Exports, Imports, Countertrade

Exports, Imports, Countertrade

Opportunities

and risks of exporting

Steps to improve export performance
Information sources/programs on
exporting
Financing exporting
Countertrade as an export facilitator

Exporting Opportunities and Risks

Perception: Exports
Offer huge revenue / profit opportunities overseas
Are there for the pickings

Large firms are more successful

Proactive about exporting to realize promise
Systematic effort backed by knowledge of overseas markets

Smaller firms are reactive

Overseas markets are an afterthought
Ad-hoc effort on an opportunistic and often nave basis

Exports require volumes of specialized paperwork

US Export Support

www.doc.gov

www.ita.doc.gov

Export Performance Improvement Factors

Government information sources

US: various parts of the Dept. of Commerce
Other countries: similar entity
Embassies and consulates: commercial
sections
Export management companies
Act as the export department of firms
Experienced specialists
Not exclusive
Focused export strategy

Some Successful Export Strategies

Enter on
Add

a small scale to reduce risks

product lines after export

operations begin to be successful

Hire

locals to promote the firms

products

Exporting Strategy

It helps to hire an EMC or, at least, someone with

experience.
Focus on one or a few markets.
Enter markets on a fairly small scale until you learn the
ropes. Add new lines after initial success.
Need to recognize the time and managerial commitment.
Build strong and lasting relationships.
Hire locals to help firm establish itself.
Keep the option of local production in mind.
McGraw Hill Companies, Inc., 2000

Export Process
Evaluate export potential
financial resources
management capability/experience
competitive advantages abroad

Steps in the Export Process

Evaluate export potential
Do country analysis (more later)
country receptiveness to imports
and investment
trade barriers/requirements
infrastructure

Steps in the Export Process

Evaluate export potential
Do market analysis
market size/product potential
distribution channels
needs for re-engineering etc. =
localization

Steps in the Export Process

Determine entry method

goal of entry
select distribution partner
determine channel length
assess risks
determine costs

Steps in the Export Process

Determine entry method
determine trade terms
(INCOTERMS: ex works, FOB, CIF,
etc.)
determine tasks to be performed in
the foreign market

Export/Import Financing
Assures:

Exporter of payment
Importer of product
Banks

offer financing intermediary service

Letters 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

provide to the exporter

Bill of lading: receipt, contract and document of title

Sources of Exporter
Financing
Financing exporter credit to the importer:
-

Bankers acceptance (of the draft)

Factoring
Forfaiting
EXIM loans

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 by 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.

McGraw Hill Companies, Inc., 2000

Exporters Problems with

Letters of Credit (L/C)

Shipment date or method required in L/C cannot

be met.

Documents required by L/C cannot be obtained.

Importer deliberately fills out L/C application

incorrectly (to stall or force a discount).

Product description too detailed (exporter

compliance difficult).

Preference of the US Exporter

1. Importer Pays for Goods

French Importer

American Exporter

2. Exporter Ships Goods After Being Paid

Preference of the French

Importer
1. Exporter Ships the Goods
French Importer

American Exporter

2. Importer pays after the Goods are Received

The Use of a Third Party

1. Importer Obtains Banks Promise
to Pay on Importers Behalf

French Importer
6. Importer Pays Bank

5. Bank Gives Merchandise

to Importer

Bank

2. Bank Promises Exporter to

Pay on Behalf of Importer

American Exporter
4. Bank Pays Exporter

3. Exporter Ships to the Bank.

Trusting Banks Promise to Pay

A Typical International
Transaction
1. Importer Orders Goods

2. Exporter Agrees to Fill Order

American Exporter
10 and 11
Exporter
Sells
Draft to
Bank

French Importer
6. Goods Shipped to France

7. Exporter
Presents
Draft to Bank

12. Bank Tells

Importer
Documents
14. B of NY Presents Matured Arrive
Draft and Gets Payment

Bank of New York

5. B of NY
Informs
Exporter
of LOC

3. Importer
Arranges for
LOC

13. Importer
Pays Bank

Bank of Paris

8. B of NY Presents Draft to Bank of

Paris
9. Bank of Paris Returns Accepted Draft
4. Bank of Paris Sends LOC to B of NY

Countertrade

Structures an international sale when means

of payment are difficult, costly, or nonexistent
No currency convertibility
Weak reserves prohibit access to hard

currency

Barter-like agreements
Trade goods and services for other goods and

services
8-10% or world trade by value is in the form
of countertrade (up from 2% in 1975)

Countertrade
Main

attraction:

way to finance an export deal

meet requirement of local government to

support exports

Main

drawback:

risk of disposal / sale of goods at less

than full value

disposal of imports may require
resources other than those that the firm
possesses

Types of Countertrade
Barter
Counterpurchase
Offset
Switch

Trading

Compensation

or Buyback

Barter

International Reciprocal Trade Association (IRTA)

the industry trade organization - almost a half a
million small businesses use commercial barter
exchanges every year.
Almost $10 billion in sales is transacted each year
by the commercial barter industry.
Trades where no intermediary is used and the
global barter market may be 10 times that amount.

Barter

International Reciprocal Trade Association

estimates that in 1998 over 470,000 companies
actively participated in barter in the US for a total
of over $16 billion in annual sales.
Over 65% of the corporations listed in the New
York Stock Exchange are presently using barter to
reduce surplus inventory, bolster sales, and ensure
that production facilities run at capacity.
U.S. Department of Commerce estimates that 20
to 25% of world trade is now barter, and corporate
barter is now a $20 billion industry.

Barter

Conserve cash -- preserve cash-flow

Strengthen cash reserves -- use barter for the
goods & services most needed
Increase buying power -- access to goods &
services for growth
Increase customer base may add new clients
Move surplus inventory
Finance -- new businesses can build credit
through barter Employee Incentives -- travel,
entertainment, gifts, perks & bonuses

Compensation
Barter

with a combination of goods and

convertible currency
Less risk than in straight barter

Counterpurchase Parallel
Barter
Parties

pay cash of goods

Seller agrees to buy products/services
unrelated to its business
Seller then sells products to third parties

Offset Purchase
Usually

large projects, often involving

expenditure of buying governments money
A % of the selling price is required to be
purchased or sourced from the buying
country

Buyback
The

seller agrees to buy a negotiated

quantity of the output from the buyers
output

Clearing Agreement
A third

party brokers transactions between

parties, maintaining accounts for all
participants
Typically are legal documents which
specify the details of the arrangements:
Electrical power companies
Stock brokers, on-line traders

Switch Trading
Buyer

pays hard currency for unwanted

goods/services from seller
Broker buys unwanted goods
Broker sells goods to third parties