978-1259578113 Chapter 16 Lecture Notes

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Chapter 16 – Exporting, Importing, and Countertrade

Exporting, Importing and Countertrade

Learning objectives

Explain the promises and risks associated with exporting.

Identify the steps managers can take to improve their firm’s export performance.

Identify information sources and government programs that exist to help exporters.

Recognize the basic steps involved in export financing.

Describe how countertrade can be used to facilitate exporting.

Previous chapters have presented exporting as just one of a range of strategic options for

profiting from international markets. This chapter looks more at the nuts and bolts of

how to export.

Exporting is not just for large enterprises; many small firms have benefited significantly

from the moneymaking opportunities of exporting.

The volume of export activity in the world economy is increasing as exporting has

become easier. The gradual decline in trade barriers under the umbrella of GATT and now

the WTO (see Chapter 5) along with regional economic agreements such as the European

Union and the North American Free Trade Agreement (see Chapter 8) have significantly

increased export opportunities. At the same time, communication and transportation

technologies have alleviated the logistical problems associated with exporting.

Firms are increasingly using the Internet and international air express services to reduce

the costs of exporting. Consequently, it is no longer unusual to find small companies that

are thriving as exporters.

The opening case follows the experiences of LuLu’s Desserts, a company in Torrance,

California, that expanded its business to international markets in an effort to grow the

company. The closing case explores the experiences of Two Men and a Truck, a

U.S.-based moving company that has found global success through franchising.

OUTLINE OF CHAPTER 16: EXPORTING, IMPORTING, AND

COUNTERTRADE

Opening Case: Exporting Desserts

Introduction

The Promise and Pitfalls of Exporting

Management Focus: Ambient Technologies and the Panama Canal

Improving Export Performance

International Comparisons

Information Sources

Management Focus: Exporting with a Little Government Help

Service Providers

Export Strategy

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Chapter 16 – Exporting, Importing, and Countertrade

Management Focus: Export Strategy at 3M

GlobalEDGE Diagnostic Tools

Export and Import Financing

Lack of Trust

Letter of Credit

Draft

Bill of Lading

A Typical International Trade Transaction

Export Assistance

Export–Import Bank

Export Credit Insurance

Countertrade

The Popularity of Countertrade

Types of Countertrade

Pros and Cons of Countertrade

Chapter Summary

Critical Discussion Questions

Closing Case: Two Men and a Truck

CLASSROOM DISCUSSION POINT

Ask students if they have ever imported a product. Many students may have done so

without realizing it simply by purchasing something from a foreign buyer via eBay.

Similarly, many students may have engaged in direct exports when they have sold

something to a foreign buyer via eBay.

Ask students to formalize the process by picking a product they would like to export.

Then ask students which markets they will target and why. Next, ask students how they

could get their product to consumers in that market. What additional information will

they need to proceed with their plan?

Organize the responses from students on the board in an export plan format. Then, ask

students to visit some of the Department of Commerce web sites to fill in the gaps.

Discuss why it is important to get the various pieces of information, and which elements

are easier to obtain and why. Refer back to the export plan as the material in the chapter

is presented.

Another Perspective: Export.gov has a great web site covering the basics of exporting.

Within the site {http://www.export.gov/index.asp} you can click on various topics related

to getting ready to export, developing an export plan, finding leads and so on. The site is

well worth a visit, and could be used as the basis for an in-class export project.

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Chapter 16 – Exporting, Importing, and Countertrade

LECTURE OUTLINE FOR CHAPTER

This lecture outline follows the Power Point Presentation (PPT) provided along with this

instructor’s manual. The PPT slides include additional notes that can be viewed by

clicking on “view,” then on “notes.” The following provides a brief overview of each

Power Point slide along with teaching tips, and additional perspectives.

Slides 16-3 and 16-4 Why Export?

Exporting firms need to

identify market opportunities

deal with foreign exchange risk

navigate import and export financing

understand the challenges of doing business in a foreign market

Slide 16-5 The Problems and Pitfalls of Exporting

Exporting offers the opportunity to take advantage of a bigger market, and the economies

of scale that come with producing for a bigger market. However, it is also a more

complex market.

Common pitfalls include poor market analysis, poor understanding of competitive

conditions, a lack of customization for local markets, a poor distribution program, poorly

executed promotional campaigns, problems securing financing, a general underestimation

of the differences and expertise required for foreign market penetration, and an

underestimation of the amount of paperwork and formalities involved.

Slide 16-6 Improving Export Performance

There are various ways to gain information about foreign market opportunities and avoid

the pitfalls associated with exporting.

Another Perspective: The UK Trade and Investment office is devoted to helping

companies develop their export business. The web site is available at

{http://www.ukti.gov.uk/home.html?guid=none}. Click on “Business Opportunities” to

see a sample of a trade lead, or click on “Country Report” to see the types of information

available in a typical report on a specific country.

Slide 16-7 Getting Information

A big impediment to exporting is the simple lack of knowledge of the opportunities

available. To overcome ignorance firms need to collect information.

Another Perspective: Your students may wonder how firms U.S. firms find buyers in

foreign countries. To find foreign customers, exporters often use “trade leads” that are

provided by organizations dedicated towards the activity of matching “buyers” and

“sellers” in an international context. An example of a site that provides trade leads is the

Export.gov at {http://www.export.gov/index.asp}.

The U.S. Department of Commerce is the most comprehensive source of export

information for U.S. firms.

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Another Perspective: Students may want to explore the U.S. Department of Commerce’s

web site {http://www.commerce.gov/} and click on “Trade Opportunities for U.S.

Businesses.”

Another Perspective: The Small Business Administration (SBA) also has an extensive

web site {http://www.sba.gov/} with information about exporting to different countries,

contacts and leads, and so on.

Slides 16-8 and 16-9 Utilizing Export Management Companies

Export management companies (EMCs) are export specialists that act as the export

marketing department or international department for client firms.

Another Perspective: The FITA Directory of Export Management Companies web site

{http://fita.org/} provides information on export management companies, and also trade

leads and international market research.

Slide 16-10 Reducing the Risk of Exporting

Firms can reduce risk by carefully choosing their export strategy, and following some

basic guidelines.

Firms should

hire an EMC or export consultant to help identify opportunities and navigate

through the tangled web of paperwork and regulations so often involved in

exporting

focus on one, or a few markets at first

enter a foreign market on a fairly small scale in order to reduce the costs of any

subsequent failures

recognize the time and managerial commitment involved

develop a good relationship with local distributors and customers

hire locals to help establish a presence in the market

be proactive

consider local production.

Another Perspective: A great web site to visit to determine whether a company is ready to

export is the International Trade Centre, run by UNCTAD/WTO. If you go to the site

{www.intracen.org} you can use the market analysis tools to gauge export readiness.

Click on “Market Info & Tools,” then on “Market Analysis Tools” to access online tools.

Slide 16-11: Think Like a Manager: Compete with 3M

Slides 16-12 and 16-13 Export and Import Financing

Firms engaged in international trade face a problem—they have to trust someone who

may be difficult to track down if they default on an obligation.

Including a third party in a transaction adds an element of trust to the relationship.

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Another Perspective: For more information on the challenges of export and import

financing for small businesses, consider

{http://smallbiztrends.com/2012/02/small-business-news-reveals-opportunities-challenge

s.html}.

Slide 16-14 Letter of Credit

A letter of credit is issued by a bank at the request of an importer and states that the bank

will pay a specified sum of money to a beneficiary, normally the exporter, on presentation

of particular, specified documents.

Slides 16-15- and 16-16 Drafts

A draft is simply an order written by an exporter instructing an importer, or an importer’s

agent, to pay a specified amount of money at a specified time.

Slide 16-17 Bill of Lading

The bill of lading is issued to the exporter by the common carrier transporting the

merchandise.

Slide 16-18 A Typical International Trade Transaction

The typical international trade transaction involves 14 steps.

Slides 16-19 and 16-20 Export Assistance

There are two forms of government-backed assistance available to exporters:

1. Financing aid is available from the Export-Import Bank

2. Export credit insurance is available from the Foreign Credit Insurance Association

The Export-Import Bank (Ex-Im Bank) is an independent agency of the U.S.

government that provides financing aid to facilitate exports, imports, and the exchange of

commodities between the U.S. and other countries.

Export credit insurance protects exporters against the risk that the importer will default

on payment. In the U.S., export credit insurance is provided by the Foreign Credit

Insurance Association (FICA).

Slide 16-21 Countertrade

Countertrade refers to a range of barter-like agreements that facilitate the trade of goods

and services for other goods and services when they cannot be traded for money.

Countertrade began in the 1960s primarily in the Soviet Union and Eastern bloc

countries. Its popularity increased during the 1980s when many developing countries that

were short of hard currencies used countertrade instead. More recently, its use increased

after the 1997 Asian financial crisis.

Slides 16-22 through 16-25 Types of Countertrade

There are five distinct versions of countertrade:

1. barter

2. counterpurchase

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3. offset

4. compensation or buyback

5. switch trading

Slides 16-26 and 16-27 Pros and Cons of Countertrade

The main attraction of counter trade is that it gives a firm a way to finance an export deal

when other means are not available.

Countertrade is unattractive because it may involve the exchange of unusable or

poor-quality goods that the firm cannot dispose of profitably.

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