Exporting, Importing, and countertrade

1. Exporting, Importing, and countertrade Chapter 15

2. Exporting, Importing, and countertrade • Main objectives • Explain the promises and risks in exporting • How to improve export performance • Understand the information sources and govt programs that exist to help exporters • Check the basic steps involved in export financing. • Articulate how countertrade can be used to facilitate exporting.

3. The promise and pitfalls of exporting • The great promise of exporting is revenue and profit opportunities. And then economies of scale and cost reduction. • Small and medium size reactive. • Intimidated by complexities • Ignorance of potential opportunities • Poor market analysis and competitive conditions

4. The promise and pitfalls of exporting • Failure to customize • Lack of effective distribution systems. • Poorly executed promotional campaign. • Paper work • Poor negotiation abilities.

5. Improving export performance • Lack of knowledge of opportunities available. • Collect information. The govt bodies help in providing information. Japan and Germany are role model countries in this regard.

6. The promise and pitfalls of exporting -Information sources: US department of Commerce . Now the internet can be a source. Agencies and Govt agencies providing systematic, rigorous and useful information. Trade associations.

7. Export Management Companies • EMCs are export specialists who act as the export marketing dept or international department for its client firm. • They have the knowledge and expertise

8. Export Strategy3M strategy • Enter on a small scale to reduce risk. • Add additional product lines once exporting operations start to become successful. • Hire locals to promote the firm’s products. • New exporters can use EMCs • Building relationships. • Collecting information • Step to FDI

9. Export and Import Financing • Lack of trust between the exporter and importer- payment against the shipment issue. • Bank and letter of credit. • A bill of lading: title of the products is given to the exporter by the carrier of the shipment as a receipt, a contract, and a document of title. • Draft: the document for requesting the payment for the exporter.

10. Exercise • Play with your partner exporter, importer game using the text book example. • Describe your experience as an exporter or importer or a bank. • Final topic is countertrade.

11. Countertrade • When Govts restrict the convertibility of its currency, countertrade is the way out to this problem. Currency convertibility in chapter five. • Countertrade: an agreement to trade goods for goods and services for services when they can not be traded for money. • KSA agreed to buy 10 747 jets from Boeing with payment in crude oil, discounted at 10%

12. Types of countertrade • Barter: direct goods for goods • Counter-purchase: A deal where Rolls-Royce sold jet parts to Finland and agreed to use some of the proceeds from sale to purchase TVs from Finland and sell them in the UK. • Offset: the same as the counter-purchase but you can buy TVs or any other product from any other firm in the country.

13. Types of Countertrade • Switch trading: occurs when a third party trading house buys the firm’s counter-purchase credits and sells them to another firm that can use them better. • Compensation or buybacks: US and Venezuela agreed to build a huge refinery in exchange of supply of petrol for 50 years.

14. Countertrade • It can be a strategic competitive weapon or a strategic marketing weapon. Boeing and an Indian company- exchanging parts for jets countering Airbus and limiting Airbus compeitition. • Its disadvantages: • Lose of flexibility.