International Business Chapter 14 Homework Brazil The promise and pitfalls of exporting are discussed, along with a discussion of the role of export management

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Exporting, Importing, and Countertrade

Table of Contents

Learning Objectives

Chapter Summary

Chapter Opening Activity

Chapter Outline

Opening Case: Spotify and SoundCloud

Introduction

The Promise and Pitfalls of Exporting

Improving Export Performance

Export and Import Financing

Export Assistance

Countertrade

End-of-Chapter Resources

Critical Thinking and Discussion Questions

globalEDGE™ Research Task

Closing Case: Tata Motors and Exporting

Continuous Case Concept

Additional Readings and Sources of Information

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Learning Objectives

14-1 Explain the promises and risks associated with exporting.

14-2 Identify the steps managers can take to improve their firm’s export performance.

14-3 Recognize the basic steps involved in export financing.

14-4 Identify information sources and government programs that exist to help exporters.

14-5 Describe how countertrade can be used to facilitate exports.

Chapter Summary

This chapter focuses on the “nuts and bolts” of exporting and importing. The promise and pitfalls

of exporting are discussed, along with a discussion of the role of export management companies

in the internationalization process. The chapter also provides a nice discussion of export

financing. In this section, the author discusses the financial devices that have evolved to facilitate

exporting including: the letter of credit, the draft (or bill of exchange), and the bill of lading. The

section ends by providing an example of a typical international trade transaction. This example

illustrates the complex nature of international trade transactions. Finally, the chapter explores

countertrade, its growth and the pros and cons of this type of transaction.

Chapter Opening Activity

Find information about China at globalEDGE™ (globaledge.msu.edu). Find the China country

profile, click on the U.S. Department of Commerce Country Commercial Guide for China, and

review the chapter on Leading Sectors for U.S. Export and Investment, to discover guidance on

this topic.

Ask students to search local, regional, or national newspapers or magazines for stories about

companies that have outsourced some piece of their value chain to another country. You might

need to help them by suggesting that they look for companies in such industries as textiles,

clothing, shoes, furniture, automotive parts, machine tools, or consumer electronics, as well as

back-office business processes, such as accounting and call-center customer support. New

sources such as the Financial Times, Wall Street Journal, and Bloomberg Businessweek carry

stories about companies that have used global sourcing. Students can also research companies

using Hoovers.com, Standard & Poor’s, Mergent Online, and company websites to find out

about their experiences with global sourcing.

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Chapter Outline

Spotify and SoundCloud

opening case

Summary

The opening case focuses on the international expansion of two Swedish companies, Spotify and

SoundCloud. The two online music platforms are examples of the new business creation trend in

Sweden that has helped the tiny country become second only to Silicon Valley in the number of

billion-dollar tech companies per capita. Spotify, founded in 2008, has more than 3,000

employees and 160 million users. It is available in Europe, the Americas, Oceania, and parts of

Asia. SoundCloud was founded in 2007 and today has 300 employees and 40 million users.

Discussion Questions

1. Why is it essential for SoundCloud and Spotify to export their product? Could the companies

survive without international expansion?

2. Why are service exports likely to be central to the growth of developed economies in the

future? What are the implications of this trend for national trade policy?

Teaching Tip: To learn more about Spotify and SoundCloud, go to https://www.spotify.com/us

and https://soundcloud.com.

Video Note: To learn more about Sweden as a Silicon Valley, go to

https://www.youtube.com/watch?v=d915p1aXlkE.

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Introduction

A) This chapter is concerned with the nuts and bolts of exporting (and importing). Exporting is

not just for large enterprises; many small firms have benefited significantly from the money-

making opportunities of exporting too.

B) Despite the opportunities for exporting, it remains a challenge for many firms. The firm

wishing to export must identify export opportunities, avoid a host of unanticipated problems that

are often associated with doing business in a foreign market, familiarize itself with the

mechanics of export and import financing, learn where it can get financing and export credit

insurance, and learn how it should deal with foreign exchange risk.

Teaching Tip: The UK Trade and Investment office provides export assistance to companies.

See https://www.gov.uk/starting-to-export.

Teaching Tip: Export.gov http://www.export.gov/index.asp covers the basics of exporting. 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.

Teaching Tip: 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 http://www.export.gov/index.asp.

Did You Know Video Clip

The video clip asks: “Did you know that you can call Sweden and chat with a random Swede?”

Discussion Questions

1. What was the idea behind the Swedish number? What would happen when you called it?

2. Why did export officials design this program?

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3. What are some basic statistics about Sweden? Find out its size, its GDP, its political system,

its location, and its level of perceived corruption.

Lecture Note: To learn more about Sweden, and its own phone number consider

https://sweden.se and http://globaledge.msu.edu/blog/post/42193/call-sweden—%E2%80%93-

the-first-country-in-the-world-with-its-own-phone-number.

