1. Exporting is a way to increase market size and profits. - lower trade barriers under the WTO and regional economic agreements such as the EU and NAFTA make it easier than ever. 2. Large firms often proactively seek new export opportunities, but many smaller firms export reactively. - smaller firms are often intimidated by the complexities of exporting
Exporting firms need to:
1. Identify market opportunities 2. Deal with foreign exchange risk 3. Navigate import and export financing 4. Understand the challenges of doing business in a foreign market.
What are the pitfalls of exporting?
1. poor market analysis 2. poor understanding of competitive conditions 3. a lack of customization for local markets 4. a poor distribution program 5. poorly executed promotional campaigns 6. problems securing financing 7. a general underestimation of the differences and expertise required for foreign market penetration. 8. an underestimation of the amount of paperwork and formalities involved.
How can firms improve export performance?
1. Many firms are unaware of export opportunities available. 2. Firms need to collect information. 3. Firms can get direct assistance from some countries and/or use export management companies. - both Germany and Japan have developed extensive institutional structures for promoting exports. - Japanese exporters can use knowledge and contacts of sogo sasha - great trading houses. - U.S. firms have far fewer resources available.
How can U.S. firms get export information?
1. The U.S. Dept. of Commerce - the most comprehensive source of export information for U.S. firms. 2. The International Trade Admin. and the U.S. and Foreign Commercial Service Agency - "best prospects" lists for firms. 3. The Dept. of Commerce - organizes various trade events to help firms make foreign contacts and explore export opportunities. 4. The Small Business Association 5. Local and state governments
Export Management Companies (EMC's)
are export specialists that act as the export marketing department or international department for client firms Two types of assignments: - EMC's start service knowing that the firm will take over after they are established. - EMC's start services knowing that the EMC will continue selling the firm's services.
Letter of Credit
is issued by a bank at the request of an importer: - states the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular specified documents. - main advantage is that both parties are likely to trust a reputable bank even if they do not trust each other.
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. - the instrument normally used in international commerce - also called a Bill of Exchange
is payable on presentation to the drawee
allows for a delay in payment - normally 30, 60, 90, or 120 days - once a time draft has been "accepted" it becomes a negotiable instrument that can be sold at a discount from its face value.
Bill of Lading
is issued to the exporter by the common carrier transporting the merchandise. - Serves 3 purposes 1. It is a receipt 2. It is a contract 3. It is a document of title
Export-Import Bank (Eximbank)
an independent agency of the U.S. government. - provides financing aid to facilitate exports, imports, and the exchange of commodities between the U.S. and other countries. - achieves its goals through loan and loan guarantee programs.
Foreign Credit Insurance Association (FICA)
provides coverage against commercial risks and political risks - protects exporters against the risk that the importer will default on payment.
a range of barter-like agreement that facilitate the trade of goods and services for other goods and services when they cannot be traded for money. 5 Distinct Types: 1. Barter 2. Counterpurchase 3. Offset 4. Buyback 5. Switch Trading
a form of countertrade where a direct exchange of goods and/or services between two parties without a cash transaction. - most restrictive - used when trading partners lack credit and/or trust
a form of countertrade where a firm agrees to purchase a certain amount of materials back from a country to which a sale is made
a form of countertrade where one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale.
a form of countertrade where a firm builds a plant in a country or supplies technology, equipment, training, or other services to the country.
a form of countertrade; the use of a specialized third-party trading house in a countertrade agreement. - credits given in one country in exchange for goods. - occurs when third-party trading house buy credits from one firm and sells them to another firm that can better use them.
Pro's of Countertrading:
1. offers financing when no other means are available. 2. gives firm competitive edge on firms that are unwilling to enter countertrade agreements. ** Most beneficial to large, diverse, manufacturing enterprises that can use worldwide contacts to dispose of goods acquired in countertrade agreements.
Con's of Countertrade
1. may involve credits that are unusable by a firm. 2. requires the formation of in-house trading dept. within firm.
How Can Firm's Overcome The Lack Of Trust In Export Financing?
The Use Of A Third Party:
How Does An International Trade Transaction Work?
A Typical International Trade Agreement: