Chapter 15 Outline

Chapter Summary

In this chapter, we examined the steps that firms must take to establish themselves as exporters. This chapter made the following points:

1. One big impediment to exporting is ignorance of foreign market opportunities.

2. Neophyte exporters often become discouraged or frustrated with the exporting process because they encounter many problems, delays, and pitfalls.

3. The way to overcome ignorance is to gather information. In the United States, a number of institutions, most important of which is the US Department of Commerce, can help firms gather information and in the matchmaking process. Export management companies can also help an exporter to identify export opportunities.

4. Many of the pitfalls associated with exporting can be avoided if a company hires an experienced export management company, or export consultant and if it adopts the appropriate export strategy.

5. Firms engaged in international trade must do business with people they cannot trust and people who may be difficult to track down if they default on an obligation. Due to the lack of trust, each party to an international transaction has a different set of preferences regarding the configuration of the transaction.

6. The problems arising from lack of trust between exporters and importers can be solved by using a third party that is trusted by both, normally a reputable bank.

7. A letter of credit is issued by a bank at the request of an importer. It states that the bank promises to pay a beneficiary, normally the exporter, on presentation of documents specified in the letter.

8. A draft is the instrument normally used in international commerce to effect payment. It is 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.

9. Drafts are either sight drafts or time drafts. Time drafts are negotiable instruments.

10. A bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves as a receipt, a contract, and a document of title.

11. US exporters can draw on two types of government - backed assistance to help finance their exports: loans from the Export - Import Bank and export credit insurance from the FCIA.

12. Countertrade includes a whole range of barterlike agreements. It is primarily used when a firm exports to a country whose currency is not freely convertible and who may lack the foreign exchange reserves required to purchase the imports.

13. The main attraction of countertrade is that it gives a firm a way to finance an export deal when other means are not available. A firm that insists on being paid in hard currency may be at a competitive disadvantage vis-à-vis one that is willing to engage in countertrade.

14. The main disadvantage of countertrade is that the firm may receive unusable or poor-quality goods that cannot be disposed of profitably.