exporting, importing, and counter trade
TRANSCRIPT
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and CountertradeRichard V. Simangan, Ph.D. BA Student
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The German Export Machine
• German economy is only about one-quarter size of the US economy and roughly half the size of Japan;
• In 1990, Germany racked up $421B of exports against US $394B and Japan’s $286B
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The German Export Machine
• A striking thing about Germany’s export machine is the role played by small firms –referred to in Germany as the Mittelstand.
• Success factors:
(1) export infrastructure
(2) export orientation of small
German firms
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Exporting
• The business, activity or process of bringing, shipping or selling the goods or services outside the country or to a foreign country
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Importing
• The business, activity or process of bringing the goods or services inside the country
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Countertrade
• Payment for exports is received in goods and services rather than money.
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Exporting
The firm wishing to export must:
1. Identify foreign market opportunities
2. Familiarize itself with the mechanics of export and import financing
3. Learn how it should deal with foreign exchange risk.
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Exporting
• One of the biggest impediments to exporting is ignorance of foreign market opportunities.
• The way to overcome ignorance is to collect information.
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Advantages of Exporting
1. It avoids the cost of establishing manufacturing operations in the host country.
2. It may help a firm achieve experience curve and location economies.
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Disadvantages of Exporting
1. It may not be appropriate if there are lowest-cost locations for manufacturing the product abroad.
2. High transport cost can make exporting uneconomical, particularly for bulk products.
3. Tariff barriers can make it uneconomical.
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Export and Import Financing
Lack of Trust• Firms engaged in international
trade face the problem of having to trust someone they may never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he or she defaults on an obligation.
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Financial Devices
Letter of Credit (L/C)• This is issued by a bank at the
request of an importer. It states that the ban will pay specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents.
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Simple L/C Process
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Financial Devices
Draft• Is sometimes referred to as a bill
of exchange.• It is normally used in international
commerce to effect payment.• It is simply an order written by an
exporter instructing an importer, or an importer’s agent, to pay a specified amount of money at a specified time.
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Financial Devices
Bill of Lading• This is issued to the exporter by
the common carrier transporting the merchandise.
• It serves 3 purposes: as a receipt, a contract, and a document or title
• As a receipt, it indicates that the carrier has received the merchandise described on the face of the document
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Financial Devices
Bill of Lading• As a contract, it specifies that the
carrier is obligated to provide a transportation service in return for a certain charge.
• As a document of title, it can be used to obtain payment or a written promise of payment before the merchandise is released to the importer.
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Export Assistance
Export-Import Bank• Often referred to as Eximbank, is
an independent agency of the US government.
• Its mission is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the US and other countries.
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Export Assistance
Export-Import Bank• It guarantees repayment of
medium and long-term loans
• It has a direct lending operation under which it lends dollars to foreign borrowers for use in purchasing US exports
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Export Assistance
Export Credit Insurance• The lack of letter of credit exposes
the exporter to the risk that the foreign importer will default on payment.
• The exporter can insure against the possibility by buying export credit insurance.
• If the customer defaults, the insurance firm will cover a major portion of the loss.
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Export Figures
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2009 Philippine Exports by Country
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Exports by Country
Rank
Countries Amount Date
# 1 Germany $1,354,000,000,000.00 2007 # 3 China: $1,220,000,000,000.00 2007 # 4 United States: $1,148,000,000,000.00 2007 # 5 Japan: $678,100,000,000.00 2007 # 6 France: $546,000,000,000.00 2007 # 7 Italy: $502,400,000,000.00 2007 # 8 Netherlands: $456,800,000,000.00 2007 # 9 United Kingdom: $442,200,000,000.00 2007
# 10 Canada: $431,100,000,000.00 2007 # 11 Korea, South: $379,000,000,000.00 2007 # 12 Russia: $355,500,000,000.00 2007 # 13 Hong Kong: $345,900,000,000.00 2007 # 14 Belgium: $322,200,000,000.00 2007 # 15 Singapore: $302,700,000,000.00 2007 # 16 Mexico: $271,900,000,000.00 2007 # 17 Spain: $256,700,000,000.00 2007 # 18 Taiwan: $246,500,000,000.00 2007 # 19 Saudi Arabia: $226,700,000,000.00 2007 # 20 Switzerland: $200,100,000,000.00 2007 # 21 United Arab Emirates: $178,900,000,000.00 2007 # 22 Malaysia: $176,400,000,000.00 2007 # 23 Sweden: $170,100,000,000.00 2007 # 24 Austria: $162,100,000,000.00 2007 # 25 Brazil: $160,600,000,000.00 2007
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Rank
