Exports, Imports, Countertrade Opportunities and risks of exporting Steps to improve export performance Information sources/programs on exporting.

Exports, Imports, CountertradeExports, Imports, Countertrade

Exports, Imports, CountertradeExports, Imports, Countertrade

Opportunities and risks of exportingSteps to improve export performanceInformation sources/programs on

exportingFinancing exportingCountertrade as an export facilitator

Exporting Opportunities and RisksExporting Opportunities and Risks Perception: Exports

– Offer huge revenue / profit opportunities overseas – Are “there for the pickings”

Large firms are more successful– Proactive about exporting to realize promise– Systematic effort backed by knowledge of overseas markets

Smaller firms are reactive – Overseas markets are an afterthought– Ad-hoc effort on an opportunistic and often naïve basis

Exports require volumes of specialized paperwork

US Export SupportUS Export Support

www.doc.gov

www.ita.doc.gov

Export Performance Improvement FactorsExport Performance Improvement Factors

Government information sources– US: various parts of the Dept. of Commerce– Other countries: similar entity– Embassies and consulates: commercial

sections Export management companies

– Act as the export department of firms– Experienced specialists– Not exclusive

Focused export strategy

Some Successful Export StrategiesSome Successful Export Strategies

Enter on a small scale to reduce risks

Add product lines after export

operations begin to be successful

Hire locals to promote the firm’s

products

Exporting StrategyExporting Strategy

It helps to hire an EMC or, at least, someone with experience.

Focus on one or a few markets. Enter markets on a fairly small scale until you ‘learn the

ropes’. Add new lines after initial success. Need to recognize the time and managerial commitment. Build strong and lasting relationships. Hire locals to help firm establish itself. Keep the option of local production in mind.

© McGraw Hill Companies, Inc., 2000

Export ProcessExport Process

Evaluate export potential

financial resources management capability/experience competitive advantages abroad

Steps in the Export ProcessSteps in the Export Process

Evaluate export potential

Do country analysis (more later) country receptiveness to imports

and investment trade barriers/requirements infrastructure

Steps in the Export ProcessSteps in the Export Process

Evaluate export potential

Do market analysis market size/product potential distribution channels needs for re-engineering etc. =

localization

Steps in the Export ProcessSteps in the Export Process

Determine entry method

  goal of entry   select distribution “partner” determine channel length assess risks determine costs

Steps in the Export ProcessSteps in the Export Process

Determine entry method

determine trade terms

(INCOTERMS: ex works, FOB, CIF, etc.)

determine tasks to be performed in the foreign market

Export/Import FinancingExport/Import FinancingAssures:

– Exporter of payment

– Importer of product

Banks offer financing intermediary service

– Letters of credit: bank guarantee of payment to exporter “bought” by the corresponding importer

– Draft or bill of exchange: instructions to bank to pay at a certain time based on certain documentation

Carriers provide to the exporter

– Bill of lading: receipt, contract and document of title

Sources of Exporter Sources of Exporter FinancingFinancing

 Financing exporter credit to the importer:

  - Bankers’ acceptance (of the draft)

  - Factoring

  - Forfaiting

  - EXIM loans

Export/Import FinancingExport/Import Financing Letters of Credit (LOC)

– Bank guarantee on behalf of importer to exporter assuring payment when exporter presents specified documents

Drafts (Bill of Exchange)– Written order by exporter, telling an importer to pay a

specified amount of money at a specified time.

Bill of Lading– Issued to exporter, by carrier. Serves as receipt,

contract and document of title.© McGraw Hill Companies, Inc., 2000

Exporters’ Problems with Exporters’ Problems with Letters of Credit (L/C)Letters of Credit (L/C)

Shipment date or method required in L/C cannot be met.

  Documents required by L/C cannot be obtained.  Importer deliberately fills out L/C application

incorrectly (to stall or force a discount).  Product description too detailed (exporter

compliance difficult).

