Exporting Importing and Countertrade Chapter 15 Mc

Exporting, Importing and Countertrade Chapter 15 © Mc. Graw Hill Companies, Inc. , 2000

Exporting To ship to another country for sale or exchange. © Mc. Graw Hill Companies, Inc. , 2000 15 -1

Government Support for Exports www. bundesregierung. de www. miti. go. jp © Mc. Graw Hill Companies, Inc. , 2000 15 -2

US Export Support www. doc. gov www. ita. doc. gov © Mc. Graw Hill Companies, Inc. , 2000 15 -3

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. © Mc. Graw Hill Companies, Inc. , © Mc. Graw. Hill Companies, Inc. , 2000 15 -4

www. mmm. com www. redspot. com © Mc. Graw Hill Companies, Inc. , 2000 15 -5

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. © Mc. Graw Hill Companies, Inc. , 2000 15 -6

Preference of the US Exporter 1. Importer Pays for Goods French Importer American Exporter 2. Exporter Ships Goods After Being Paid Figure 15 -1 © Mc. Graw Hill Companies, Inc. , 2000 15 -7

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 © Mc. Graw Hill Companies, Inc. , 2000 15 -8

The Use of a Third Party 1. Importer Obtains Bank’s Promise to Pay on Importers Behalf French Importer 6. Importer Pays Bank 5. Bank Gives Merchandise to Importer Bank 2. Bank Promises Exporter to Pay on Behalf of Importer American Exporter 4. Bank Pays Exporter 3. Exporter Ships “to the Bank. ” Trusting Bank’s Promise to Pay Figure 15 -3 © Mc. Graw Hill Companies, Inc. , 2000 15 -9

A Typical International Transaction 1. Importer Orders Goods 3. Importer Arranges for LOC 2. Exporter Agrees to Fill Order American Exporter 10 and 11 Exporter Sells Draft to Bank French Importer 6. Goods Shipped to France 7. Exporter Presents Draft to Bank 12. Bank Tells Importer Documents 14. B of NY Presents Matured Arrive Draft and Gets Payment Bank of New York 5. B of NY Informs Exporter of LOC 13. Importer Pays Bank of Paris 8. B of NY Presents Draft to Bank of Paris 9. Bank of Paris Returns Accepted Draft Figure 15 -4 4. Bank of Paris Sends LOC to B of NY © Mc. Graw Hill Companies, Inc. , 2000 15 -10

Ex-Im Bank www. exim. gov © Mc. Graw Hill Companies, Inc. , 2000 15 -11

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. © Mc. Graw Hill Companies, Inc. , © Mc. Graw. Hill Companies, Inc. , 2000 15 -12

Countertrade Trade carried out wholly or partially in goods rather than money. © Mc. Graw Hill Companies, Inc. , 2000 15 -13

Countertrade as a Share of World Trade Value % © Mc. Graw Hill Companies, Inc. , 2000 15 -14

Countertrade ¥Typically, 5 kinds of countertrade ¤Barter ¤Counterpurchase ¤Offset ¤Compensation trading or Buyback ¤Switch trading © Mc. Graw Hill Companies, Inc. , 2000 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. © Mc. Graw Hill Companies, Inc. , 2000 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. © Mc. Graw Hill Companies, Inc. , 2000 15 -17

Countertrade Practice Percent of companies engaged in each countertrade practice Figure 15 -5 © Mc. Graw Hill Companies, Inc. , 2000 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. © Mc. Graw Hill Companies, Inc. , 2000 15 -19