Exporting, Importing, and Countertrade

1 Explain the promises and risks associated with exporting.

2 Identify the steps managers can take to improve their firm’s export performance.

3 Identify information sources and government programs that exist to help exporters.

4 Recognize the basic steps involved in export financing.

5 Describe how countertrade can be used to facilitate exporting.

opening case SteelMaster Buildings

SteelMaster Buildings designs, manufactures, and supplies prefabricated arched steel structures that are used for anything from basic residential storage facilities to complex aircraft hangers. A small private company, SteelMaster first ventured into the export market in 2006. Its motivations were straightforward. Domestic competition was intense, and SteelMaster saw foreign markets as the best way of expanding sales. The company believed that its expertise in designing high-quality arched steel structures would serve it well in foreign markets where there were few indigenous competitors with the same capabilities. Moreover, by optimizing its manufacturing systems and logistics chain, SteelMaster was able to lower its cost structure and be competitive on pricing. The combination of high quality, the ability to produce customized designs, and competitive pricing helped to create demand for the company’s products.

Today, export sales account for 15 percent of the company’s revenues. The Virginia Beach company estimates that it has sold more than 40,000 buildings worldwide in more than 40 countries. Much of the growth is through a distribution network that now encompasses 50 countries. Not only do the distributors work to drive sales, they also provide in-country customer service and technical assistance. In addition, they are key to providing SteelMaster with feedback in specific markets.

One thing that helped SteelMaster grow its export business was to have someone who was dedicated to developing the international businesses. To fill this role, the company hired Emma Granada, whose fluency in Spanish and French has been a strong attribute. It also helped that the U.S. dollar has been relatively weak for some years now, increasing SteelMaster’s price competitiveness.

To navigate its foray into the world of exporting, SteelMaster drew on a variety of resources, including the Virginia Economic Development Partnership and the U.S. Commercial Service. The U.S. Commercial Service invited the company to events where company executives met representatives from U.S. embassies around the world. SteelMaster quickly realized that there was a strong network in place to help small businesses export. According to the company, this resource helped the company to better understand the markets it was targeting for exports. Without such help, it would have been limited to cold-calling prospects.

On the marketing side, to supplement its in-country distributors, SteelMaster has used a website to reach more international prospects. In addition to English, the company has a Spanish language website and introductory pages in Arabic, French, Portuguese, Romanian, and Korean, among others. By bidding for key words on search engines such as Google and Bing, SteelMaster has found that it has been able to drive traffic to its website—and that enhances people’s understanding of the product and can ultimately translate into sales.•

Sources: L.L. Sowinski, “And the Winner Is…”, World Trade, January 2011, pp. 40–42; “Virginia Based Company Wins SBA/VISA Export Video Contest,” U.S. Newswire, November 7, 2011; and “UPS Honors SteelMaster with Global Trade Award,” Business Wire, January 12, 2011.

Introduction

The previous chapter reviewed exporting from a strategic perspective. We considered exporting as just one of a range of strategic options for profiting from international expansion. This chapter is more concerned with the nuts and bolts of exporting (and importing). It looks at how to export. As the opening case makes clear, exporting is not just for large enterprises; many small firms such as SteelMaster have benefited significantly from the moneymaking opportunities of exporting.

The volume of export activity in the world economy has increased as exporting has become easier. The gradual decline in trade barriers under the umbrella of GATT and now the WTO (see Chapter 7) along with regional economic agreements such as the European Union and the North American Free Trade Agreement (see Chapter 9) have significantly increased export opportunities. At the same time, modern communication and transportation technologies have alleviated the logistical problems associated with exporting. Firms are increasingly using the World Wide Web, toll-free phone numbers, and international air express services to reduce the costs of exporting. Consequently, it is not unusual to find thriving exporters among small companies.

ANOTHER PERSPECTIVE Autarky: Not in the Vocabulary of Globalization!

The word autarky [italics added] refers to the belief that a country should be self-sufficient and avoid trade with other nations. Most economists regard autarky as an idealistic, but impractical, goal. Throughout history, countries have tried to achieve autarky, but soon discovered they could not produce the wide range of goods their population wants and make those goods available at competitive prices. In fact, those countries found themselves worse off economically than nations that engage in international trade. Word to the wise: Unless your country can efficiently produce everything it needs, it needs to trade.

Source: “Economics A-Z,” www.economist.com.

Nevertheless, exporting remains a challenge for many firms. 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 process can be made more problematic by currencies that are not freely convertible. Arranging payment for exports to countries with weak currencies can be a problem. Countertrade allows payment for exports to be made through goods and services rather than money. This chapter discusses all these issues with the exception of foreign exchange risk, which was covered in Chapter 10. The chapter opens by considering the promise and pitfalls of exporting.