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Chapter 16 - Exporting, Importing, and Countertrade
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Exporting, Importing and Countertrade
Learning objectives
• Identify the steps managers can
take to improve their firm’s
export performance.
• Identify information sources
• 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.
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
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.
16
Chapter 16 - Exporting, Importing, and Countertrade
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OUTLINE OF CHAPTER 16: EXPORTING, IMPORTING, AND
COUNTERTRADE
Opening Case: SteelMaster Buildings
Introduction
Management Focus: Exporting with a Little Government Help
Management Focus: Export Strategy at 3M
Export and Import Financing
Lack of Trust
Letter of Credit
Draft
Bill of Lading
Typical International Trade Transaction
Chapter 16 - Exporting, Importing, and Countertrade
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CLASSROOM DISCUSSION POINT
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?
well worth a visit, and could be used as the basis for an in-class export project.
OPENING CASE: SteelMaster Buildings
Summary
The opening case explores the international expansion of SteelMaster Buildings, a
company based in Virginia Beach that designs, manufactures, and supplies prefabricated
arched steel structures used for anything from basic residential storage facilities to
complex aircraft hangers. Its motivation to enter the export market was straightforward:
Domestic competition was intense and the company saw foreign markets as the best way
of expanding sales. Discussion of the case can revolve around the following questions:
3. From a development standpoint, what is the significance of the distribution network
the company uses in 50 countries?
Chapter 16 - Exporting, Importing, and Countertrade
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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
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.
Chapter 16 - Exporting, Importing, and Countertrade
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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.
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.
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
Chapter 16 - Exporting, Importing, and Countertrade
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Slides 16-11 and 16-12 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.
Slide 16-13 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.
Slide 16-17 A Typical International Trade Transaction
The typical international trade transaction involves 14 steps.
Slides 16-18 and 16-19 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
Chapter 16 - Exporting, Importing, and Countertrade
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Slide 16-20 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
Slides 16-21 through 16-24 Types of Countertrade
There are five distinct versions of countertrade:
1. barter
Slides 16-25 and 16-26 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.
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: A firm based in Washington State 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 that 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 American
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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
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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
QUESTION 4: How do you explain the continued existence of countertrade? Under
what scenarios might its use increase still further by the year 2020? 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
QUESTION 5: How might a company make strategic use of countertrade schemes 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
Chapter 16 - Exporting, Importing, and Countertrade
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CLOSING CASE: Vellus Products
Summary
The closing case explores the international expansion of Vellus Products, a small
company that produces personal care products for dogs. Vellus Products initially began
exporting when a Taiwanese business placed an order for its dog shampoo. Since then
Vellus Products has expanded its export business and today, international sales account
for about half its total sales. Vellus Products now sells in 32 countries around the world.
The following questions can be helpful in directing the discussion.
QUESTION 1: Why does Vellus export through local distributors rather than set up its
own sales force in the country? What are the risks associated with using local
distributors? How can these risks be reduced?
ANSWER 1: From a business standpoint, setting up a distributor network for
international sales is less expensive than hiring a large sales force in each of the 32
QUESTION 2: Vellus’s original entry into exporting was both reactive and serendipitous.
Do you think this is the exception or the rule for small businesses? What might be done
to make small firms more proactive with regard to exporting?
ANSWER 2: Most small businesses begin their exporting adventures in a reactive way
QUESTION 3: What lessons about successful exporting can be derived from the Vellus
case?
ANSWER 3: Develop strong relationships with distributors or importers in other
QUESTION 4: How important has government assistance been to Vellus Products? Do
you think helping firms such as Vellus represents good use of taxpayer money?
