Exporting, Importing and Countertrade

Learning Objectives

• Exporting: Understand promises and risks in exporting.
• Performance Improvement: Steps to enhance export performance.
• Export Financing: Steps in financing exports.
• Information Sources: Resources and government programs to support exporters.
• Countertrade: Use of countertrade to facilitate exports.

Exporting Overview

• Growth: Significant increase in export activity over past 30 years due to:
  • Reduced trade barriers
  • Advances in technology and communication
• Challenges:
  • Shifting trade barriers
  • Non-convertible currencies

Advantages of Exporting

• Opportunities: Potential for large revenues and profits in foreign markets.
• Economies of Scale: Large firms proactive; smaller firms tend to react later.

Export Challenges

• Documentation: Extensive paperwork and compliance issues.
• Delays: Time-consuming processes can discourage new exporters.

Improving Export Performance

• Educational Support: Lack of knowledge on international trade opportunities hinders exporters.
• Key Resources:
  • U.S. Department of Commerce, Export Assistance Centers (USEAC), SBA.
  • District Export Councils, Small Business Development Centers (SBDC).
• Service Providers: Options include:
  • Freight forwarders
  • Export management companies
  • Customs brokers

Export Strategy Recommendations

1. Hire export consultants.
2. Focus initially on select markets.
3. Start small to manage risks.
4. Scale with dedicated resources and personnel.
5. Build relationships with local distributors.
6. Seek export opportunities proactively.
7. Consider local production capabilities.

Export Financing

• Trust Issues: Importance of trust in transactions across countries.
• Common Instruments:
  • Letter of Credit: Ensures payment upon documentation.
  • Drafts: Instruments specifying payment terms at defined times (sight vs. time draft).
  • Bill of Lading: Receipt and title document for shipped goods.

Export Assistance Programs

• Export-Import Bank: Financing U.S. export products; loan guarantees for foreign purchases.
• Export Credit Insurance: Insurance against payment defaults by importers.

Countertrade Overview

• Definition: Trade of goods/services for other goods/services, usually in lieu of cash.
• Growth: Increased popularity in developing nations; covers 20-25% of trade today.
• Types:
  • Barter
  • Counterpurchase
  • Offset agreements
  • Switch trading
  • Compensation or buybacks

Pros and Cons of Countertrade

• Pros:
  • Enables financing of exports when cash methods aren’t viable.
• Cons:
  • Preference for cash; risk of receiving unusable goods.