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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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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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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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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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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McGraw-Hill Education.
Chapter 16 - Exporting, Importing, and Countertrade
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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McGraw-Hill Education.
Chapter 16 - Exporting, Importing, and Countertrade
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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Chapter 16 - Exporting, Importing, and Countertrade
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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