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CHAPTER. 12. Exporting, Importing and Countertrade. 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?

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  1. CHAPTER 12 Exporting, Importing and Countertrade

  2. 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?

  3. Slide 12-2 Exports, FDI, or Licensing? Are home manufacturing costs and transportation costs high? No No Import Barriers? Export Yes Yes No Is know-how easy to license? FDI Yes Yes Tight control over foreign ops required? FDI No Yes Is know-how valuable and is protection possible? FDI No License

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

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