Exporting, Importing and Countertrade

Question 1

Promise of exporting

Answer 1

• Much larger market

- nearly always increases revenue, economies of scale and profits

Question 2

Pitfall of exporting :

Ignorance / unfamiliarity

Answer 2

Ignorance of the potential

Unfamiliar with foreign market opportunities

Question 3

Pitfall of exporting :

Intimidation

Answer 3

intimidation by complexity of exporting to countries where practices, language, culture. legal systems, and currency are different

Question 4

Pitfall of exporting :

Underestimate needed resources and expertise

Answer 4

underestimate the time and expertise needed to cultivate business in foreign countries

Question 5

Freight forwarders

Answer 5

Regulate transportation for companies that ship international. They combine smaller shipments into a single large shipment to minimize the shipping cost. Additionally they do documentation, payment and carrier selection.

Question 6

Export management companies (EMCs)

Answer 6

Deal with export documents and operate as the firms agent and distributor. They offer a full menu of services for companies new to exporting, similar to having an internal exporting department within your firm.

Question 7

Export trading companies

Answer 7

They provide comprehensive exporting services, including export documentation, logistics, and transportation. Additionally, they work with companies in foreign countries that will market and sell the products.

Question 8

Export packaging companies

Answer 8

Advise companies on appropriate design and materials for the packaging of their items per country. Additionally, they assist companies in minimizing packaging to maximize the number of items to be shipped.

Question 9

Customs brokers

Answer 9

Offer a complete package of services that avoid pitfalls in customs regulations

Question 10

Confirming houses/ buying agents

Answer 10

Represent foreign companies that want to buy your products and bargain the lowest price for them. You can find them at your government embassy

Question 11

Export agents and merchants

Answer 11

Buy products directly from the manufacturer and package and label the products in accordance with their own wishes and specifications

Question 12

Piggyback marketing

Answer 12

This is an arrangement whereby one firm distributes another firms products. Usually requires complementary products and the same target market of customers.

Question 13

Economic processing zones (EPZ’s)

Answer 13

This includes foreign trade zones, special economic zones, bonded warehouses, free ports, and custom zones. Companies use EPZs to receive shipments of products that are then reshipped in smaller lots to customers throughout the surrounding areas.

Question 14

The letter of credit (L/C)

Answer 14

Issued by a bank, states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified document. This is a financial contract and usually requires a 0,5 - 2% fee for the importer.

Question 15

The bill of lading

Answer 15

This is a receipt, a contract, a document of title and collateral. It is issued to the exporter by the common carrier transporting the merchandise.

Question 16

1. The bill of lading : Receipt

Answer 16

Shows that the carrier has received the merchandise

Question 17

2. The bill of lading : Contract

Answer 17

Specifies that the carrier is obligated to provide transportation service in return for a certain charge.

Question 18

3. The bill of lading : Document of title

Answer 18

Can be used to obtain ( a promise of ) payment before the merchandise is released to the importer. So, title to the products is given to the bank.

Question 19

4. The bill of lading : Collateral

Answer 19

Can also serve as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and and before the final payment by the importer

Question 20

The draft (or bill of exchange)

Answer 20

The instrument normally used in international commerce to effect payment. It is the payment request of the exporter (maker) to the bank (drawee). In domestic transactions the buyer can often own the merchandise without signing a formal ‘obligation to pay document’. In international transactions, you cannot.

Question 21

The draft : Sight draft

Answer 21

This is payable on presentation to the drawee. When the exchange happens.

Question 22

The draft : Time draft

Answer 22

This allows for a delay of payment. ( 30, 60, 90) Are negotiable instruments; meaning that once the draft is stamped with an acceptance, the maker can sell the draft to an investor at the discount from its face value.

Question 23

Foreign Credit Insurance Association (FCIA)

Answer 23

When the exporter has no letter of credit, they can insure against importer defaults by buying export credit insurance. The insurance firm will cover a major portion of the loss.

Question 24

Countertrade

Answer 24

Here you trade goods and services for other goods and services (when they cannot be traded for money, e.g. when currency is nonconvertible).

Question 25

Barter

Answer 25

The direct exchange of goods/services between two parties without a cash transaction. Hard to manager goods exchanged at the same time. And most of the time one of the parties end up with goods they do not want.

Question 26

Counter-purchase

Answer 26

A reciprocal buying agreement. Occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.

Question 27

Offset

Answer 27

Here one party agrees to purchase goods/services with a specified percentage of the proceeds from the original sale. The difference to counter-purchase is that this party can fulfill the obligation to buy products back with any firm in the country of the sale

Question 28

Switch trading

Answer 28

occurs when a third-party trading house buys the firms counter-purchase credits and sells them to another firm that can better use them.

Question 29

Compensation and buybacks

Answer 29

A firm builds a plant, supplies, technology, or equipment in a country, and the country agrees to take a % of the plants output as payment for he contract.

Question 30

Pro Countertrade

Answer 30

1) give a firm a way to finance an export deal when other means are not available 2) Countertrade agreement may be required by the government of a country to which a firm is exporting g/s

Question 31

Con Countertrade

Answer 31

1) firms prefer hard currency 2) can lead to unusable of poor-quality products 3) investment in in-house trading departments 4) can be expensive and time consuming