Chapter 16 ‒ The Organization of International Business
Exporting, Importing, and Countertrade
Learning Objectives
• LO16-1: Explain the promises
and risks associated with
exporting.
• LO16-2: Identify the steps
managers can take to improve
their firm’s export
performance.
• LO16-3: Recognize the basic
steps involved in export
financing.
• LO16-4: Identify information
sources and government
programs that exist to help
exporters.
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 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.
16
Chapter 16 ‒ Exporting, Importing, and Countertrade
OUTLINE OF CHAPTER 16: EXPORTING, IMPORTING, AND
COUNTERTRADE
Opening Case: Higher-Education Exporting and International Competitiveness
Introduction
The Promise and Pitfalls of Exporting
Management Focus: Embraer and Brazilian Importing
Improving Export Performance
International Comparisons
Information Sources
Management Focus: Exporting Desserts by a Hispanic Entrepreneur
Service Providers
Export Strategy
Management Focus: Two Men and a Truck
The globalEDGE™ Exporting Tool
Export and Import Financing
Lack of Trust
Letter of Credit
Draft
Bill of Lading
A Typical International Trade Transaction
Chapter 16 ‒ Exporting, Importing, and Countertrade
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?
OPENING CASE: Higher Education Exporting and International
Competitiveness
Summary
The opening case explores the importance of foreign students to the profitability of
American universities and colleges. Exporting higher education has become a $42 billion
business. In comparison, revenues from U.S. exports of soybeans are just $21.6 billion
and U.S. exports of pharmaceuticals amount to $51 billion. Yet despite the influx of
foreign monies from exports of higher education, U.S. politicians seemingly ignore the
sector although the International and Foreign Language Education office does exist
within the U.S. Department of Education. Discussion of the case can begin with the
following questions:
QUESTION 1: Discuss the importance of U.S. higher education exports to the U.S.
economy and to American colleges and universities. How do the exports benefit U.S.
students?
ANSWER 1: Most students will probably be surprised to learn the size of U.S. exports of
higher education, especially as they relate to other important export industries like
agriculture and pharmaceuticals. Yet, at $42 billion, exports of higher education are
Chapter 16 ‒ Exporting, Importing, and Countertrade
QUESTION 2: What challenges do American colleges and university face as they export
education?
ANSWER 2: More than a million foreign students come to the United States annually,
but enrollment has been dropping in recent years. Increasingly nationalistic tendencies
are fueling intolerance for students from other countries and threatening future exports
QUESTION 3: Why have U.S. politicians ignored higher education exports and their
role in the U.S. economy? Should the U.S. be implementing policies to facilitate
continued growth in this sector?
ANSWER 3: This question should generate considerable discussion among students.
Many students will attribute the indifference of politicians to the value of exports of
higher education to a lack of education on the part of the politicians. Students sharing this
view will likely suggest that because it is not easy to visualize exports of education, many
politicians may simply be unaware of just how the sector has grown. Most students will
agree that given the value of exports of higher education both to the exporting institutions
Chapter 16 ‒ Exporting, Importing, and Countertrade
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The following provides a brief overview of each Power Point slide
along with teaching tips and additional perspectives.
Slides 16-3 ‒ 16-4 Introduction
Exporting firms need to:
Slide 16-5 The Promise 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.
CONNECT
Click and Drag
Promise and Pitfalls of Exporting
Summary
This activity focuses on the 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.
Slides 16-6 – 16-15 Improving Export Performance
There are various ways to gain information about foreign market opportunities and avoid
the pitfalls associated with exporting.
Chapter 16 ‒ Exporting, Importing, and Countertrade
Information Sources
The U.S. Department of Commerce is the most comprehensive source of export
information for U.S. firms.
CONNECT
Case Analysis
Import and 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.
Chapter 16 ‒ Exporting, Importing, and Countertrade
Class Discussion
Understanding the opportunities exporting can bring to a firm, as well as the potential pitfalls
associated with it 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.
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.
CONNECT
Case Analysis
Embraer and Brazilian Importing
Summary
This activity explores Brazilian aircraft maker Embraer’s import strategy. Embraer relies on
imports for most of its raw materials and parts. Brazil’s high tariffs make that strategy difficult as
does the common practice of bribing public officials.
