Exporting, Importing, and

Countertrade
Discussion Section
March 23, 2007
Brian Chen

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

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

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?

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.

Megahertz: Question 2

Does Megahertzs strategy for

building exports make sense given
the nature of the broadcast
industry? Why?

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.

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?

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.

Megahertz: Question 4

Megahertz solved its financing

problem by selling the company to
AZCAR of Canada. What other
solutions might the company have
adopted?

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.

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?