Teaching Tip: Have students explore the results from the Swedish Number at

https://www.theswedishnumber.com.

The Promise and Pitfalls of Exporting

A) The potential benefits from exporting can be great. Regardless of what country a firm is based

in, the rest of the world is a much larger market than the domestic market. While larger firms

may be proactive in seeking out new export opportunities, many smaller firms are reactive and

only pursue international opportunities when the customer calls or knocks on the door.

B) Many novice exporters have run into significant problems when first trying to do business

abroad, souring them on following up on subsequent opportunities. Common pitfalls include

poor market analysis, poor understanding of competitive conditions, lack of customization for

local markets, poor distribution arrangements, bad promotional campaigns, and a general

underestimation of the differences and expertise required for foreign market penetration.

Teaching Tip: A great website to visit to determine whether a company is ready to export is the

International Trade Centre, run by UNCTAD/WTO. Visit http://www.intracen.org.

CONNECT

Click and Drag

Promise and Pitfalls of Exporting

Summary

This activity focuses on exporting. Despite the growth of exporting, many firms, especially

smaller ones, find the process daunting.

Activity

Students are asked to match elements of exporting to the correct category of whether they are

true statements or false statements.

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Class Discussion

Exporting firms, especially those that are new to exporting, must be aware of both the promises

and the pitfalls of exporting. Discuss the opportunities associated with exporting as well as the

pitfalls.

CONNECT

Case Analysis

Improving Export Strategies and Operations

Summary

This activity explores how firms can improve export strategies and operations. Firms choose to

export to capitalize on profit opportunities; however, without careful preparation, firms can make

costly missteps.

Activity

Students are asked to read a short case on improving export strategies and then respond to

questions about the case.

Class Discussion

Understanding the opportunities exporting can bring to a firm, as well as the potential pitfalls

associated with exporting is important for international managers. Discuss how exporting can be

beneficial to a firm and what firms need to be aware of as they enter the export market.

management FOCUS: Embraer and Brazilian Importing

Summary

This management focus explores aircraft maker Embraer’s import strategy. The Brazilian-based

company relies on imports for most of its raw materials and components. Brazil imposes high

trade barriers, however, making it difficult to export. Moreover, it is common to bribe

government officials to facilitate the import process.

Discussion Questions

1. Do you expect a company like Embraer to be able to compete long term with the top aircraft

manufacturers in the world today (Airbus, Boeing) by staying heavily oriented toward producing

its products in Brazil?

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2. Similar to automobile companies, aircraft manufacturers have a staggering number of

suppliers that supply a staggering number of component parts that go into the production of an

aircraft. While plane producers will likely need a large number of parts in the future as well, do

you think they should try to consolidate those parts into a much smaller set of suppliers?

3. Embraer imports a lot of these parts into Brazil—a country almost notorious for being difficult

to clear its customs. Should Embraer consider developing more of their own parts, either by

starting companies or subsidiaries in Brazil that can make these parts or help develop companies

that can?

Teaching Tip: For more information on Embraer, go to https://embraer.com/global and

https://www.forbes.com/sites/ericrosen/2018/07/05/airplane-manufacturers-boeing-and-embraer-

announce-new-partnership/#46c0cea6a6e8.

Improving Export Performance

A) There are a number of ways in which inexperienced exporters can gain information about

foreign market opportunities and avoid some of the common pitfalls that tend to discourage and

frustrate novice exporters.

INTERNATIONAL COMPARISONS

B) One big impediment to exporting is the simple lack of knowledge of the opportunities

available. The way to overcome ignorance is to collect information. Both Germany and Japan

[Japanese Ministry of International Trade and Industry (MITI)] have developed extensive

institutional structures for promoting exports. In addition, Japanese exporters can take advantage

of the knowledge and contacts of sogo shosha, the country’s great trading houses.

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INFORMATION SOURCES

C) Despite institutional disadvantages, U.S. firms can increase their awareness of export

opportunities. The most comprehensive source of information is the U.S. Department of

Commerce.

Teaching Tip: Students may want to visit the U.S. Department of Commerce at

http://www.commerce.gov. 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.

management FOCUS: Exporting Desserts by a Hispanic

Entrepreneur

Summary

This feature explores the international expansion of Lulu’s Desserts, a company based in

Torrance, California, that manufactures and distributes ready-to-eat flavored gelatin desserts

inspired by its owner’s Mexican heritage. After a decade of building brand recognition in the

United States, LuLu’s Desserts began exporting to countries throughout North America and

around the world.

Discussion Questions

1. Desserts are often localized in taste. Beyond the United States and Mexico, where do you

think Lulu’s Dessert products would be favorably received by customers?

