Exporting, Importing, and Countertrade

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Exporting, Importing, and Countertrade

• Discussion Section
• March 23, 2007
• Brian Chen

2
Chapter 15 Review

• Outline some of the tremendous advantages and
  common pitfalls of exporting
• Identify the primary sources of information
  available to firms interested in exporting
• Describe the "nuts and bolts" of exporting
• L/C, Draft (Bill of Exchange), Bill of Lading
• Suggest how firms can use the EXIM bank and
  insurance to facilitate exports
• Explain in more detail the various types of
  counter trade and the pro and cons of engaging in
  counter trade

3
Megahertz The Facts

• UK-based firm became one of Britains leading
  independent broadcasting system
• Sought to expand in Africa, Middle East, and
  Eastern Europe for their market potential
• Strategy Provided turnkey solution.
• Successful, but cash flow woes. Difficulty
  chasing money to finance orders
• Banks found it too risky to lend bridging funds
  even with L/C and export insurance documentation
• Finally, Megahertz was sold to Canada

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Megahertz Question 1

• What was the motivation for Megahertzs shift
  toward a strategy of export-led growth? Why do
  you think the opportunities for growth might be
  greater in foreign markets? Do you think that
  developing countries are likely to be a major
  market opportunity for Megahertz? Why?

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Answer

• Before exploring international opportunities,
  Megahertz was in mature markets where there was
  plenty of competition. Export-led growth allowed
  for company growth without much competition in
  the export markets. Those opportunities were in
  developing markets that had been underserved, in
  part because the need for broadcast systems was
  itself developing in these countries. As
  countries develop, they will want major broadcast
  capabilities. Such capabilities are important to
  the government and to the growth of the private
  sector.

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Megahertz Question 2

• Does Megahertzs strategy for building exports
  make sense given the nature of the broadcast
  industry? Why?

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Answer

• Megahertz pursued a turnkey export strategy.
  They would build the broadcast operation and then
  turn it over to the customer. This made sense
  because there was a shortage of local expertise
  in broadcast engineering in developing markets.

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Megahertz Question 3

• Why do you think Megahertz found it difficult to
  raise the working capital required to finance its
  international trade activities? What does the
  experience of Megahertz tell you about the
  problems facing small firms that wish to export?

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Answer

• Megahertz was selling into markets in developing
  countries whose currency may be unstable and
  whose access to foreign reserves was severely
  limited. The banks that would finance Megahertz
  were concerned that Megahertz might not be paid
  on time or at all by these customers in the
  developing markets. Banks did not want to assume
  this risk. Megahertz had a product for which
  there was demand and the ability to deliver it,
  but their financing picture was considered to be
  too risky by their bankers. This is an issue
  other small exporting firms may need to address
  as well.

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Megahertz Question 4

• Megahertz solved its financing problem by selling
  the company to AZCAR of Canada. What other
  solutions might the company have adopted?

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Answer

• Megahertz could have considered export financing
  schemes supported by the UK and EU, credit
  insurance, taking on additional investors in the
  company, barter and other forms of countertrade,
  among other approaches.

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Exporting Australian Lamb to Saudi Arabia

• You are the director of international sales of an
  Australian lamb company. What are the steps
  would you take to protect yourself against a
  non-paying importer?
• Discuss the cultural imperatives of the Saudi
  Arabian market.
• To what extent are the costs of conforming with
  Halal requirements likely to render the
  Australian product uncompetitive in Saudi Arabia?
• Given the rise of Islamic fundamentalism in an
  increasing number of countries, including some in
  Asia, does expertise in Halal killing provide
  Australia with a long term competitive advantage?
• What are the advantages and disadvantages of
  halal slaughter in comparison with live sheep
  exports?
• If you were promoting Australian chilled lamb in
  Saudi Arabia, what aspects would you focus upon
  in your advertising?