Exporting and Countertrade

Exporting and countertrade
¹ Department of International Trade and Finance, Yasar University, Izmir, TURKEY
² Department of International Trade and Finance, Yasar University, Izmir, TURKEY
³ Department of International Business, Paneuropean University, Bratislava, SLOVAKIA
Tuncay KÖKDERE ¹
tuncay.kkdr@gmail.com
Ercan TURGUT ²
ercn.trgt@gmail.com
Antonia FICOVA ³
antonia.ficova@yahoo.com
21 April, 2011

OUTLINE
• An overview of foreign market entry strategies
• The internationalization of the firm
• Exporting as a foreign market entry strategy
• Managing export-import transactions
• Methods of payment in exporting and importing
• Cost and sources of export – import financing
• Identifying and working with foreign intermediaries
• Countertrade
KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations

An overview of foreign market entry strategies
1.International transactions that
involve the exchange of
products
2. Equity or ownership-based
international business activities
3. Contractual relationships

1. Exchange of Products
• Global sourcing
• Exporting
• Countertrade

2. Equity or Ownership-Based IB Activities
• Typically involve foreign direct investment (FDI) and equity-based
collaborative ventures.

3. Contractual Relationships
• Contractual relationship are most commonly referred to as licensing
or franchising

The internationalization of the firm
Factors relevant to choice of foreign market entry strategy
• The goals and objectives of the firm,
• Resources and capabilities;
• Unique conditions in the target country,
• Risks,
• Competition,
• The characteristics of the product or service.

The internationalization of the firm
Figure 1: Typical stages in firm internationalization

Exporting as a foreign market entry strategy
• The firm manufactures in one country (usually the home country)
conducts marketing, distribution, and customer service activities in a
foreign export market.
• As an entry strategy, exporting is very flexible
• Both small and large firms rely on exporting as a relatively low-cost,
low-risk market entry strategy.

• Firms in virtually all services – producing industries market their
offerings in foreign countries.
• Pure services
• Retailers offer their services by establishing retail stores abroad, that
is, via FDI
Services are exported as well

Figure 2: A Systematic Approach to Exporting

Figure 3 : Nets Sales per industry January – June 2010
Source: http://www.knowit.se/About-Know-IT/Investor-Relations/Reports/INTERIM-REPORT-JANUARY—JUNE -
2010/Nets Sales per industry January – June 2010

• Increase sales and profits
• Increase economies of scale
• Diversify customer base,
reducing dependence on the
home market
• Stabilize fluctuations in sales
associated with economic
cycles or seasonality
• Low cost entry strategy
• Minimal risk
• Maximal flexibility
• Develop useful foreign
relationships
•Requires firm to acquire new
capabilities and redirect
organizational resources
•Sensitive to tariffs and other
trade barriers
•Sensitive to exchange rate
fluctuations
•Compared to FDI, firm has
fewer opportunities to learn
about customers, competitors,
and the marketplace
Disadvantages of exportingAdvantages of exporting

Indirect Exporting
• Contracting with
intermediaries in the firm’s
home country to perform
export functions, such as an
Export Management
Company (EMC) or a
Trading Company. These
intermediaries assume
responsibility for finding
foreign buyers, shipping
products, and getting paid.
Direct Exporting
•Contracting with
intermediaries located in the
foreign market to perform
export functions, such as
distributors or agents. They
perform downstream value-
chain activities in the target
market.
Indirect versus direct exporting

Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html, 2010
Rank country Exports
Date of
Informat
ion
1 China $ 1,506,000,000,000 2010 est.
2 Germany $ 1,337,000,000,000 2010 est.
3 United States $ 1,270,000,000,000 2010 est.
4 Japan $ 765,200,000,000 2010 est.
5 France $ 508,700,000,000 2010 est.
6 Korea, South $ 466,300,000,000 2010 est.
7 Italy $ 458,400,000,000 2010 est.
8 Netherlands $ 451,300,000,000 2010 est.
9 Canada $ 406,800,000,000 2010 est.
10 United Kingdom $ 405,600,000,000 2010 est.
32 Turkey $ 117,400,000,000 2010 est.
46 Slovakia $ 64,180,000,000 2010 est.
Figure 4: Leading exporters in world merchandise trade

