International Business 8e By Charles W.L. Hill Chapter 15 Exporting, Importing, and Countertrade Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-3 Why Export?  Exporting is a way to increase market size and profits  increasing thanks to lower trade barriers under the WTO and regional economic agreements such as the EU and NAFTA  Large firms often proactively seek new export opportunities, but many smaller firms export reactively  often intimidated by the complexities of exporting  Exporting firms need to  identify market opportunities  deal with foreign exchange risk  navigate import and export financing  understand the challenges of doing business in a foreign market 15-4 What Are The Pitfalls Of Exporting? Common pitfalls include poor market analysis poor understanding of competitive conditions a lack of customization for local markets a poor distribution program poorly executed promotional campaigns problems securing financing a general underestimation of the differences and expertise required for foreign market penetration an underestimation of the amount of paperwork and formalities involved 15-5 How Can Firms Improve Export Performance? Many firms are unaware of export opportunities available Firms need to collect information Firms can get direct assistance from some countries and/or use an export management companies both Germany and Japan have developed extensive institutional structures for promoting exports Japanese exporters can use knowledge and contacts of sogo shosha - great trading houses U.S. firms have far fewer resources available 15-6 Where Can U.S. Firms Get Export Information? The U.S. Department of Commerce - the most comprehensive source of export information for U.S. firms The International Trade Administration and the United States and Foreign Commercial Service Agency - “best prospects” lists for firms The Department of Commerce - organizes various trade events to help firms make foreign contacts and explore export opportunities The Small Business Administration Local and state governments 15-7 What Are Export Management Companies?  Export management companies (EMCs) are export specialists that act as the export marketing department or international department for client firms  EMCs normally accept two types of assignments 1. They start export operations with the understanding that the firm will take over after they are established  not all EMCs are equal—some do a better job than others 2. They start services with the understanding that the EMC will have continuing responsibility for selling the firm’s products  but, firms that use EMCs may not develop their own export capabilities 15-8 How Can Firms Reduce The Risks Of Exporting? To reduce the risks of .

1. International Business
8e
By Charles W.L. Hill
Chapter 15
Exporting, Importing,
and Countertrade
Copyright © 2011 by the McGraw-Hill Companies, Inc. All
rights reserved. McGraw-Hill/Irwin
15-3
Why Export?
regional economic agreements such as the EU and NAFTA

2. opportunities, but many smaller firms export reactively
oing business in a foreign
market
15-4
What Are The
Pitfalls Of Exporting?
ogram

3. expertise required for foreign market penetration
formalities involved
15-5
How Can Firms Improve
Export Performance?
available
countries and/or use an export management
companies
institutional structures for promoting exports
sogo shosha - great trading houses

4. 15-6
Where Can U.S. Firms Get
Export Information?
- the most
comprehensive source of export information for
U.S. firms
United States and Foreign Commercial Service
Agency - “best prospects” lists for firms
- organizes various
trade events to help firms make foreign contacts
and explore export opportunities
15-7
What Are Export
Management Companies?
specialists that act as the export marketing department
or international department for client firms

5. 1. They start export operations with the understanding that
the firm will take over after they are established
—some do a better job than others
2. They start services with the understanding that the EMC
will have continuing responsibility for selling the firm’s
products
capabilities
15-8
How Can Firms Reduce
The Risks Of Exporting?
tant to identify
opportunities and navigate paperwork and regulations
reduce the costs of any subsequent failures
itment
involved

6. customers
15-9
How Can Firms Overcome The
Lack Of Trust in Export Financing?
countries exchanging goods and payment the issue
of trust is important
shipping goods, but importers prefer to receive
goods prior to making payments
international transactions are facilitated by a third
party - normally a reputable bank
added to the relationship
15-10

7. How Can Firms Overcome The
Lack Of Trust in Export Financing?
The Use Of A Third Party
15-11
What Is A Letter Of Credit?
request of an importer and states the bank
will pay a specified sum of money to a
beneficiary, normally the exporter, on
presentation of particular, specified
documents
trust a reputable bank even if they do not trust
each other
15-12
What Is A Draft?
so called a bill of exchange) is an order

