Exporting, Importing and Countertrade

Chapter 15

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 Exporting

To ship to another country

for sale or exchange.

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 Government Support for Exports

www.bundesregierung.de

www.miti.go.jp 15-2
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 US Export Support

www.doc.gov

www.ita.doc.gov
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 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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 www.mmm.com

www.redspot.com

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 Export/Import Financing
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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 Preference of the US Exporter
1. Importer Pays for Goods

French Importer American Exporter

2. Exporter Ships Goods After Being Paid

Figure 15-1

15-7
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 Preference of the French Importer
1. Exporter Ships the Goods

French Importer American Exporter

2. Importer pays after the Goods are Received

Figure 15-2

15-8
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 The Use of a Third Party
1. Importer Obtains Bank’s Promise 2. Bank Promises Exporter to
to Pay on Importers Behalf Pay on Behalf of Importer

French Importer Bank American Exporter

6. Importer Pays Bank 4. Bank Pays Exporter

5. Bank Gives Merchandise 3. Exporter Ships “to the Bank.”

to Importer Trusting Bank’s Promise to Pay
Figure 15-3

15-9
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A Typical International Transaction
1. Importer Orders Goods 3. Importer
Arranges for
2. Exporter Agrees to Fill Order
LOC

American Exporter French Importer

6. Goods Shipped to France
10 and 11
Exporter 7. Exporter 12. Bank Tells 13. Importer
Sells Presents Importer Pays Bank
Draft to Draft to Bank Documents
Bank 14. B of NY Presents Matured Arrive
Draft and Gets Payment
Bank of New York Bank of Paris
5. B of NY 8. B of NY Presents Draft to Bank of Paris
Informs
9. Bank of Paris Returns Accepted Draft Figure 15-4
Exporter
of LOC 4. Bank of Paris Sends LOC to B of NY

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 Ex-Im Bank

www.exim.gov

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The Role of Government in the Export/Import
Environment
Political
Protecting jobs and industries.
National security.
Retaliation.
Economic
Develop/protect infant industry.
Strategic trade policy.
• First mover advantage.
• The ‘catch-up’ argument.
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 Countertrade
Trade carried out wholly or partially
in goods rather than money.

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15-13
Countertrade as a Share of World Trade
Value
%
50
45
40
35
30
25
20
15
10
5
0
1975 1985 1990 1992 2000 Est
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 Countertrade
Typically, 5 kinds of countertrade
Barter
Counterpurchase
Offset
Compensation trading or Buyback
Switch trading

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15-15
 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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15-16
 Why Countertrade?
Helps countries that don’t have sufficient
foreign currency reserves.
However:
How do you determine value?
Difficulties in disposition of goods.
Costs of engagement.
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 Countertrade Practice
100

Percent of
companies
80
engaged in each
73
60
countertrade 60
practice Offset
Switch Trading
40
Barter
19 22 Buyback
20
Counterpurchase
3
Figure 15-5 0

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15-18
 Countertrade: Pros and Cons
Pro:
Provides business a way to finance an export
deal when other means are not available.
Con:
Business may receive unusable or poor quality
goods that can be disposed of profitably.

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