Exporting Countries: Major Export Countries In The World
1. China: Major industries include mining and ore processing, iron and steel,
aluminum, coal, machinery, automobiles and other transpiration equipment
including rail cars, electronics and toys.
2. Germany: is the leading producer of wind turbines and solar power technology in
the world.
3. United States: is the world’s number one producer of electrical goods and nuclear
energy, it also produces liquid natural gas, sulphur, phosphates and salt.
4. Japan: main exports are transportation equipment, motor vehicles, electronics,
electrical machinery and chemicals.
5. France: machinery, transportation equipment, pharmaceutical products and
chemicals are its main export goods.
6. Netherlands: The major exports of Netherlands are agricultural products. It also
exports a quarter of all world tomatoes, and one-third of the world’s Exports of
peppers and cucumbers.

Exporting Countries: Major Export Countries In The World
7. Italy: major exports are motor vehicles (Fiat Group, Aprillia), chemicals, and
electric technology, but the country’s more famous exports are in the fields of
fashion, food industry, luxury and motor yachts.
8. South Korea: Major industries in South Korea today are automobiles,
semiconductors, electronics, shipbuilding and steel. South Korea’s shipbuilding
industry is the largest in the world.
9. United Kingdom: The chemical and pharmaceutical industry is strong in the UK,
with the world’s second and sixth largest pharmaceutical firms (GlaxoSmithKline
and AstaZeneca, respectively).
10.Hong Kong is world’s tenth largest exporting country with a revenue of $ 326.9
billion. It has a gone up in the list of top ten exporting countries by pushing Canada
behing.
Source:http://www.zimbio.com/member/Exporting+Countries+Major+Export+Countries, 2010

Figure 5: Top 10 number of global export companies online by region
Number of global export companies by country - Total of 108 828 companies
Source: http://www.exportbureau.com/global_world_trade_statistics.html, 2010
Korea
1%
Russia
4%
India
8%
Taiwan
4%
Pakistan
3%
Hong Kong
1%
United States
3%
Rest Of World
12%
China
60%

Figure 6: China's Top 20 Import and Export Companies
Source: http://www.chinavista.com/business/500/home.html, 2010
1 China National Technical Imp. & Exp. Corp. 11 China National Cereals,Oils & Foodstuffs Imp. & Exp. Corp.
2 China National Textiles Imp. & Exp. Corp. 12 China National Metals and Minenals Imp. & Exp. Corp.
3
China National Electronics Imp. & Exp. Corp.
13
China Aviation Supplies Corporation
4 Norinco 14 China National Machinery Imp. & Exp. Corp.
5
China National Arts & Crafts Imp. & Exp. Corp.
15
China Petro-Chemical International Company
6
China National Tobacco Imp. & Exp. Corp.
16
China Iron and Steel Industry and Trade Group Corporation
7
China National Silk Imp. & Exp. Corp.
17
China National Aero-Technology Imp. & Exp. Corp.
8 China National Packaging Imp. & Exp. Corp. 18 Shanghai Foreign Trade Corporation
9 China National Native Produce & Animal By-Products Imp. & Exp. Corp. 19 China Ocean Shipping (Group) Company
10 China National Chemicals Import & Export Corporation 20 Guang Dong Light Indusirlal Products Imp. & Exp. Corp.(Group)

Figure 7: Search Trade Leads
The following are new, pre-qualified trade opportunities for foreign companies
Source: http://www.export.gov/eac/show_short_trade_leads.asp?Country, 2010
Kazakhstan Purchase of medical equipment.
Japan
Japanese company intends to purchase U.S. water hardness moniors and
checkers.
India
Indian machine tool manufacturing company/ies in need of hydrostatic
bearings technology
Morocco Seeking to represent U.S plastic manufacturer in Morocco
El Salvador Salvadoran Company seeking suppliers of Traffic Lights
Nicaragua Packaging Machinery for tea-like substances in filters with multiple settings.
Guyana Denton L. Park is seeking for a corn processing machine

Managing export-import transactions
•The official forms and other paperwork required to transport
exported goods and clear customs.
•Quotation or pro forma invoice
•Commercial invoice
•Packing list
Export documentation I.