ANSWER 4: Many students will probably suggest that government assistance has been
Chapter 16 - Exporting, Importing, and Countertrade
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INTEGRATING iGLOBES
There are several iGLOBE video clips that can be integrated with the material presented
in this chapter. In particular, you might consider the following:
Title: Stakes High at Start of UAW–Big 3 Talks, But ‘Both Sides Want This
to Go Well’
Run Time: 5:42
Notes: The UAW and Big Three automakers sat down together recently to hammer out a
new contract. The meeting was a milestone in and of itself given the challenges the
companies have faced as they struggled to survive during the recent global economic
downturn. During the recession, two of the Big Three, General Motors and Chrysler,
were forced to accept government bailouts just to stay operational. Now that all three are
on firmer footing however, the UAW is hoping to renegotiate wages and benefits for its
members who have made considerable concessions to help the companies remain in
business. The UAW itself has gone through a transition losing about half its members in
the last five years thanks to early retirements and layoffs forced in part by the poor
economic conditions that have slowed global demand for new vehicles.
Chapter 16 - Exporting, Importing, and Countertrade
Discussion Questions and Answers:
1. Reflect on the current negotiations between the UAW and the Big Three. Why do these
negotiations represent such a landmark between the two parties? How has the approach to
the negotiations changed on the part of each party?
Answer: Just a few years ago, the future of the Big Three, and General Motors and
Chrysler in particular, was questionable. All three companies were on the brink of
2. Why are the Big Three automakers still using a less competitive cost structure than
their foreign competitors? How does this impact the bargaining table?
Answer: Despite their recent gains, the Big Three know that their return to a profitable
state is not guaranteed. Their cost structure is still less competitive than that of their
foreign counterparts making it more important than ever to ensure that they do not make
Chapter 16 - Exporting, Importing, and Countertrade
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3. Discuss the current state of the UAW. How has it changed in recent years? What does
this suggest for its future?
Answer: The UAW has changed dramatically in recent years, and today is in a much
weaker position thanks to its smaller numbers, a more competitive environment, and the
4. How does the lack of unions at foreign transplant companies change the competitive
landscape for the Big Three? How might the situation change if workers at the foreign
transplants unionize?
Answer: Regardless of continued efforts by the UAW, workers at foreign transplants like
Honda, Toyota, and Kia have continued to reject union membership. This situation leaves
the UAW in an uncomfortable position with decreased power to negotiate. At the
INTEGRATING VIDEOS
There are also several longer video clips that can be integrated with the material
presented in this chapter. In particular, you might consider the following from
International Business DVD Volume 6:
Title: Developing World Hit By Recession, but Microfinance Grows
Learning Objectives
The purpose of this video is to help you:
Chapter 16 - Exporting, Importing, and Countertrade
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Key Words
❖ Levels of economic development
Synopsis
The effects of the recent global recession are still being felt across much of the developed
world. High unemployment continues to plague many countries, credit is tight, and
repossessions are rising. However, in much of the developing world, the effects of the
Like many developed countries, developing countries, and particularly those countries in
Southeast Asia, have experienced significant job loss. Many people in Southeast Asia
work in factories that produce clothing that is exported to developed countries. However,
The developing countries have asked developed nations like the United States for
assistance, but so far, the response has been lukewarm at best. What may be more
promising though is the burgeoning microfinance industry. Microfinance providers make
small, low interest loans to the world’s poorest people. The industry began in the 1970s
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Discussion Questions
1. How would you classify countries like Zambia and the Democratic Republic of
Congo? Explain how developing countries differ from developed countries. Do you
think developed countries have a responsibility to help poorer countries?
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
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 1 Answer
Search phrase: Market Potential Index
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
Chapter 16 - Exporting, Importing, and Countertrade
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
price quote. One of your colleagues mentioned to you that FOC is part of a collection of
international shipping terms called “Incoterms,” but that was all he knew. Find the Export
Tutorials on the globalEDGE site, and find a more detailed explanation of Incoterms. For
an FOB quote, what line items will you need to include in your price quote, in addition to
the price your company will charge for the products?
Exercise 2 Answer
Search phrase: Export Tutorials
Additional Info:
Export Tutorials have been developed by the globalEDGE Team based on the most
