80.
Which of the following is a major drawback of engaging in countertrade?
A.
Countertrade is not useful when trading with developing nations.
B.
Financing is difficult when engaging in a countertrade.
C.
It is not attractive to small organizations.
D.
Countertrade may involve the exchange of unusable goods.
Other things being equal, firms would normally prefer to be paid in hard
currency. Countertrade contracts may involve the exchange of unusable or
poor-quality goods that the firm cannot dispose of profitably.
Essay Questions
81.
Why do so many firms take a reactive approach to exporting rather than a
proactive approach?
There are several reasons why firms do not take a proactive approach while
seeking export opportunities. One reason is that most firms are unfamiliar
with foreign market opportunities, they do not realize how big the potential
market is, or where the opportunities are. A second reason why firms take a
reactive approach to exporting is because they are intimidated by the
complexities and mechanics of exporting to countries where business
practices, language, culture, legal systems, and currency are very different
from the home market. A third reason for firms not being proactive about
exporting is the number of problems neophyte exporters typically face when
trying to do business abroad.
82.
What are the typical problems that novice exporters face when trying to
export?
Novice exporters run into significant problems when first trying to do
business abroad. Typically, this sours the companies on future export
opportunities. Common pitfalls include poor market analysis, a poor
understanding of competitive conditions in the foreign market, a failure to
customize the product offering to the needs of foreign customers, lack of an
effective distribution program, a poorly executed promotional campaign in
the foreign market, and problems securing financing. Furthermore, novice
exporters tend to underestimate the time and expertise needed to cultivate
business in foreign countries. Few realize the amount of management
resources that have to be dedicated to this activity.
83.
Compare and contrast the export assistance provided to German and
Japanese companies with that given to American companies. Discuss the
implications of the differences between the countries.
Germany, one of the world’s most successful exporting nations, provides
assistance through government agencies, trade associations, and
commercial banks to firms seeking export opportunities. In Japan, similar
assistance is provided by the Japanese Ministry of Trade and Industry. In
addition, many Japanese firms are associated with the sogo shosha, Japan’s
great trading houses. The sogo shosha have offices all over the world, and
they proactively and continuously seek export opportunities for their
companies. In contrast, many American firms are relatively blind when they
seek export opportunities because they are information disadvantaged.
Consequently, because an institutional structure for promoting exports has
yet to evolve in the U.S., American firms are at a competitive disadvantage
compared to their German and Japanese counterparts.
84.
Describe the information sources that are available to American companies
to learn about export opportunities?
There are several sources of information available to American companies
looking for export assistance. The most comprehensive source of
information is the U.S. Department of Commerce. Within the Department of
Commerce, there are two organizations dedicated to providing businesses
with intelligence and assistance for attacking foreign markets: the
International Trade Administration and the United States and Foreign
Commercial Service Agency.
These agencies provide the potential exporter with a “best prospects” list,
85.
What is an export management company? What are its advantages and
disadvantages?
An export management company is an export specialist who acts as the
expert marketing department or international department for its client firms.
An export management company can help new exporters identify
opportunities and avoid common pitfalls. However, the quality of export
management companies varies. Furthermore, relying on an export
management company prevents the firm from developing its own exporting
capabilities.
86.
Explain the problem of trust that persists in international business.
Firms engaged in international trade have to trust someone they may have
never seen, who lives in a different country, who speaks a different
language, who abides by (or does not abide by) a different legal system, and
who could be very difficult to track down if he or she defaults on an
obligation.
Consider a U.S. firm exporting to a distributor in France. The U.S.
businessman might be concerned that if he ships the products to France
before he receives payment from the French businesswoman, she might
take delivery of the products and not pay him. Conversely, the French
importer might worry that if she pays for the products before they are
shipped, the U.S. firm might keep the money and never ship the products or
might ship defective products. Neither party to the exchange completely
trusts the other. This lack of trust is exacerbated by the distance between
87.
Describe the process involved in financing imports and exports using a
letter of credit. Why has this system developed? What is the advantage of
using this system?
The letter of credit is at the center of international commercial transactions.
A letter of credit is issued by a bank at the request of an importer. The
letter of credit states that the bank will pay a specified sum of money to a
beneficiary, normally the exporter, on presentation of particular, specified
documents. The advantage of the system is that it introduces an element of
trust into the relationship in that both the importer and the exporter are
likely to trust reputable banks even if they do not trust each other.
88.
Compare and contrast time drafts and sight drafts.
Drafts fall into two categories, sight drafts and time drafts. A sight draft is
payable on presentation to the drawee. A time draft allows for a delay in
payment—normally 30, 60, 90, or 120 days. It is presented to the drawee,
who signifies acceptance of it by writing or stamping a notice of acceptance
on its face. Once accepted, the time draft becomes a promise to pay by the
accepting party. When a time draft is drawn on and accepted by a bank, it is
called a banker’s acceptance. When it is drawn on and accepted by a
business firm, it is called a trade acceptance.
89.
Describe the three purposes of a bill of lading.
The bill of lading is issued to the exporter by the common carrier
transporting the merchandise. It serves three purposes: it is a receipt, a
contract, and a document of title. As a receipt, the bill of lading indicates
that the carrier has received the merchandise described on the face of the
document. As a contract, it specifies that the carrier is obligated to provide
a transportation service in return for a certain charge. As a document of
title, it can be used to obtain payment or a written promise of payment
before the merchandise is released to the importer.
90.
Describe a typical international trade transaction.
The typical international trade transaction involves 14 steps:
1. The importer places an order with the exporter and asks if he would be
willing to ship under a letter of credit.
2. The exporter agrees to ship under a letter of credit and specifies relevant
information such as prices and delivery terms.
3. The importer applies to the importer’s bank (any bank of the importer’s