Activity
Students are asked to read a short case on Embraer’s import strategy and then respond to
questions about the case.
Chapter 16 ‒ Exporting, Importing, and Countertrade
Export Strategy
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.
The GlobalEDGE™ Exporting Tool
The globalEdgeTM website is one of the top websites in the world for international
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.
Teaching Tip: The ongoing trade war between the United States and China has been
problematic for U.S. exporters. To expand this discussion, consider: U.S. Farmers Fear
Chinese Tariffs Will Hurt Exports and California’s Winemakers Squeezed by U.S. China
Trade War in the International Business Library at http://bit.ly/MHEIBVideo. Click
“Ctrl+F” on your keyboard to search for the video title.
Chapter 16 ‒ Exporting, Importing, and Countertrade
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.
Draft
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.
The Export-Import Bank
The Export-Import Bank (EXIM 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
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).
Chapter 16 ‒ Exporting, Importing, and Countertrade
CONNECT
Click and Drag
Financing Exports and Imports
Summary
This activity focuses on export financing. Various mechanisms such as letters of credit have
evolved over time to help exporters deal with issues related to trust, currencies, differing legal
systems, and the like.
Slides 16-27 ‒ 16-32 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.
The Popularity of Countertrade
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
Chapter 16 ‒ Exporting, Importing, and Countertrade
CONNECT
Case Analysis
Wanna Trade?
Summary
This activity explores countertrade. As Venezuela continues to deal with its economic crisis,
multinational companies have been forced to withdraw from the country. Those that are still
trying to be paid for products they have sold are finding that they may get paid in other products.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: A firm based in California wants to export a shipload of finished lumber
to the Philippines. The would-be importer cannot get sufficient credit from domestic
sources to pay for shipment but insists that the finished lumber can quickly be resold in
the Philippines for a profit. Outline the steps the exporter should take to effect the export
of this shipment to the Philippines.
ANSWER 1: The steps are as follows:
(1) The Philippine importer places an order with the U.S. exporter and asks the
exporter if it would be willing to ship under a letter of credit.
(2) The U.S. exporter agrees to ship under a letter of credit and specifies relevant
information such as prices and delivery terms.
(3) The Philippine importer applies to the Bank of Manila (or some other
international bank) for a letter of credit to be issued in favor of the U.S. exporter
for the merchandise the importer wishes to buy.
Chapter 16 ‒ Exporting, Importing, and Countertrade
of lading such that the title to the goods goes with the holder of the document—
which at this point in the transaction is California Bank and Trust.
(8) California Bank and Trust presents the draft and documents to the Bank of
Manila. The Bank of Manila accepts the draft, taking possession of the
documents and promising to pay the now-accepted draft in 90 days.
(9) The Bank of Manila returns the accepted draft to California Bank and Trust.
(10) California Bank and Trust tells the U.S. exporter that they have the accepted
bank draft, which is payable in 90 days.
(11) The exporter sells the draft to California Bank and Trust for a discount from the
face value and receives the discounted cash value of the draft in return.
QUESTION 2: You are the assistant to the CEO of a small textile firm that manufactures
quality, premium-priced, stylish clothing. The CEO has decided to see what the
opportunities are for exporting and has asked you for advice as to the steps the company
should take. What advice would you give to the CEO?
ANSWER 2: This question is designed to stimulate classroom discussion and/or to
encourage your students to “think” about the export process in completing a written
answer for this question. There are a number of approaches that can be pursued in
answering this question. The first step might be to tap into some of the government
information sources that are available, free of charge, to see if international markets are
QUESTION 3: An alternative to using a letter of credit is export credit insurance. What
are the advantages and disadvantages of using export credit insurance rather than a letter
of credit for exporting (a) a luxury yacht from California to Canada and (b) machine tools
from New York to Ukraine?
ANSWER 3: Exporters prefer to get letters of credit from importers. However, when the
importer is in a strong bargaining position and able to play competing suppliers off
against each other, an exporter may have to forgo a letter of credit. The lack of a letter of
Chapter 16 ‒ Exporting, Importing, and Countertrade
QUESTION 4: How do you explain the use of countertrade? Under what scenarios
might its use increase still further by the year 2025? Under what scenarios might its use
decline?
