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Chapter 16 ‒ The Organization of International Business
14-1
Exporting, Importing, and Countertrade
Learning objectives
• Explain the promises and risks
can take to improve their
firm’s export performance.
• Recognize the basic steps
involved in export financing.
• Identify information sources
and government programs that
exist to help exporters.
• 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
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 7) along with regional economic
agreements such as the European Union and the
North American Free Trade Agreement (see
Chapter 9) 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
annually and would like to increase that number
to 100,000 within two years. The closing case
explores Embraer’s import strategy. The Brazilian
aircraft maker imports the vast majority of the
parts used in manufacture of its planes.
16
Chapter 16 ‒ Exporting, Importing, and Countertrade
16-2
OUTLINE OF CHAPTER 16: EXPORTING, IMPORTING, AND
COUNTERTRADE
Opening Case: Tata Motors and Exporting
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 Government Assistance
Service Providers
Letter of Credit
Draft
Bill of Lading
A Typical International Trade Transaction
Export Assistance
Pros and Cons of Countertrade
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Embraer and Brazilian Exporting
Chapter 16 ‒ Exporting, Importing, and Countertrade
16-3
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 websites 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 website 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.
OPENING CASE: Tata Motors and Exporting
Summary
The opening case explores the international expansion of Tata Motors. The Indian
multinational exports cars and other vehicles worldwide under its Tata Motor Cars,
Jaguar Land Rover, Tata Daewoo, and Tata Hispano brand names. Tata Motors wants to
double its exports within two years, with a particular emphasis on expanding its exports
to the Middle East, Africa, and Latin America. Discussion of the case can begin with the
following questions:
QUESTION 1: Discuss the importance of exports to Tata Motors. Why has the company
chosen to export?
ANSWER 1: Most students will probably recognize that exporting is an important
Chapter 16 ‒ Exporting, Importing, and Countertrade
16-4
QUESTION 2: Why do you think Tata Motors has chosen to expand into foreign markets
using exports rather than local manufacturing as a main mechanism of getting its product
to new markets?
ANSWER 2: Many students may suggest that the availability of cheap labor often drives
companies to establish production in markets where labor costs are relatively low.
QUESTION 3: What is Tata Motors strategy going forward? What role will exporting
play in expanding the company’s global presence?
ANSWER 3: Tata Motors has set a goal of exporting 100,000 commercial vehicles within
two years, roughly twice what it exported in the previous year. The company has
Another Perspective: For more information on Tata Motors, go to
{http://www.tatamotors.com/}.
Teaching Tip: To explore a different strategy for a global auto company, consider Volvo
Cars: CEO: It’s Important to Build in the U.S. in the International Business Library
at http://bit.ly/MHEIBVideo. Click “Ctrl+F” on your keyboard to search for the video
title.
LECTURE OUTLINE FOR CHAPTER
This lecture outline follows the Power Point Presentation (PPT) provided along with this
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 ‒ 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
Chapter 16 ‒ Exporting, Importing, and Countertrade
16-5
Exporting offers the opportunity to take advantage of a bigger market, and the economies
of the differences and expertise required for foreign market penetration, and an
underestimation of the amount of paperwork and formalities involved.
Slides 16-6 – 16-16 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 Department for International Trade office is devoted to
helping companies develop their export business. The website is available at
{https://www.gov.uk/government/organisations/department-for-international-trade}.
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 to the activity of matching “buyers” and “sellers” in
an international context. An example of a site that provides trade leads is the Export.gov
trade leads for U.S. Businesses.
Another Perspective: The Small Business Administration (SBA) also has an extensive
website {http://www.sba.gov/} with information about exporting to different countries,
contacts and leads, and so on.
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 website
{http://fita.org/} provides information on export management companies, and also trade
leads and international market research.
Chapter 16 ‒ Exporting, Importing, and Countertrade
16-6
Reducing the Risk of Exporting
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.
business resources, attracting some 10 million users. Companies can use the CORE
(Company Readiness to Export) tool to assess their readiness to export a product and a
product’s readiness to be exported.
Another Perspective: A great website 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
Including a third party in a transaction adds an element of trust to the relationship.
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-challenges.html}.
Another Perspective: The Acting Chairman and President of the US Ex-Im Bank has
Chapter 16 ‒ Exporting, Importing, and Countertrade
16-7
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.
Drafts
A draft (also known as a bill of exchange) 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. 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.
Bill of Lading
The bill of lading is issued to the exporter by the common carrier transporting the
merchandise.
A Typical International Trade Transaction
The typical international trade transaction involves 14 steps.
Slides 16-25 ‒ 16-31 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).
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.
Types of Countertrade
There are five distinct versions of countertrade:
1. Barter
2. Counterpurchase
3. Offset
4. Compensation or buyback