Export documentation II.
•Shipper's export declaration•Certificate of origin
•Bill of lading
•Insurance certificate

•A system of universal, standard
terms of sale and delivery.
•Commonly used in international
sales contracts and price lists to
specify how the buyer and the
seller share the cost of freight and
insurance, and at which point the
buyer takes title to the goods.
Incoterms (International Commerce Terms)

Figure 8: Incoterms: Examples of how transport obligations, costs and risks are
shared between the buyer and the seller

Methods of payment in exporting and importing
•Cash in Advance
•Open Account
•Letter of Credit

Methods of payment in exporting and importing
Figure 9: Letter of credit cycle
Source: http://www.frbatlanta.org/pubs/econsouth/econsouth_vol_11_no_1_credit_storm_sinking_global_trade.cfm?
redirected=true

Cost and sources of export – import financing
•Commercial banks
•Distribution channel
intermediaries
•Buyers and Suppliers
•Government assistance
programs
Sources of Export Financing

Identifying and working with foreign intermediaries
•Country and regional business directories
•Trade associations
•Government ministries and agencies.
•Commercial attachés
•Branch offices of government agencies
Sources of information to identify potential intermediaries

Figure 10: Criteria for evaluating export intermediaries

Identifying and working with foreign intermediariesCountertrade
• At times, standard goods-for-cash payment structures do not work, are
cumbersome, expensive, or simply impossible. In these cases,
companies can adopt countertrade.
• Countertrade involves the exchange of goods in barters or other ways
in place of money.1
• There are four important reasons why countertrade is a vital part of
overall international trade:2
• To develop hard currency
• To acquire more advanced techniques
• To enter new markets
• To improve a negative balance of trade
1
Source: http://www.economywatch.com/international-trade/export-import-countertrade-finance-and-strategy.html
2
Source: http://exporters-sources.com/countertrade/

Figure 11: Countertrade transaction

1. Barter
2. Counterpurchase
3.Offset
4.A buyback
5.Switch-trading 3
3
Source: http://www.economywatch.com/international-trade/export-import-countertrade-finance-and-
strategy.html

•Caterpillar received caskets from Colombian customers and wine from
Algerian customers in return for selling them earthmoving equipment.
•Coca-Cola received tomato paste from Turkey, oranges from Egypt,
and beer from Poland, in exchange for Coke.
•Countertrade was common in the US-Soviet Union in the 1960s when
its currency was nonconvertible. It was their only means of purchasing
foreign goods.
•One example of countertrade was when the US-SU paid Coca-Cola in
vodka. Poland did the same with Coca-Cola but paid in beer.
Source: http://www.economywatch.com/international-trade/export-import-countertrade-finance-and-strategy.html
Examples of Countertrade

Source: http://www.mbs.murdoch.edu.au/workingpapers/171.html
Figure 12: The Complex Web of Countertrade Transactions

Figure 13: Countertrade Practice
Source: http://enbv.narod.ru/text/Econom/ib/str/191.html, 2010

Exporting and countertrade
¹ Department of International Trade and Finance, Yasar University, Izmir, TURKEY
² Department of International Trade and Finance, Yasar University, Izmir, TURKEY
³ Department of International Business, Paneuropean University, Bratislava, SLOVAKIA
THANK YOU FOR YOUR ATTENTION
Tuncay KÖKDERE ¹
tuncay.kkdr@gmail.com
Ercan TURGUT ²
ercn.trgt@gmail.com
Antonia FICOVA ³
antonia.ficova@yahoo.com
21 April, 2011

Exporting and Countertrade

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