to finance an export deal
    when other means are not available and also it give a firm a competitive 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

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    lOMoARcPSD|6941793

     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

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