Lecture International trade and investment (2/e): Chapter 13 - John Gionea

Chapter 13
Export–import management

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–1


Lecture plan
• Negotiation of an international sale
• Main methods of payment
• Trade finance techniques
– credit, factoring, forfeiting, counter trade
• Australia’s exporters
• Export management in a multinational company
• Exports of small and medium enterprises

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–2


Major steps in the negotiation of an
international sale

Exporter
in
Country
A

1.Enquiry
 2. Quotation/offer
 3. Order

          4. Order acceptance/contract

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

Importer
in
Country
B

13–3


Incoterms
Incoterms 2000
• EXW
Ex-Works
• FCA
Free Carrier

• FAS
Free Alongside Ship
• FOB
Free on Board
• CFR
Cost and Freight
• CIF
Cost, Insurance and Freight

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–4


The four contractual relationships
1. International Sale of Goods Contract
– exporter and importer
2. Letter of Credit (L/C)
– importer and importer’s bank
3. Bill of Lading
– carrier and exporter (under CFR/CIF) or with
the importer (under an FOB sale)
4. Insurance contract
– insurance company and exporter (CIF) and
importer (CFR/CIF)
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–5


Export marketing issues
Channels of distribution
• National market: producer-export agent-import
agent-major wholesaler-small wholesaler
• Modus operandi is different
Pricing
1. requiring prices in export markets that yield higher
returns that are available in domestic market
2. ‘one-price’ strategy
3. pricing to yield lower returns, at least in short run
4. pricing to sell production in excess of domestic
needs
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
13–6
 


Trade financing: methods of
payment
• Cash in advance
• Documentary letters of credit
– revocable credits
– irrevocable credits

– confirmed credits
• Draft (bill of exchange): the instrument normally
used in international commerce to effect
payment.
– drawer (‘maker’) and drawee
– sight drafts and time drafts
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–7


Export sale with payment by L/C

European
Importer

AUSTRALIAN 
EXPORT SALE 
TO EUROPE

European 
Bank

ANZ 
BANK

Aussie Exporter

L /  C

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–8


Trade financing: bank finance
• Credit to importer
– supplier credit (by the exporter)
– buyer credit (directly to the foreign
buyer)
• Short term (up to 2 years)
• Medium term (2–5 years)
• Long term (over 5 years)

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–9


Trade financing: non-bank finance
• Government loans and guarantees (export credit

insurance): EFIC, COFACE
• Factoring
– factor buys export receivables at a discount
of 2–4%
– exporter ultimately liable in case of default
• Forfeiting
– non-recourse export finance
– guarantee (avail) from importer's government
• Countertrade
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–10


Countertrade
• Main forms
– barter
– counter purchase
– buyback (compensation)
– offsets (local content)
• Proactive vs reactive counter trade
• Disadvantages: time-consuming; costly

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–11


Government loans and guarantees
• Export credit insurance-guarantee
programs
• France: over 20% of exports
• Japan: low interest loans to export
companies
• Brazil: favourable exchange rates to
exporters
• US–EXIMBANK
– ‘mixed credit’
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–12


Australian exporters
• Small size by international standards
– top 50 Australian exporters (median:
US$300m)
– top 50 US exporters (median: US$1.3
billion)
• Primary products dominate the top 50 placings
• ETMs: the fastest growing export sector

– 150 ‘born-global’ ETM exporters
• Foreign ownership plays a dominant role

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–13


Selected indicators regarding top 50
exporters in Australia and Canada

Range of exports sales
(US$ million)
Median of export sales for
top 50 (US$ million)
Break-down of top 50
exporters by main export
line (% out of 50)
­ primary products (%)
­ machinery & equipment
(%)
­ other manufactures (%)
­ services (%)

Australia
(1996–97)

Canada
(1999)

4300–250

4000–160

570

510

68
10
12
10

10
28
48
14

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–14


Export management for the MNE

• More international options
(exports and foreign production)
• Exports of complete products or only parts
• Changes in foreign business strategy
(step 5 – business plan)
– exports to MNEs affiliates
– choice of foreign currency
– transfer pricing
• More local market knowledge than non-MNEs

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–15


SMEs in global business activities
• Worldwide: 37,000 transnational
enterprises with over 205,000 affiliates
• Contribution of SMEs to nation's exports
– Taiwan
60%
– Denmark
50%
– Sweden
30%
– France
26%

– Australia
<10%
Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–16


Australia's small and medium
enterprises
• Total number of Australian SMEs: about 530,000
• Internationalised small and medium enterprises
(ISMEs)
– number of ISMEs: at least 4500
– international turnover: A$6.5 b.
– direct domestic employment: about 40,000
– over 20% turnover from global operators
– active in at least 5 countries (mainly SE Asia)

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–17


Import management

• Importing a neglected aspect of
international business strategy
• Importing channels: direct and indirect
• Importing a part of the purchasing function
• MNE imports from off-shore manufacturing
affiliates

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment:
An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

 

13–18