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

Chapter 13 - Export import management. The main goals of this chapter are to: Describe the ‘nuts and bolts’ of exporting, and how basic export–import transactions work, uderstand the role of INCOTERMS in export–import operations, examine the main methods of payment in an international sale, outline the main form of trade financing techniques (e.g. credit, factoring, forfaiting),...

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 International Sale of Goods Contract – exporter and importer Letter of Credit (L/C) – importer and importer’s bank Bill of Lading – carrier and exporter (under CFR/CIF) or with the importer (under an FOB sale) 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 requiring prices in export markets that yield higher returns that are available in domestic market ‘one-price’ strategy pricing to yield lower returns, at least in short run 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 years) • Medium term (2–5 years) • Long term (over 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 – 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