Exporting and Countertrade
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This document discusses exporting and countertrade as foreign market entry strategies. It begins with an overview of different types of international business activities including exchanges of products, equity/ownership-based activities, and contractual relationships. Exporting is described as manufacturing in one country and conducting marketing, distribution, and customer service in foreign export markets. Key advantages are low cost and flexibility, while disadvantages include sensitivity to trade barriers and exchange rates. Major exporting countries and their key industries are identified.
Exporting and Countertrade
- 1. 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 [email protected] Ercan TURGUT ² [email protected] Antonia FICOVA ³ [email protected] 21 April, 2011
- 2. 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
- 3. 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
- 4. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations An overview of foreign market entry strategies 1. Exchange of Products • Global sourcing • Exporting • Countertrade
- 5. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations An overview of foreign market entry strategies 2. Equity or Ownership-Based IB Activities • Typically involve foreign direct investment (FDI) and equity-based collaborative ventures.
- 6. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations An overview of foreign market entry strategies 3. Contractual Relationships • Contractual relationship are most commonly referred to as licensing or franchising
- 7. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations 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.
- 8. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations The internationalization of the firm Figure 1: Typical stages in firm internationalization
- 9. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations 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.
- 10. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign 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
- 11. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy Figure 2: A Systematic Approach to Exporting
- 12. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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
- 13. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy • 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
- 14. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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
- 15. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html, 2010 Exporting as a foreign market entry strategy 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
- 16. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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.
- 17. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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
- 18. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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%
- 19. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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)
- 20. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Exporting as a foreign market entry strategy 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
- 21. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations 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.
- 22. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Managing export-import transactions Export documentation II. •Shipper's export declaration•Certificate of origin •Bill of lading •Insurance certificate
- 23. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Managing export-import transactions •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)
- 24. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Managing export-import transactions Figure 8: Incoterms: Examples of how transport obligations, costs and risks are shared between the buyer and the seller
- 25. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Methods of payment in exporting and importing •Cash in Advance •Open Account •Letter of Credit
- 26. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations 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
- 27. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Cost and sources of export – import financing •Commercial banks •Distribution channel intermediaries •Buyers and Suppliers •Government assistance programs Sources of Export Financing
- 28. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations 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
- 29. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediaries Figure 10: Criteria for evaluating export intermediaries
- 30. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations 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/
- 31. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediariesCountertrade Figure 11: Countertrade transaction
- 32. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediariesCountertrade 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
- 33. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediariesCountertrade •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
- 34. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediariesCountertrade Source: http://www.mbs.murdoch.edu.au/workingpapers/171.html Figure 12: The Complex Web of Countertrade Transactions
- 35. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediariesCountertrade Figure 13: Countertrade Practice Source: http://enbv.narod.ru/text/Econom/ib/str/191.html, 2010
- 36. KÖKDERE, T., TURGUT, E., FICOVA, A. (2011), Exporting and Countertrade, International business operations Identifying and working with foreign intermediaries 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 [email protected] Ercan TURGUT ² [email protected] Antonia FICOVA ³ [email protected] 21 April, 2011