3/10/14

Chapter  15  
Exporting,  Importing,  
and  Countertrade  
Instructor:  Dr.  Nguyen  Viet  Khoi  

 
 
McGraw-Hill/Irwin   Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.  

Why  Export?  
v Exporting  is  a  way  to  increase  market  size  and  pro9its    
v increasing  thanks  to  lower  trade  barriers  under  the  WTO  and  
regional  economic  agreements  such  as  the  EU  and  NAFTA  
v Large  9irms  often  proactively  seek  new  export  
opportunities,  but  many  smaller  9irms  export  reactively    
v often  intimidated  by  the  complexities  of  exporting  
v Exporting  9irms  need  to    
v identify  market  opportunities  
v deal  with  foreign  exchange  risk  
v navigate  import  and  export  9inancing  
v understand  the  challenges  of  doing  business  in  a  foreign  market  

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What  Are  The    

Pitfalls  Of  Exporting?  
v Common  pitfalls  include  
v poor  market  analysis  
v poor  understanding  of  competitive  conditions  
v a  lack  of  customization  for  local  markets  
v a  poor  distribution  program  
v poorly  executed  promotional  campaigns  
v problems  securing  9inancing  
v a  general  underestimation  of  the  differences  and  
expertise  required  for  foreign  market  penetration      
v an  underestimation  of  the  amount  of  paperwork  and  
formalities  involved    

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How  Can  Firms  Improve    

Export  Performance?  
v Many  9irms  are  unaware  of  export  opportunities  
available  
v Firms  need  to  collect  information  
v Firms  can  get  direct  assistance  from  some  
countries  and/or  use  an  export  management  
companies    
v both  Germany  and  Japan  have  developed  extensive  
institutional  structures  for  promoting  exports  
v Japanese  exporters  can  use  knowledge  and  contacts  of  
sogo  shosha  -­‐  great  trading  houses  
v U.S.  9irms  have  far  fewer  resources  available  

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Where  Can  U.S.  Firms  Get  

Export  Information?  
v The  U.S.  Department  of  Commerce  -­‐  the  most  
comprehensive  source  of  export  information  for  
U.S.  9irms  
v The  International  Trade  Administration  and  the  
United  States  and  Foreign  Commercial  Service  
Agency  -­‐  “best  prospects”  lists  for  9irms          
v The  Department  of  Commerce  -­‐  organizes  various  
trade  events  to  help  9irms  make  foreign  contacts  
and  explore  export  opportunities  
v The  Small  Business  Administration    
v Local  and  state  governments  

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What  Are  Export    

Management  Companies?  
v  Export  management  companies  (EMCs)  are  export  
specialists  that  act  as  the  export  marketing  department  
or  international  department  for  client  9irms  
v  EMCs  normally  accept  two  types  of  assignments  
1.  They  start  export  operations  with  the  understanding  that  
the  9irm  will  take  over  after  they  are  established    
v  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  9irm’s  
products  
v  but,  9irms  that  use  EMCs  may  not  develop  their  own  export  
capabilities  

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How  Can  Firms  Reduce    

The  Risks  Of  Exporting?  
v To  reduce  the  risks  of  exporting,  9irms  should  
v hire  an  EMC  or  export  consultant  to  identify  
opportunities  and  navigate  paperwork  and  regulations    
v focus  on  one,  or  a  few,  markets  at  9irst  
v enter  a  foreign  market  on  a  small  scale  in  order  to  
reduce  the  costs  of  any  subsequent  failures  
v recognize  the  time  and  managerial  commitment  
involved  
v develop  a  good  relationship  with  local  distributors  and  
customers    
v hire  locals  to  help  establish  a  presence  in  the  market  
v be  proactive  
v consider  local  production    
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How  Can  Firms  Overcome  The  

Lack  Of  Trust  in  Export  Financing?  
v Because  trade  implies  parties  from  different  
countries  exchanging  goods  and  payment  the  issue  
of  trust  is  important  
v Exporters  prefer  to  receive  payment  prior  to  
shipping  goods,  but  importers  prefer  to  receive  
goods  prior  to  making  payments    
v To  get  around  this  difference  of  preference,  many  
international  transactions  are  facilitated  by  a  third  
party  -­‐  normally  a  reputable  bank    
v By  including  the  third  party,  an  element  of  trust  is  
added  to  the  relationship  

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How  Can  Firms  Overcome  The  

Lack  Of  Trust  in  Export  Financing?  
The  Use  Of  A  Third  Party  
 

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What  Is  A  Letter  Of  Credit?  