Countries Amount Date
# 26 India: $151,300,000,000.00 2007
# 27 Thailand: $151,100,000,000.00 2007
# 28 Poland: $144,600,000,000.00 2007
# 29 Australia: $142,100,000,000.00 2007
# 30 Norway: $140,300,000,000.00 2007
# 31 Czech Republic: $122,300,000,000.00 2007
# 32 Indonesia: $118,000,000,000.00 2007
# 33 Ireland: $115,500,000,000.00 2007
# 34 Turkey: $115,300,000,000.00 2007
# 35 Denmark: $101,200,000,000.00 2007
# 36 Finland: $89,910,000,000.00 2007
# 37 Iran: $88,260,000,000.00 2007
# 38 Hungary: $87,770,000,000.00 2007
# 39 South Africa: $76,190,000,000.00 2007
# 40 Venezuela: $69,170,000,000.00 2007
# 41 Chile: $67,640,000,000.00 2007
# 42 Kuwait: $63,720,000,000.00 2007
# 43 Nigeria: $61,790,000,000.00 2007
# 44 Algeria: $60,510,000,000.00 2007
# 45 Slovakia: $57,530,000,000.00 2007
# 46 Argentina: $55,780,000,000.00 2007
# 47 Portugal: $51,500,000,000.00 2007
# 48 Israel: $50,370,000,000.00 2007
# 49 Ukraine: $49,840,000,000.00 2007
# 50 Philippines: $49,320,000,000.00 2007
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Rank
Countries Amount Date
# 26 India: $151,300,000,000.00 2007
# 27 Thailand: $151,100,000,000.00 2007
# 28 Poland: $144,600,000,000.00 2007
# 29 Australia: $142,100,000,000.00 2007
# 30 Norway: $140,300,000,000.00 2007
# 31 Czech Republic: $122,300,000,000.00 2007
# 32 Indonesia: $118,000,000,000.00 2007
# 33 Ireland: $115,500,000,000.00 2007
# 34 Turkey: $115,300,000,000.00 2007
# 35 Denmark: $101,200,000,000.00 2007
# 36 Finland: $89,910,000,000.00 2007
# 37 Iran: $88,260,000,000.00 2007
# 38 Hungary: $87,770,000,000.00 2007
# 39 South Africa: $76,190,000,000.00 2007
# 40 Venezuela: $69,170,000,000.00 2007
# 41 Chile: $67,640,000,000.00 2007
# 42 Kuwait: $63,720,000,000.00 2007
# 43 Nigeria: $61,790,000,000.00 2007
# 44 Algeria: $60,510,000,000.00 2007
# 45 Slovakia: $57,530,000,000.00 2007
# 46 Argentina: $55,780,000,000.00 2007
# 47 Portugal: $51,500,000,000.00 2007
# 48 Israel: $50,370,000,000.00 2007
# 49 Ukraine: $49,840,000,000.00 2007
# 50 Philippines: $49,320,000,000.00 2007
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Philippine Export News
• Manila Bulletin• Philippine Business Report-J
anuary• Philippine Business Report-F
ebruary
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Philippine Export News
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• Statistics 1• Statistics 2
Import Statistics
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Countertrade
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Countertrade
Non-convertibility of currencies due to government restrictions implies that the exporter may not be able to be paid in his or her home currency.
Countertrade is increasingly the solution of choice for problems posed by non-convertibility.
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Countertrade
• It denotes a whole range of barter-like agreements;
• Its principle is to trade goods and services for other goods and services when they cannot be traded for money.
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Types of Countertrade
Barter• Is the direct exchange of goods
and/or services between 2 parties without a cash transaction.
• Its two-fold problems:– If goods are not exchange
simultaneously, one party ends up financing the other for a period of time
– Firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price.
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Types of Countertrade
Counterpurchase
• Is a reciprocal buying agreement.
• It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made.
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Types of Countertrade
Offset• Is similar to counterpuchase in so
far as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale.
• The difference is that the party can fulfill the obligations with any firm in the country to which the sale is being made.
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Types of Countertrade
Offset
• From the exporter’s perspective, this is more attractive than a straight counterpurchase agreement since it gives the exporter greater flexibility to choose the goods that it wishes to purchase.
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Types of Countertrade
Switch Trading
• Refers to the use of a specified third-party trading house in a countertrade arrangement.
• It occurs when a third-party trading house buys the firm’s counterpurchase credits and sells them to another firm that can make better use of them.
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Types of Countertrade
Compensation or Buy Back
• Occurs when a firm builds a plant in a country –or supplies technology, equipment, training, or other services to the country –and agrees to take a certain percentage of the plant’s output as partial payment for the contract.
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Pros and Cons of Countertrade
• The main attraction of countertrade is that it can give a firm a way to finance an export deal when other means are not available.
• The drawback is that countertrade may involve exchange of unusable or poor-quality goods that the firm cannot dispose of profitably.
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End