McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

CHAPTER
12
Exporting, Importing
and Countertrade

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide
12-1

Key Issues
• What are the opportunities and risks associated
with exporting?
• How can companies improve their export
performance?
• What information programs and government
resources can help exporters?
• What are the basic steps in financing exporting?
• How can countertrade facilitate exporting?

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide
12-2

Exports, FDI, or Licensing?

Are home manufacturing No
Import No
costs and transportation Export
Barriers?
costs high?
Yes No Yes
Is know-how easy to
FDI
license?
Yes
Yes
Tight control over foreign
FDI
ops required?
No
Yes
Is know-how valuable and FDI
is protection possible?

No
License

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide
12-3
Exporting Promises and Pitfalls
• Uninformed view that huge revenue and profit
opportunities overseas “there for the pickings”
• Large firms may realize promise
– are proactive about exporting
– systematic with exporting effort
– have knowledge of overseas markets
– Can see where they can leverage their technology,
products and marketing skills
• Smaller firms are more likely to stumble
– reactive and seek overseas markets as an afterthought
– effort ad-hoc, opportunistic and often naïve

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide
12-4

Exporting Pitfalls
• Poor market analysis
• Superficial understanding of competitive conditions
• Underestimation of time and expertise needed to develop a
foreign export market
– Some customers require face-to-face interactions
– Lack of allocation of sufficient managerial resources
– Underestimation of need/value to develop local relationships (“let
the agent deal with this”)
• Failure to customize the product to the needs of foreign
users (industrial or consumer)
• Ineffective distribution system
• Weak promotion program

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Slide
12-5

Exporting Pitfalls (cont.)

• Poor understanding of involved logistics
– specialized paperwork
– labyrinthian regulations that may involve for typical
transaction
• 30 parties, 60 original documents, 360 document copies
• need to have staff competent to produce and check
– Can by up to 10% of cost of exported product
• Lack of excellent documentation system

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Slide
12-6

Export Performance Improvement

• Government information sources
– In US various parts of the Department of Commerce
– In other countries similar organization
– Embassies and consulates have commercial sections
• Export management companies
– Act as the export marketing department of firms
– Experienced specialists
– However, not exclusive
• Focused export strategy

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide
12-7

Export/Import Financing
• Service that allows exporter to be assured of
payment and importer to be assured of product
• Banks offer financing intermediary service
– Letter-of-Credit: bank guarantee of payment to
exporter “bought” by the corresponding importer
– Draft or Bill-of-Exchange: instructions to bank to pay
at a certain time based on certain documentation
• Carriers move product from A to B
– Bill-of-Lading issued to exporter by the carrier: is a
receipt, a contract and a document of title issued to the
exporter by the carrier

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Slide
12-8

Export Assistance
• Export-Import Bank (Eximbank)
– Independent agency of US Government
– Provides financing for US exports, imports, and
exchange of commodities
– Guarantees repayment of medium, long term loans to
foreign borrowers for purchasing US exports
• Export Credit Insurance
– Covers the exporter who must deal with an importer
who insists on no letter-of-credit
– Issued by the Foreign Credit Insurance Association
• Grouping of private commercial banks
• Under the guidance of Export-Import Bank
• Coverage against commercial and political risk

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Slide
12-9
Countertrade
• A range of barterlike agreements
– Trade goods/services for other goods/services
– Used when currencies not convertible
– Used when the currencies are too unstable
• Types of Countertrade
– Barter: direct exchange of goods
– Counterpurchase: reciprocal buying agreement
– Offset: similar to Counterpurchase but more than one
set of exchanges can be involved
– Switch trading: involves the use of a specialized third
party trading house in a countertrade agreement
– Buybacks: a firm builds a plant, supplies technology or
equipment or training or other service in a country and
agrees to take percentage of output as partial payment
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Slide
12-10

Countertrade: Pros and Cons

• Pros
– Can offer a way to finance exports when other forms
of financing are not available
– Can be the preferred financing method in cases where
cash deals are too risky
– May satisfy the need to build good will with the host
government
• Cons
– May involve the exchange of poor quality goods
– Importing firm must find a market for goods in an
unrelated industry
• Can involve building a marketing infrastructure to dispose of
a stream of such goods
• More suitable to large firms

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.