Export Import Countertrade
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Export Import Countertrade
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Export Import Countertrade
- 1. International Economics Chapter 13 Exporting, Importing, and Countertrade Exporting, Importing, and
- 2. Why Export? Profits Growing markets and lower costs
- 3. Factors to Consider • Financing • Insurance • Currency Exchange Risk
- 4. Countertrade • Trading stuff for stuff
- 5. Case Study - 3M • FIDO - First In defeats others • Make a little sell a little • Hire local
- 6. EMC Export Management Company Export Managementwho act Export Specialist Company as the marketing department for client firms
- 7. Export Strategy • Hire EMC • Focus on one market • Enter on small scale • Added time & resources • Build relationships • Hire local • Seek opportunities to learn • Consider local production
- 8. Trust Ship Goods Send Payment Exporter Importer What happens first? Shipment or payment?
- 9. Three Instruments Letter of Credit - L/C Bill of Exchange - Draft Bill of Lading
- 10. Financing 2. Bank promises Letter of Credit 1. Importer obtains exporter to pay on LC bank’s promise to pay importer’s behalf 0.5% to 2% on importer’s behalf Exporter Bank Importer 3. Exporter ships to 4. Bank pays the 5. Bank gives the bank exporter good to the importer 6. Importer pays the bank Loan to extend payment
- 11. Advantages May not trust each other but do trust a reputable bank
- 12. Bill of Exchange Draft Draft An order written by an exporter instructing the importer, or importer’s agent, to pay the specified amount of money at a specified time.
- 13. Parties to the Draft Maker - Exporter Drawee - Who the draft is presented to (Bank)
- 14. Sight Draft Payable on presentation
- 15. Time Draft Payable at a future date 30, 60, 90, or 120 days
- 16. Banker’s Acceptance Once a draft has been accepted by a bank Trade Acceptance Once a draft has been accepted by a business firm
- 17. Time Draft Negotiable Can sell Discount 9% for 120 days = 3%
- 18. Time Draft What would a $100,000 draft at 90 days be worth at 8%? 90 ÷ 360 = 1/4 8% ÷ 4 = 2% $100,000 x 98% = $98,000
- 19. Bill of Lading A document issued to the exporter by the common carrier transporting the merchandise. It serves as a receipt, a contract, and a document of title
- 20. Bill of Lading Negotiable I can sell to a bank
- 21. Exporter Importer 2. Exporter agrees to fill order 1. Importer orders goods 6. Goods shipped to Saudi 3. Importer arranges letter of credit 7. Exporter presents draft to bank 13. Importer agrees to pay bank in 90 days 11. Exporter sells acceptance draft to bank at discount Importer Exporter Bank Bank 5. U.S. bank informs exporter of L/C 4. Saudi bank send L/C to U.S. Bank 8. U.S. bank presents draft and bill of lading to Saudi bank 9. Saudi bank accepts draft and returns to U.S. bank 10. U.S. bank informs Exporter of acceptance 12. Saudi bank informs importer of arrival of documents. 14. U.S. bank collects payment from Saudi bank in 90 days
- 22. Import-Export Banks Provides aid in financing
- 23. Manage Risk L/C Export Credit Insurance
- 24. Countertrade Trade goods for goods No cash in transaction Barter No foreign exchange currency
- 25. Boeing sells ten 747s to Saudi Arabia for crude oil
- 26. Countertrade Barter Counterpurchase Offset Coupons or Credits Switch Trading - Buying coupons Buybacks - Take percent as
- 27. Countertrade - Advantages Creates an option Government requires Creative Competition
- 28. Countertrade - Disadvantages Cash is always preferred Inferior quality goods Have to resell the traded goods
- 29. Countertrade Good for large multinationals Japan - sogo shosha