International Business (9)

1. International Business (9) Huang Huiping Economic School.Whut

2. Exporting and Countertrade Reading Questions: • Why does exporting remain a challenge for many firms? • How to improve export performance? • How to lower Export Financing risks? • Countertrade

3. Assignments: • P 423(E)/311(C), Question 5

4. 9.1 Why does exporting remain a challenge for many firms? The pitfalls of exporting • Simple ignorance of the potential opportunities ;( MMO music group) • Combination of unfamiliarity and intimidation • Common pitfalls: Poor market analysis, poor understanding of competitive conditions in foreign market,failure to the needs of foreign customers,lack an effective distribution program,poorly executed promotion,financial problems • Underestimating time and expertise • Voluminous paperwork,complex formalities,delays and errors

5. 9.2 How to improve export performance? (1) Increasing the awareness of exporting opportunities---------Information sources; (2) Utilizing export management companies (3) Adopt proper exporting strategies

6. How to improve export performance?(continued) See management focus: 1~7 strategies! 1)hire an EMC or export consultant ; 2)Focus on one or handful markets; 3)On small scale; 4)Hire additional personnel 5)Build strong relationship with local distributors/customs; 6)Hire local personnel to help the firm establish itself in a foreign market; 7)Keep the option of local production in the mind!

7. 9.3 How to lower Export Financing risks? Preference of the U.S. Exporter: Remittance Preference of the France Importer:Collection

8. The Use of A Third Party-----Bank

9. Some Concepts • Letter of Credit (L/C): Issued by a bank,indicating that the bank will make the payment under specific circumstance. • Draft (bill of exchange) An order written by an exporter instructing an importer,or an importer’s agent,to pay a specific amount of money at a specific time. • Sight draft / time draft • Bill of Lading A document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract,and a document of title.

11. The steps of a typical export-import transaction An example of the U.S. exporter and the French importer. 1. The French importer places an order with the U.S. exporter and asks the American if he would be willing to ship under a letter of credit. 2. The U.S. exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms. 3. The French importer applies to the Bank of Paris for a letter of credit to be issued in favor of the U.S. exporter for the merchandise the importer wishes to buy.

12. 4. The Bank of Paris issues a letter of credit in the French importer's favor and sends it to the U.S. exporter's bank, the Bank of New York. 5. The Bank of New York advises the exporter of the opening of a letter of credit in his favor. 6. The U.S. exporter ships the goods to the French importer on a common carrier. An official of the carrier gives the exporter a bill of lading. 7. The U.S. exporter presents a 90-day time draft drawn on the Bank of Paris in accordance with its letter of credit and the bill of lading to the Bank of New York. The exporter endorses the bill of lading so title to the goods is transferred to the Bank of New York. 8. The Bank of New York sends the draft and bill of lading to the Bank of Paris. The Bank of Paris accepts the draft, taking possession of the documents and promising to pay the now-accepted draft in 90 days.

13. 9. The Bank of Paris returns the accepted draft to the Bank of New York. 10. The Bank of New York tells the U.S. exporter that it has received the accepted bank draft, which is payable in 90 days. 11. The exporter sells the draft to the Bank of New York at a discount from its face value and receives the discounted cash value of the draft in return. 12. The Bank of Paris notifies the French importer of the arrival of the documents. She agrees to pay the Bank of Paris in 90 days. The Bank of Paris releases the documents so the importer can take possession of the shipment. 13. In 90 days, the Bank of Paris receives the importer's payment, so it has funds to pay the maturing draft. 14. In 90 days, the holder of the matured acceptance (in this case, the Bank of New York) presents it to the Bank of Paris for payment. The Bank of Paris pays.

14. 9.4 Countertrade • Countertrade: The trade of goods and services for other goods and services . • The reason of countertrade when conventional means of payment are difficult. • Types - Barter,(易货贸易） - Counterpurchase,（补偿购买） - Offset, （冲销） - Switch Trading, （转移贸易） - Buybacks（回购）

15. The Pros and Cons of countertrade • Pros: • Finance an export deal; • Become a strategic marketing weapon • Cons: • May involve in unusable or poor-quality goods; • Need worldwide network to dispose the goods.