Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–1 Chapter 13 Export–import management

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–2 Lecture plan Negotiation of an international sale Main methods of payment Trade finance techniques –credit, factoring, forfeiting, counter trade Australia’s exporters Export management in a multinational company Exports of small and medium enterprises

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–3 Major steps in the negotiation of an international sale Exporter in Country A Importer in Country B 1.Enquiry 2. Quotation/offer 3. Order 4. Order acceptance/contract

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–4 Incoterms Incoterms 2000 EXW Ex-Works FCAFree Carrier FASFree Alongside Ship FOBFree on Board CFRCost and Freight CIFCost, Insurance and Freight

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–5 The four contractual relationships 1. International Sale of Goods Contract –exporter and importer 2. Letter of Credit (L/C) –importer and importer’s bank 3. Bill of Lading –carrier and exporter (under CFR/CIF) or with the importer (under an FOB sale) 4. Insurance contract –insurance company and exporter (CIF) and importer (CFR/CIF)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–6 Export marketing issues Channels of distribution National market: producer-export agent-import agent-major wholesaler-small wholesaler Modus operandi is different Pricing 1. requiring prices in export markets that yield higher returns that are available in domestic market 2. ‘one-price’ strategy 3. pricing to yield lower returns, at least in short run 4. pricing to sell production in excess of domestic needs

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–7 Trade financing: methods of payment Cash in advance Documentary letters of credit –revocable credits –irrevocable credits –confirmed credits Draft (bill of exchange): the instrument normally used in international commerce to effect payment. –drawer (‘maker’) and drawee –sight drafts and time drafts

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–8 Export sale with payment by L/C

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–9 Trade financing: bank finance Credit to importer –supplier credit (by the exporter) –buyer credit (directly to the foreign buyer) Short term (up to 2 years) Medium term (2–5 years) Long term (over 5 years)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–10 Trade financing: non-bank finance Government loans and guarantees (export credit insurance): EFIC, COFACE Factoring – factor buys export receivables at a discount of 2–4% – exporter ultimately liable in case of default Forfeiting – non-recourse export finance – guarantee (avail) from importer's government Countertrade

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–11 Countertrade Main forms – barter – counter purchase – buyback (compensation) – offsets (local content) Proactive vs reactive counter trade Disadvantages: time-consuming; costly

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–12 Government loans and guarantees Export credit insurance-guarantee programs France: over 20% of exports Japan: low interest loans to export companies Brazil: favourable exchange rates to exporters US–EXIMBANK – ‘mixed credit’

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–13 Australian exporters Small size by international standards – top 50 Australian exporters (median: US$300m) – top 50 US exporters (median: US$1.3 billion) Primary products dominate the top 50 placings ETMs: the fastest growing export sector – 150 ‘born-global’ ETM exporters Foreign ownership plays a dominant role

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–14 Selected indicators regarding top 50 exporters in Australia and Canada Australia (1996–97) Canada (1999) Range of exports sales (US$ million) 4300– –160 Median of export sales for top 50 (US$ million) Break-down of top 50 exporters by main export line (% out of 50) - primary products (%) - machinery & equipment (%) - other manufactures (%) - services (%)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–15 Export management for the MNE More international options (exports and foreign production) Exports of complete products or only parts Changes in foreign business strategy (step 5 – business plan) – exports to MNEs affiliates – choice of foreign currency – transfer pricing More local market knowledge than non-MNEs

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–16 SMEs in global business activities Worldwide: 37,000 transnational enterprises with over 205,000 affiliates Contribution of SMEs to nation's exports – Taiwan 60% – Denmark 50% – Sweden 30% – France 26% – Australia <10%

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–17 Australia's small and medium enterprises Total number of Australian SMEs: about 530,000 Internationalised small and medium enterprises (ISMEs) – number of ISMEs: at least 4500 – international turnover: A$6.5 b. – direct domestic employment: about 40,000 – over 20% turnover from global operators – active in at least 5 countries (mainly SE Asia)

Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 13–18 Import management Importing a neglected aspect of international business strategy Importing channels: direct and indirect Importing a part of the purchasing function MNE imports from off-shore manufacturing affiliates