IBM: Chapter 14- Exporting, Importing, and Countertrade – Flashcards

PROMISES: large revenues, profit opportunities bc international market is so large. Expanding size lets firms achieve EofSc, lowering unit costs. Large firms are proactive in exporting while medium-small firms are reactive (don't do it). PITFALLS: poor market analysis, poor understanding of competitive conditions in foreign market, failure to customize the product offering to the needs of foreign customers, lack of effective distribution program, poorly executed promotional campaign, problems securing financing.

best way to overcome lack of export knowledge is to collect information. Germany and Japanese firms have great resources to draw info regarding export oppor. U.S. does not, they are information-disadvantaged. Germ and Jap are historically trading nations, U.S is not until recently.

Japan's Ministry of International Trade and Industry

Japanese trading companies; a key part of the keiretsu, the large Japanese industrial groups.

most comprehensive source of export information for U.S. Made up of 2 organizations: the International Trade Administration and the U.S. Commercial Service.

the Small Business Administration.

Export specialists who act as an export marketing department for client firms. (can startup export operations for firm, sell firm's products.) (good EMC will have network of contacts, multilingual employees etc)

1) hire an EMC or experienced consultant 2) Focus on 1 market, learn how to succeed in it. 3) enter a foreign market on small scale, reduces costs of failure. 4) need to realize the time and managerial commitment involved in building export sales, hire additional help 5) spend time Building strong relationships w/ local distributors+customers. 6) hire local personnel to help establish firm in foreign mkt. 7) firm needs to be proactive in seeking export opportunities. 8) retain option of local production

issued by a bank at the request of an importer, it states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. (key to international comm. trade, acts as 3rd party.) (drawback for importer is fee she'd have to pay for the L/C)

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. (what and when to pay) (settles trade transactions)

Maker: the person or business initiating the draft Drawee: the party to whom the draft is presented to.

a draft payable on presentation to the drawee.

allows for delay in payment- normally 30,60,90, or 120 days. Presented to drawee, who accepts it by writing or stamping on its face. Once accepted by a bank, the TD becomes a promise to pay, known as a "banker's acceptance". Once accepted by a business, its called a "trade acceptance".

a document issued to an exporter by a common carrier transporting merchandise. It serves as a receipt, a contract, and a document of title. As a.... Receipt: indicates that the carrier has received the merchandise described on document Contract: specifies that the carrier is obligated to provide a transportation service in return for a certain charge. Document of Title: can be used to obtain payment or a written promise of payment b4 merchandise is released to the importer.

agency of the U.S. government whose mission is to provide aid in financing and facilitate exports and imports b/t the US and other countries. (makes commercial banks more willing to lend cash to foreign enterprises.)

Provides assurance to the exporter or the exporter's bank that, should the foreign customer default on payment, the insurance company will pay for a major portion of the loss. (can't always get a letter of credit especially when competing for a customer)

the trade of goods and services for other goods and services. (very barter-like and often used when you can't trade for money.)

the direct exchange of goods or services between two parties without a cash transaction. (simple but not common. Viewed as least favorable countertrade arrangement. Primarily used for one-time deals 4 partners who aren't trustworthy.)

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.

agreement to purchase goods and services with a specified percentage of proceeds from an original sale in that country from any firm in the country. (more favorable for an exporter cause it gives greater flexibility) (similar to counterpurchase)

use of a specialized third-party trading house in a countertrade agreement. Occurs when a 3rd party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them.

agreement to accept a percentage of a plant's output as payment for contract to build a plant. (Occidental Petroleum built plants in Russia and accepted payment in ammonia over a 20yr period from the plant)

Pro: gives firms a way to finance a deal when there is no other means available. Con: Only good for large firms with a lot of contacts, small-medium firms should avoid this.