Exporting, Importing and Countertrade Flashcards
Why do firms export?
- Increase market size and profits
- Large firms often proactively seek new export opportunities but many smaller firms export reactively
Why don’t firms export?
- Risks for novice exporting firms
- Poor market analysis
- Poor understanding of competitive conditions
- Lack of customisation for local markets
- Poor distribution
- Poor promotional campaigns
- Problems securing financing
- Underestimation of resources/time/expertise required
- Underestimation of admin involves
What are the success strategies for exporters?
- Market research: counteract lack of awareness, trade fairs/associations
- Direct contact, identification of buyers,
- Use of entrepreneurship/counselling - Export Management Companies provide full support
What are Export Management Companies?
Export specialists that act as export marketing department for client firms, handle all the technicalities of the export service
What are the two common assignments of EMCs?
1) Export operating with the understanding that the firm will take over after they are established
2) Start services with the understanding that the EMC will have continuing responsibility for selling the firm’s products for a longer period of time
What are the pros of EMCs?
- Limited commitment and investment
- Limited risk
- Suitable for firms with little international experience and resources
- Can allow to see if product has potential abroad
What are the cons of EMCs?
- Little control over marketing strategy
- Little contract with host markets and consumers
- Lower profit margins
- Limited opportunity to gain export and international know-how dependency
What are exporting success factors?
- Finding a niche market - become specialised
- Focus one one/few markets initially
- Enter foreign market on small scale
- Allocate sufficient time and resources
- Develop strong local relationships
- Consider high resource commitment entry modes once exporting is successful
- Long term view
- Develop skills of employees
How is there an issue of trust in export/import financing?
- Exporter wants to make sure he is going to be paid by importers
- Need a way to make sure of payment
- Can be sure importer is not defaulting and importer wants to see product before paying
How can a third party be used in export financing?
- Bank pays exporter on behalf of the importer, will make checks to ensure importer can pay
- Importer reimburses bank
- Steps that guarantee all payments are received
- Intermediary is effective and adds stability
What kind of export finance is available to firms?
- Loans, funds, tax breaks
- US export-import bank
- Germany kfw development bank
- UK British Bank Finance Schemes - grants, loans
What is countertrade?
- Barter-like agreements
- Used in nations with nonconvertible currencies e.g former USSR countries
- Was more common in history
- Necessary strategy when paying in cash .currency is not possible
What are the pros of countertrade?
- Gives means of financing when others aren’t available
- Gives competitive edge over those that aren’t willing to enter such agreements
- May be required by the government of a country e.g Saudi Arabia paid Boeing in oil for some of their goods
What are the cons of countertrade?
- Goods may be useless to a firm
- Exchange may involve unusable goods or poor quality goods that can’t be disposed of profitably
- Requires in house trading department
- Preference for convertible currency
What are the forms of countertrade?
- Barter
- Counter-purchase
- Offset
- Buyback
- Switch trading
