Chapter 15 Outline

Introduction

In the previous chapter, we reviewed exporting from a strategic perspective. We considered exporting as just one of a range of strategic options for profiting from international expansion. In this chapter, we are more concerned with the "nuts and bolts" of exporting (and importing). We take the choice of strategy as a given and look instead at how to export.

As we can see from the opening case, exporting is not an activity just for large multinational enterprises; many small firms such as Artais have benefited significantly from the moneymaking opportunities of exporting. In the United States, for example, small firms with less than 500 employees sold $186 billion to customers in other countries in 1997. Although small firms account for only 30 percent of the value of the nation's exports, they represent 96 percent of all firms involved in exporting.¹ The situation is similar in several other nations. In Germany, for example, companies with less than 500 employees account for about 30 percent of that nation's exports.²

Evidence suggests that the volume of export activity in the world economy, by firms of all sizes, is likely to increase in the near future. One reason is that exporting has become easier. The gradual decline in trade barriers under the umbrella of GATT and now the WTO (see Chapter 5) along with regional economic agreements such as the European Union and the North American Free Trade Agreement (see Chapter 8) have significantly increased export opportunities. At the same time, the advent of modern communications and transportation technologies has alleviated the logistical problems associated with exporting. Firms are increasingly using fax machines, the World Wide Web, international 800 numbers, and international air express services to reduce the costs of exporting. Consequently, it is no longer unusual to find small companies such as Artais that are thriving as exporters.

Nevertheless, exporting remains a challenge for many firms. While large multinational enterprises have long been conversant with the steps that must be taken to export successfully, smaller enterprises can find the process intimidating. The firm wishing to export must identify foreign market opportunities, avoid a host of unanticipated problems that are often associated with doing business in a foreign market, familiarize itself with the mechanics of export and import financing, learn where it can get financing and export credit insurance, and learn how it should deal with foreign exchange risk. The whole process is made more problematic by the fact that many countries' currencies are not freely convertible. As a result, there is the problem of arranging payment for exports to countries with weak currencies. This brings us to the complex topic of countertrade, by which payment for exports is received in goods and services rather than money. In this chapter, we will discuss all these issues with the exception of foreign exchange risk, which was covered in Chapter 9. We open the chapter by considering the promise and pitfalls of exporting.