ANSWER 4: Countertrade becomes popular when foreign exchange markets are limited,
or importers do not have access to the foreign exchange (low reserves) they need to fund
their purchases. Currency crises and monetary instability are two conditions that lead to
QUESTION 5: How might a company make strategic use of countertrade schemes as a
marketing weapon to generate export revenues? What are the risks associated with
pursuing such a strategy?
ANSWER 5: Countertrade is an alternative means of structuring an international sale
when conventional means of payment are difficult, costly, or nonexistent. The
governments of developing countries sometimes insist on a certain amount of
countertrade. Thus, if a firm is unwilling to enter a countertrade agreement, it may lose an
export opportunity to a competitor that is willing to make a countertrade agreement.
CLOSING CASE: Spotify and SoundCloud
Summary
The closing 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
Chapter 16 ‒ Exporting, Importing, and Countertrade
in 2008, has more than 3,000 employees and 200 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 of the case can begin with the
following questions:
QUESTION 1: Numerous online music platforms exist today, with Apple Music,
Google Play Music, Pandora, Spotify, SoundCloud, and YouTube as perhaps the most
common ways people listen to music online around the world. Which one(s) do you use
and why? Which one(s) do you think will no longer be in operation in 10 years and why?
ANSWER 1: Responses to this question will vary based on student preference. Some
students may suggest that the online music platforms most likely to endure are those like
QUESTION 2: Based on what you can read in this case and what you are able to glean
from researching Sweden, why do you think Stockholm, the capital city of Sweden,
produces the second-highest number of billion-dollar tech companies per capita, after
Silicon Valley?
ANSWER 2: This question should generate some discussion among students related to
the development of technology hubs like Silicon Valley and also the importance of
related and supporting industries in the creation of Silicon Valley. Many students will
QUESTION 3: What are the strengths and weaknesses of Spotify and SoundCloud,
respectively? Do you think their business models will last, or will other innovative ideas
overtake the market power that Spotify and SoundCloud have in the international
marketplace?
ANSWER 3: Soundcloud and Spotify, like many other Swedish tech start-ups, rely on
international sales for much of their revenue. With its population of just 10 million,
Sweden would be unable to support even one online music platform successfully, let
Chapter 16 ‒ Exporting, Importing, and Countertrade
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library, which provides an
ongoing stream of updated video suggestions correlated by key concept and major topic.
Every new clip posted is supported by teaching notes and discussion questions. Please
feel free to leave comments in the library that you feel might be helpful to your
colleagues.
CONNECT
Geography
Summary
This activity is designed to test the student’s knowledge of geography. Questions related to
chapter material are asked, requiring students to understand the topics and the locations of the
countries involved.
INCORPORATING globalEDGE™ EXERCISES
Exercise 1
One way that exporters analyze conditions in emerging markets is through the use of
macroeconomic indicators. The Market Potential Index (MPI) is a yearly study conducted
Chapter 16 ‒ Exporting, Importing, and Countertrade
by the Michigan State University Center for International Business Education and
Research (MSU-CIBER) to compare the market potential of emerging markets for U.S.
exporters. Provide a description of the dimensions used in the index. Which of the
dimensions would have greater importance for a company that markets wireless devices?
What about a company that sells clothing?
Exercise 2
You work in the sales department of a company that manufactures and sells medical
implants. A Brazilian company contacted your department and expressed interest in
purchasing a large quantity of your products. The Brazilian company requested an FOB
Answers to Exercises
Exercise 1 Answer
Additional Info:
MPI is an annual ranking study, developed and maintained by the Michigan State
University CIBER to demonstrate how companies can use macroeconomic variables to
rank the potential of foreign markets for identification of commercial opportunities. The
ranking on the site is generic to U.S. exporters, but MSU-CIBER has developed several
industry-specific or company-specific versions of the index over the years.
Exercise 2 Answer
Additional Info:
Export tutorials have been developed by the globalEDGE™ Team based on the most
commonly asked questions about the exporting process from small- to medium-size
enterprises. Each question is answered briefly on the page. Links to additional resources
for more detailed answers are also provided.