and Countertrade

Richard V. Simangan, Ph.D. BA Page 1 Student

Page 2

The German Export Machine

German economy is only about one-quarter size of the US economy and roughly half the size of Japan; In 1990, Germany racked up $421B of exports against US $394B and Japans $286B

Page 3

The German Export Machine

A striking thing about Germanys export machine is the role played by small firms referred to in Germany as the Mittelstand. Success factors: (1) export infrastructure (2) export orientation of small German firms

Page 4

Exporting
The business, activity or process of bringing, shipping or selling the goods or services outside the country or to a foreign country

Page 5

Importing
The business, activity or process of bringing the goods or services inside the country

Page 6

Countertrade
Payment for exports is received in goods and services rather than money.

Page 7

Exporting
The firm wishing to export must: 1. Identify foreign market opportunities 2. Familiarize itself with the mechanics of export and import financing 3. Learn how it should deal with foreign exchange risk.

Page 8

Exporting
One of the biggest impediments to exporting is ignorance of foreign market opportunities. The way to overcome ignorance is to collect information.

Page 9

Advantages of Exporting
1. It avoids the cost of establishing manufacturing operations in the host country. 2. It may help a firm achieve experience curve and location economies.

Page 10

Disadvantages of Exporting
1. It may not be appropriate if there are lowest-cost locations for manufacturing the product abroad. 2. High transport cost can make exporting uneconomical, particularly for bulk products. 3. Tariff barriers can make it uneconomical.

Page 11

Export and Import Financing

Lack of Trust Firms engaged in international trade face the problem of having to trust someone they may never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he or she defaults on an obligation.
Page 12

Financial Devices
Letter of Credit (L/C) This is issued by a bank at the request of an importer. It states that the ban will pay specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.

Page 13

Simple L/C Process

Page 14

Financial Devices
Draft Is sometimes referred to as a bill of exchange. It is normally used in international commerce to effect payment. It is simply an order written by an exporter instructing an importer, or an importers agent, to pay a specified amount of money at a specified time.

Page 15

Page 16

Financial Devices
Bill of Lading This is issued to the exporter by the common carrier transporting the merchandise. It serves 3 purposes: as a receipt, a contract, and a document or title As a receipt, it indicates that the carrier has received the merchandise described on the face of the document

Page 17

Financial Devices
Bill of Lading As a contract, it specifies that the carrier is obligated to provide a transportation service in return for a certain charge. As a document of title, it can be used to obtain payment or a written promise of payment before the merchandise is released to the importer.

Page 18

Page 19

Export Assistance
Export-Import Bank Often referred to as Eximbank, is an independent agency of the US government. Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the US and other countries.

Page 20

Export Assistance
Export-Import Bank It guarantees repayment of medium and long-term loans It has a direct lending operation under which it lends dollars to foreign borrowers for use in purchasing US exports

Page 21

Export Assistance
Export Credit Insurance The lack of letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against the possibility by buying export credit insurance. If the customer defaults, the insurance firm will cover a major portion of the loss.
Page 22

Export Figures

Page 23

2009 Philippine Exports by Country

Page 24

Exports by Country
Rank #1 #3 #4 #5 #6 #7 #8 #9 # 10 # 11 # 12 # 13 # 14 # 15 # 16 # 17 # 18 # 19 # 20 # 21 # 22 # 23 # 24 # 25 Countries Germany China: United States: Japan: France: Italy: Netherlands: United Kingdom: Canada: Korea, South: Russia: Hong Kong: Belgium: Singapore: Mexico: Spain: Taiwan: Saudi Arabia: Switzerland: United Arab Emirates: Malaysia: Sweden: Austria: Brazil: Amount Date $1,354,000,000,000.00 2007 $1,220,000,000,000.00 2007 $1,148,000,000,000.00 2007 $678,100,000,000.00 2007 $546,000,000,000.00 2007 $502,400,000,000.00 2007 $456,800,000,000.00 2007 $442,200,000,000.00 2007 $431,100,000,000.00 2007 $379,000,000,000.00 2007 $355,500,000,000.00 2007 $345,900,000,000.00 2007 $322,200,000,000.00 2007 $302,700,000,000.00 2007 $271,900,000,000.00 2007 $256,700,000,000.00 2007 $246,500,000,000.00 2007 $226,700,000,000.00 2007 $200,100,000,000.00 2007 $178,900,000,000.00 2007 $176,400,000,000.00 2007 $170,100,000,000.00 2007 $162,100,000,000.00 Page 2007 25 $160,600,000,000.00 2007

Rank # 26 # 27 # 28 # 29 # 30 # 31 # 32 # 33 # 34 # 35 # 36 # 37 # 38 # 39 # 40 # 41 # 42 # 43 # 44 # 45 # 46 # 47 # 48 # 49 # 50

