McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Focus Examine the “nuts and bolts” of exporting (and importing). Identify foreign market opportunities: Avoid unanticipated problems. Be familiar with the mechanics of export and import financing. Learn where to get financing and export insurance. Deal with foreign exchange risk. Countertrade.

Exporting To ship to another country for sale or exchange. © McGraw Hill Companies, Inc.,

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved Promise and Pitfalls of Exporting Ignorance and Intimidation Poor market analysis Poor understanding of competitive conditions Failure to customize product offering Poor distribution program Poorly executed promotional campaign Problems securing financing

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved Utilizing Export Management Companies EMCs: Export specialists who act as the export management department or international department for client firms. Two types of assignment: Start operations for a firm with understanding the firm will take over after they are well established. Start-up services with continuing responsibility for selling the firms products internationally.

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. Issue of TRUST 15-11

Countertrade Trade carried out wholly or partially in goods rather than money. © McGraw Hill Companies, Inc.,

Countertrade as a Share of World Trade Value % 15-18

Countertrade Typically, 5 kinds of countertrade Barter Counterpurchase Offset Switch trading Compensation or Buyback 15-20

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

Pros and Cons of Countertrade Gives firms a way to finance an export deal when other means are unavailable. Foreign governments may require it. Helps countries that don’t have sufficient foreign currency reserves. However: May involve defective goods. Must invest in in-house trading department - expensive and time consuming. Most attractive to large, diverse multinational enterprises