Preference of the US ExporterPreference of the US Exporter

French Importer American Exporter

1. Importer Pays for Goods

2. Exporter Ships Goods After Being Paid

Preference of the French Preference of the French ImporterImporter

French Importer American Exporter

1. Exporter Ships the Goods

2. Importer pays after the Goods are Received

The Use of a Third PartyThe Use of a Third Party

French Importer American Exporter

1. Importer Obtains Bank’s Promise to Pay on Importers Behalf

5. Bank Gives Merchandise to Importer

Bank6. Importer Pays Bank

3. Exporter Ships “to the Bank.” Trusting Bank’s Promise to Pay

2. Bank Promises Exporter to Pay on Behalf of Importer

4. Bank Pays Exporter

A Typical International A Typical International TransactionTransaction

French ImporterAmerican Exporter

Bank of New York Bank of Paris

6. Goods Shipped to France7. Exporter

Presents Draft to Bank

10 and 11 Exporter Sells Draft to Bank

14. B of NY Presents Matured Draft and Gets Payment

12. Bank Tells Importer Documents Arrive

13. Importer Pays Bank

2. Exporter Agrees to Fill Order

1. Importer Orders Goods 3. Importer Arranges for LOC

8. B of NY Presents Draft to Bank of Paris9. Bank of Paris Returns Accepted Draft

4. Bank of Paris Sends LOC to B of NY

5. B of NY Informs Exporter of LOC

CountertradeCountertrade Structures an international sale when means

of payment are difficult, costly, or non-existent– No currency convertibility– Weak reserves prohibit access to hard

currency Barter-like agreements

– Trade goods and services for other goods and services

– 8-10% or world trade by value is in the form of countertrade (up from 2% in 1975)

CountertradeCountertradeMain attraction:

– way to finance an export deal – meet requirement of local government

to support exportsMain drawback:

– risk of disposal / sale of goods at less than full value

– disposal of imports may require resources other than those that the firm possesses

Types of CountertradeTypes of Countertrade

Barter

Counterpurchase

Offset

Switch Trading

Compensation or Buyback

BarterBarter

International Reciprocal Trade Association (IRTA) – the industry trade organization - almost a half a million small businesses use commercial barter exchanges every year.

Almost $10 billion in sales is transacted each year by the commercial barter industry.

Trades where no intermediary is used and the global barter market may be 10 times that amount.

BarterBarter

International Reciprocal Trade Association estimates that in 1998 over 470,000 companies actively participated in barter in the US for a total of over $16 billion in annual sales.

Over 65% of the corporations listed in the New York Stock Exchange are presently using barter to reduce surplus inventory, bolster sales, and ensure that production facilities run at capacity.

U.S. Department of Commerce estimates that 20 to 25% of world trade is now barter, and corporate barter is now a $20 billion industry.

BarterBarter Conserve cash -- preserve cash-flow Strengthen cash reserves -- use barter for the

goods & services most needed Increase buying power -- access to goods &

services for growth Increase customer base – may add new clients Move surplus inventory Finance -- new businesses can build credit

through barter Employee Incentives -- travel, entertainment, gifts, perks & bonuses

CompensationCompensation

Barter with a combination of goods and convertible currency

Less risk than in straight barter

Counterpurchase – Parallel Counterpurchase – Parallel BarterBarter

Parties pay cash of goods Seller agrees to buy products/services

unrelated to its business Seller then sells products to third parties

Offset PurchaseOffset Purchase

Usually large projects, often involving expenditure of buying government’s money

A % of the selling price is required to be purchased or sourced from the buying country

BuybackBuyback

The seller agrees to buy a negotiated quantity of the output from the buyer’s output

Clearing AgreementClearing Agreement

A third party brokers transactions between parties, maintaining accounts for all participants

Typically are legal documents which specify the details of the arrangements: Electrical power companies Stock brokers, on-line traders

Switch TradingSwitch Trading

Buyer pays hard currency for unwanted goods/services from seller

Broker buys unwanted goods Broker sells goods to third parties