Countries India: Thailand: Poland: Australia: Norway: Czech Republic: Indonesia: Ireland: Turkey: Denmark: Finland: Iran: Hungary: South Africa: Venezuela: Chile: Kuwait: Nigeria: Algeria: Slovakia: Argentina: Portugal: Israel: Ukraine: Philippines:

Amount

Date

$151,300,000,000.00 2007 $151,100,000,000.00 2007 $144,600,000,000.00 2007 $142,100,000,000.00 2007 $140,300,000,000.00 2007 $122,300,000,000.00 2007 $118,000,000,000.00 2007 $115,500,000,000.00 2007 $115,300,000,000.00 2007 $101,200,000,000.00 2007 $89,910,000,000.00 2007 $88,260,000,000.00 2007 $87,770,000,000.00 2007 $76,190,000,000.00 2007 $69,170,000,000.00 2007 $67,640,000,000.00 2007 $63,720,000,000.00 2007 $61,790,000,000.00 2007 $60,510,000,000.00 2007 $57,530,000,000.00 2007 $55,780,000,000.00 2007 $51,500,000,000.00 2007 $50,370,000,000.00 2007 $49,840,000,000.00 Page 2007 26 $49,320,000,000.00 2007

Rank # 26 # 27 # 28 # 29 # 30 # 31 # 32 # 33 # 34 # 35 # 36 # 37 # 38 # 39 # 40 # 41 # 42 # 43 # 44 # 45 # 46 # 47 # 48 # 49 # 50

Countries India: Thailand: Poland: Australia: Norway: Czech Republic: Indonesia: Ireland: Turkey: Denmark: Finland: Iran: Hungary: South Africa: Venezuela: Chile: Kuwait: Nigeria: Algeria: Slovakia: Argentina: Portugal: Israel: Ukraine: Philippines:

Amount

Date

$151,300,000,000.00 2007 $151,100,000,000.00 2007 $144,600,000,000.00 2007 $142,100,000,000.00 2007 $140,300,000,000.00 2007 $122,300,000,000.00 2007 $118,000,000,000.00 2007 $115,500,000,000.00 2007 $115,300,000,000.00 2007 $101,200,000,000.00 2007 $89,910,000,000.00 2007 $88,260,000,000.00 2007 $87,770,000,000.00 2007 $76,190,000,000.00 2007 $69,170,000,000.00 2007 $67,640,000,000.00 2007 $63,720,000,000.00 2007 $61,790,000,000.00 2007 $60,510,000,000.00 2007 $57,530,000,000.00 2007 $55,780,000,000.00 2007 $51,500,000,000.00 2007 $50,370,000,000.00 2007 $49,840,000,000.00 Page 2007 27 $49,320,000,000.00 2007

Philippine Export News

Manila Bulletin Philippine Business ReportJanuary Philippine Business ReportFebruary

Page 28

Philippine Export News

Page 29

Page 30

Import Statistics
Statistics 1 Statistics 2

Page 31

Countertrade

Page 32

Countertrade
Non-convertibility of currencies due to government restrictions implies that the exporter may not be able to be paid in his or her home currency. Countertrade is increasingly the solution of choice for problems posed by non-convertibility.

Page 33

Countertrade
It denotes a whole range of barterlike agreements; Its principle is to trade goods and services for other goods and services when they cannot be traded for money.

Page 34

Types of Countertrade
Barter Is the direct exchange of goods and/or services between 2 parties without a cash transaction. Its two-fold problems:
If goods are not exchange simultaneously, one party ends up financing the other for a period of time Firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price.
Page 35

Types of Countertrade
Counterpurchase Is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

Page 36

Types of Countertrade
Offset Is similar to counterpuchase in so far as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that the party can fulfill the obligations with any firm in the country to which the sale is being made.
Page 37

Types of Countertrade
Offset From the exporters perspective, this is more attractive than a straight counterpurchase agreement since it gives the exporter greater flexibility to choose the goods that it wishes to purchase.

Page 38

Types of Countertrade
Switch Trading Refers to the use of a specified third-party trading house in a countertrade arrangement. It occurs when a third-party trading house buys the firms counterpurchase credits and sells them to another firm that can make better use of them.
Page 39

Types of Countertrade
Compensation or Buy Back 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 plants output as partial payment for the contract.

Page 40

Pros and Cons of Countertrade

The main attraction of countertrade is that it can give a firm a way to finance an export deal when other means are not available. The drawback is that countertrade may involve exchange of unusable or poor-quality goods that the firm cannot dispose of profitably.

Page 41

End

Page 42