Hill_7CE_PPT_Ch_13_revised2 export import

Chapter 13: Exporting, Importing, and Countertrade

Learning Objectives

• Understand opportunities and risks in exporting.

• Identify steps to enhance export performance, including information sources and government support in Canada.

• Recognize basic steps in export financing.

• Learn how countertrade can facilitate exporting.

Introduction to Exporting

• Exporting volume is increasing globally due to:

  • Easier export processes (especially for SMEs).

  • Reduced trade barriers (e.g., CUSMA).

  • Over 90% of companies prefer exporting due to modern logistics.

• Challenges remain for many firms, especially smaller businesses:

  • Issues include lack of experience, documentation, and knowledge about foreign markets.

  • Companies must adapt operations for import-export financing.

Exporting Defined

• Exporting: Selling goods/services produced in one country to customers in another.

• Types of Exporters:

  • Sporadic Exporter: Fills unsolicited orders occasionally, focusing mainly on the domestic market.

  • Regular Exporter: Actively engages in export sales as a strategic pursuit.

Benefits of Exporting

• Significant revenue and profit opportunities in foreign markets.

• Exporting allows firms to achieve economies of scale, reducing unit costs.

• Firms that do not export may miss growth opportunities.

Motivations for Exporting

• Profitability: Higher potential prices abroad due to lack of local competition.

• Productivity Improvement: Using resources more efficiently leads to increased scale and cost reductions.

• Diversification: Expands customer base, reducing dependence on local buyers.

Challenges of Exporting

• Extensive paperwork and formalities, often involving numerous parties and documents.

• Poor market analysis can lead to missed opportunities.

• Issues in securing financing and navigating foreign market complexities.

Liability of Foreignness

• Additional costs for foreign firms due to unfamiliarity with local conditions.

• They must balance these liabilities with their unique advantages.

Exporting Approaches

• Direct Exporting: Selling directly through independent distributors or online.

• Indirect Exporting: Using exporters or agents based in the home country.

• Two Views on Internationalization:

  • Incremental: Gradual, step-by-step approach to foreign markets.

  • Born Global: Immediate global market focus from inception.

Export Readiness

• Assess product and company readiness:

  • Product must meet international demands.

  • Company should have necessary resources and commitment.

Export Strategy

• For novice exporters, consider:

  • Hiring consultants or export management companies (EMCs).

  • Start small, build relationships, and maintain local production options.

Improving Export Performance

• Information Sources for Canadian Companies:

  • Global Affairs Canada, International Trade Centers, and provincial agencies.

Export Assistance

• Public and private agencies can assist including freight forwarders and logistics companies.

Export Controls in Canada

• Types of Permits:

  • Individual Export Permit (IEP): Specific goods to specific destinations.

  • General Export Permit (GEP): General permission for certain goods.

• Importance of compliance with regulations for safe trade.

Trade Efficiency and Barriers

• Barriers can include regulatory bottlenecks and corruption impacting trade efficiency.

Import and Export Factors

• Efficiency helps achieve economies of scale and reduce costs.

• Import Drivers:

  • Economies of scale, input optimization, variety improvement, and diversification.

Canadian Customs Regulations

• Governed primarily by the Federal Customs Act, compliance with which is crucial for maintaining health/safety and national economic well-being.

Countertrade

• Alternative trade method when conventional payment is challenging.

• Types include barter, counterpurchase, offsets, and compensation agreements.

Economic and Political Rationale for Trade Restrictions

• Reasons include protecting infant industries, national security, and consumer protection.

Closing Case: Australia-China Wine Dispute

• High tariffs on Australian wine due to political issues, impacting significant trade volume.

Class Activity

• Assess your readiness for exporting by considering your product and target markets.