International marketing strategy and theory ch17

Chapter 17

Pricing Strategies:
Countertrade and Terms
of Sales/Payment


Chapter Outline
 Countertrade

- Types of Countertrade
- Problems and Opportunities
 Price Quotation
 Terms of Sale
- Trade Terms
- Quotation Guidelines


Chapter Outline
 Methods

-

of Financing and Means of payment
Consignment
Open Account
Cash in Advance
Bill of Exchange (Draft)
Bankers' Acceptance
Letter of Credit

Countertrade
 goods

for goods trade (vs. monetary trade)
 government mandate to pay for goods and
services with something else other than cash


Countertrade
Advantages
 serving as trade financing
 buyer getting rid of surplus of own products
 no concern for fluctuation of exchange rates


Countertrade
Disadvantages
 cumbersome and time-consuming
 costly
 inferior form of exchange
- requiring "double coincidence of wants"


Types of Countertrade
Barter
- single transaction of direct exchange of products of
equal value
 Counterpurchase (Parallel Barter)
- two transactions of cash sales agreements (of

unrelated products)
 Compensation Trade (Buyback)
- products sold and later bought by a party are related



Types of Countertrade
Offset
- for the rights to sell its product in a foreign market,
the seller must manufacture the product locally (in
the host country)
 Clearing Agreement
- line or credit established in central banks of two
countries
- use "clearing account units" for exchange of
products



Trade Terms








-

EXW (Ex Works)
price of product only; nothing else being included
FAS (Free Alongside Ship)
EXW + local transportation in seller's country
FOB (Free on Board)
FAS + loading onto the vessel
CFR (Cost & Freight)
FOB + international transportation


Trade Terms
 CIF

(Cost, Insurance, and Freight)
- CFR + insurance
 DEQ (Delivered Ex Quay)
- CIF + unloading
 DDP (Delivered Duty Paid)
- DEQ + local transportation in buyer's country


Methods of Financing &
Means of Payment
 Consignment
 Open

Account
 Cash in Advance
 Bill of Exchange (Draft)
- Sight Draft

- Time Draft


Methods of Financing &
Means of Payment
 Bankers'

Acceptance
 Letter of Credit (L/C)
- Revocable vs. Irrevocable
- Unconfirmed vs. Confirmed
- Standby
- Back-to-Back
- Transferable


Export Payment Terms and Risk Level
 Open

account (highest risk for exporter)
 Sight draft
 Time draft
 Irrevocable L/C
 Confirmed irrevocable L/C
 Cash in advance (least risk)


Export Payment Terms and Cost
 Open

account (least cost for importer)
 Sight draft
 Time draft
 Irrevocable L/C
 Confirmed irrevocable L/C
 Cash in advance (highest cost)


L/C: Advantages/Disadvantages
 Advantages
–
–

Security (for both parties)
Seller receiving early payment by discounting L/C

 Disadvantages
–
–

Lacking flexibility
Complex and potentially costly