v A  letter  of  credit  is  issued  by  a  bank  at  the  
request  of  an  importer  and  states  the  bank  
will  pay  a  speci9ied  sum  of  money  to  a  
bene9iciary,  normally  the  exporter,  on  
presentation  of  particular,  speci9ied  
documents  
v main  advantage  is  that  both  parties  are  likely  to  
trust  a  reputable  bank  even  if  they  do  not  trust  
each  other  
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What  Is  A  Draft?  

v 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  speci9ied  amount  of  
money  at  a  speci9ied  time  
v the  instrument  normally  used  in  international  
commerce  for  payment  
v 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  

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What  Is  A  Bill  Of  Lading?  

v  The  bill  of  lading  is  issued  to  the  exporter  by  
the  common  carrier  transporting  the  
merchandise      
v  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  

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How  Does  An  International  

Trade  Transaction  Work?  
A  Typical  International  Trade  Transaction  
 
 

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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  
v  provides  9inancing  aid  to  facilitate  exports,  imports,  and  the  
exchange  of  commodities  between  the  U.S.  and  other  countries  
v  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  
v  protects  exporters  against  the  risk  that  the  importer  will  default  
on  payment  

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What  Is  Countertrade?  

v 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    
v emerged  as  a  means  purchasing  imports  during  
the1960s  when  the  Soviet  Union  and  the  Communist  
states  of  Eastern  Europe  had  nonconvertible  currencies,  
v grew  in  popularity  in  the  1980s  among  many  
developing  nations  that  lacked  the  foreign  exchange  
reserves  required  to  purchase  necessary  imports  
v notable  increase  after  the  1997  Asian  9inancial  crisis  

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What  Are  The  Forms    

Of  Countertrade?  
v  There  are  9ive  distinct  versions  of  countertrade  
1.  Barter  -­‐  a  direct  exchange  of  goods  and/or  services  
between  two  parties  without  a  cash  transaction  
v  the  most  restrictive  countertrade  arrangement  
v  used  primarily  for  one-­‐time-­‐only  deals  in  transactions  with  
trading  partners  who  are  not  creditworthy  or  trustworthy  
2.  Counterpurchase  -­‐  a  reciprocal  buying  agreement  
v  occurs  when  a  9irm  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  speci9ied  
percentage  of  the  proceeds  from  the  original  sale  
v  difference  is  that  this  party  can  ful9ill  the  obligation  with  any  9irm  in  the  
country  to  which  the  sale  is  being  made  

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What  Are  The  Forms    

Of  Countertrade?  
4.  A  buyback  occurs  when  a  9irm  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    
6.  Switch  trading  -­‐  the  use  of  a  specialized  third-­‐party  
trading  house  in  a  countertrade  arrangement  
v  when  a  9irm  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  
v  switch  trading  occurs  when  a  third-­‐party  trading  house  buys  the  
9irm’s  counterpurchase  credits  and  sells  them  to  another  9irm  
that  can  better  use  them  

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What  Are  The    

Pros  Of  Countertrade?  
v Countertrade  is  attractive  because    
v it  gives  a  9irm  a  way  to  9inance  an  export  deal  
when  other  means  are  not  available  
v it  give  a  9irm  acompetitve  edge  over  a  9irm  that  
is  unwilling  to  enter  a  countertrade  agreement  
v In  some  cases,  a  countertrade  arrangement  
may  be  required  by  the  government  of  a  
country  to  which  a  9irm  is  exporting  goods  
or  services    
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What  Are  The    

Cons  Of  Countertrade?  
v Countertrade  is  unattractive  because    
v it  may  involve  the  exchange  of  unusable  or  poor-­‐quality  
goods  that  the  9irm  cannot  dispose  of  pro9itably  
v it  requires  the  9irm  to  establish  an  in-­‐house  trading  
department  to  handle  countertrade  deals    
v 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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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  9inancing  
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Review  Question  
A  _______  is  an  order  written  by  an  exporter  
instructing  an  importer  to  pay  a  speci9ied  
amount  of  money  at  a  speci9ied  time.  
 
 a)  letter  of  credit  
 b)  draft  
 c)  bill  of  lading  
 d)  con9irmed  letter  of  credit  

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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  

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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  

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Review  Question  
________  is  the  most  restrictive  countertrade  
arrangement.  

a)  counterpurchase  
b)  switch  trading  
c)  barter  
d)  offset  

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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  9irm  cannot  dispose  of  
pro9itably  
 b)  It  can  give  a  9irm  a  way  to  9inance  an  export  deal  
when  other  means  are  not  available  
 c)  It  can  be  a  strategic  marketing  weapon  
 d)  It  can  give  a  9irm  an  advantage  over  9irms  that  are  
unwilling  to  engage  in  countertrade  arrangements  

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