exporting and countertrade

Exporting and countertrade

¹ Department of International Trade and Finance, Yasar University, Izmir, TURKEY² Department of International Trade and Finance, Yasar University, Izmir, TURKEY³ Department of International Business, Paneuropean University, Bratislava, SLOVAKIA

Tuncay KÖKDERE ¹[email protected]

Ercan TURGUT ²[email protected]

Antonia FICOVA ³[email protected]

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 firmFigure 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


Exporting as a foreign market entry strategyFigure 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 ExportsDate 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

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html



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 regionNumber 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.

3China National Electronics Imp. & Exp. Corp.

13China 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

6China National Tobacco Imp. & Exp. Corp.

16China Iron and Steel Industry and Trade Group Corporation

7China National Silk Imp. & Exp. Corp.

17China 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 LeadsThe 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.

JapanJapanese company intends to purchase U.S. water hardness moniors and checkers.

IndiaIndian 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)


Managing export-import transactionsFigure 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.html2 Source: http://exporters-sources.com/countertrade/


Identifying and working with foreign intermediariesCountertrade

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, TURKEY² Department of International Trade and Finance, Yasar University, Izmir, TURKEY³ Department of International Business, Paneuropean University, Bratislava, SLOVAKIA

THANK YOU FOR YOUR ATTENTION

Tuncay KÖKDERE ¹[email protected]

Ercan TURGUT ²[email protected]

Antonia FICOVA ³[email protected]

21 April, 2011

exporting and countertrade

Business

foreign export market

international transactions

foreign countries

lowrisk market entry

ercan turgut

antonia ficova

firm internationalization

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