8. written by an exporter instructing an importer, or
an importer's agent, to pay a specified amount of
money at a specified time
commerce for payment
aft is payable on presentation to the
drawee while a time draft allows for a delay in
payment - normally 30, 60, 90, or 120 days
15-13
What Is A Bill Of Lading?
the common carrier transporting the
merchandise
1. It is a receipt - merchandise described on document
has been received by carrier
2. It is a contract - carrier is obligated to provide
transportation service in return for a certain charge
3. It is a document of title - can be used to obtain
payment or a written promise before the merchandise
is released to the importer

9. 15-14
How Does An International
Trade Transaction Work?
A Typical International Trade Transaction
15-15
Where Can U.S. Firms
Get Export Assistance?
1. Financing aid is available from the Export-Import Bank
(Eximbank) - an independent agency of the U.S.
government
exchange of commodities between the U.S. and other countries
2. Export credit insurance is available from the Foreign
Credit Insurance Association (FICA) - provides
coverage against commercial risks and political risks
default

10. on payment
15-16
What Is Countertrade?
-like
agreements that facilitate the trade of goods and
services for other goods and services when they
cannot be traded for money
the1960s when the Soviet Union and the Communist
states of Eastern Europe had nonconvertible currencies,
developing nations that lacked the foreign exchange
reserves required to purchase necessary imports
15-17
What Are The Forms
Of Countertrade?
rade
1. Barter - a direct exchange of goods and/or services

11. between two parties without a cash transaction
-time-only deals in transactions with
trading partners who are not creditworthy or trustworthy
2. Counterpurchase - a reciprocal buying agreement
materials back from a country to which a sale is made
3. Offset - similar to counterpurchase insofar as one party
agrees to purchase goods and services with a specified
percentage of the proceeds from the original sale
firm in the
country to which the sale is being made
15-18
What Are The Forms
Of Countertrade?
4. A buyback 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 plant’s output as a partial
payment for the contract
5. Switch trading - the use of a specialized third-party
trading house in a countertrade arrangement

12. with a
country, it often ends up with counterpurchase credits which
can
be used to purchase goods from that country
-party trading house buys
the
firm’s counterpurchase credits and sells them to another firm
that can better use them
15-19
What Are The
Pros Of Countertrade?
ountertrade is attractive because
when other means are not available
is unwilling to enter a countertrade agreement
rrangement
may be required by the government of a
country to which a firm is exporting goods
or services

13. 15-20
What Are The
Cons Of Countertrade?
-quality
goods that the firm cannot dispose of profitably
-house trading
department to handle countertrade deals
multinational enterprises that can use their
worldwide network of contacts to dispose of
goods acquired in countertrade deals
15-21
Review Question
Which of the following is not a common pitfall
of exporting?
a) a product offering that is customized to the local
market
b) a poor understanding of competitive conditions in
he foreign market

14. c) poor market analysis
d) problems securing financing
15-22
Review Question
A _______ is an order written by an exporter
instructing an importer to pay a specified
amount of money at a specified time.
a) letter of credit
b) draft
c) bill of lading
d) confirmed letter of credit
15-23

15. Review Question
Which type of countertrade arrangement
involves the use of a specialized third-party
trading house?
a) a buyback
b) an offset
c) a counterpurchase
d) switch trading
15-24
Review Question
Which of the following is not a purpose of the
bill of lading?
a) It is a contract
b) It is a document of title
c) It is a form of payment
d) It is a receipt

16. 15-25
Review Question
________ is the most restrictive countertrade
arrangement.
a) counterpurchase
b) switch trading
c) barter
d) offset
15-26
Review Question
Countertrade is attractive for all of the following
reasons except
a) It may involve the exchange of unusable or poor-

17. quality goods that the firm cannot dispose of
profitably
b) It can give a firm a way to finance an export deal
when other means are not available
c) It can be a strategic marketing weapon
d) It can give a firm an advantage over firms that are
unwilling to engage in countertrade arrangements