2. Lulu’s Dessert used services of the U.S. Export-Import Bank to help with knowledge and

market segmentation for her desserts as a part of exporting the company products. The Ex-Im

Bank receives lots of positive and negative reviews in the United States; do you think it is

helpful that the United States has an export-import bank to assist U.S. companies?

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SERVICE PROVIDERS

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

marketing department or international department for client firms.

E) EMCs normally accept two types of export assignments. They start exporting operations for a

firm with the understanding that the firm will take over operations after they are well established,

and EMCs start services with the understanding that the EMC will have continuing responsibility

for selling the firm’s products.

F) In theory, the advantage of EMCs is that they are experienced specialists who can help the

neophyte exporter identify opportunities and avoid common pitfalls. However, studies have

revealed a large variation in the quality of EMCs. Therefore, an exporter should carefully review

a number of EMCs, and check references from an EMC’s past client, before deciding on a

particular EMC.

Teaching Tip: The FITA Directory of Export Management Companies

(http://fita.org/index.html) provides information on export management companies, trade leads

and international market research.

CONNECT

Click and Drag

Business and Government Responses to Exporting

Summary

This activity focuses on exporting and the tools that companies can use to facilitate it.

Activity

Students are asked to match business issues with the correct challenge and response.

Class Discussion

Companies that export must deal with numerous challenges. Understanding the challenges and

the tools that can be used to overcome them is important for international managers. Discuss the

challenges of exporting and what companies can do to respond to those challenges.

EXPORT STRATEGY

G) In addition to utilizing EMCs, a firm can reduce the risks associated with exporting if it is

careful about its choice of exporting strategy.

H) Firms can take several steps to help improve their export success.

1. Particularly for the novice exporter, it does help to hire an EMC, or at least an

experienced export consultant, to help with the identification of opportunities and

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

exporting.

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2. It often makes sense to initially focus on one, or a handful, of markets.

3. It may make sense to enter a foreign market on a fairly small scale in order to reduce the

costs of any subsequent failure.

4. The exporter needs to recognize the time and managerial commitment involved in

building export sales and should hire additional personnel to oversee this activity.

5. In many countries, it is important to devote a lot of attention to building strong and

enduring relationships with local distributors and/or customers.

6. It is important to hire local personnel to help the firm establish itself in a foreign market.

7. It is important for the exporter to keep the option of local production in mind.

management FOCUS: Two Men and a Truck

Summary

This feature explores focuses on the development and international expansion of Two Men and a

Truck. Founded in 1985, the company now has 320 locations worldwide and has more than $300

million in sales, 2,100 moving trucks, and about 6,000 workers. Under the Two Men and a Truck

name, the company operates in such countries as Canada, Ireland, and the United Kingdom.

Taken together, the typical customer looks for a local franchise for service while the franchisee

benefits from the U.S. brand power of the company.

Discussion Questions

1. What are some of the factors that Two Men and a Truck focus on prior to entering a market?

Are there other market attributes you could suggest?

2. Why is it that localized names such as “Two Blokes and a Lorry” did not appeal to the

decision makers at Two Men and a Truck?

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THE GLOBALEDGE™ EXPORTING TOOL

I) Four diagnostic tools are available at the globalEDGE™ website. The tools are CORE,

PARTNER, DISTRIBUTOR, and FREIGHT. The CORE tool represents a self-assessment tool

of a company’s exporting proficiency based on its strengths and weaknesses. THE PARTNER

tool assists in the analysis and evaluation of potential international partners. The DISTRIBUTOR

tool helps exporting firms evaluate and compare foreign distributor or agent candidates. The

FREIGHT tool assists companies in selecting their most appropriate international freight

forwarder.

Export and Import Financing

A) Mechanisms for financing exports and imports have evolved over the centuries in response to

a problem that can be particularly acute in international trade: the lack of trust that exists when

one must put faith in a stranger.

LACK OF TRUST

B) Firms engaged in international trade face a problem. They have to trust someone who may be

very difficult to track down if they default on an obligation.

C) The problems arising from a lack of trust between exporters and importers can be solved by

using a third party who is trusted by both, normally a reputable bank.

Teaching Tip: Trade Port provides a global trade tutorial on export financing. The tutorial is

available at http://www.tradeport.org. The site provides excellent details on the exporting and is

well worth a visit.

LETTER OF CREDIT

D) A letter of credit stands at the center of international commercial transactions. Issued by a

bank at the request of an importer, the letter of credit states the bank will pay a specified sum of

money to a beneficiary, normally the exporter, on presentation of particular, specified

documents.

Draft

E) A draft, sometimes referred to as a bill of exchange, is the instrument normally used in

international commerce for payment. 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. A sight draft is payable on presentation to the drawee while a time draft allows for a

delay in payment, normally 30, 60, 90, or 120 days.

BILL OF LADING

F) 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.