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Start

Registration of business

Classification of goods

Banned Liberalized Regulated

End Concerned government

agency

Authorized agent bank

Bureau of customs

Super Green Lane

Ordinary Green Lane

Payment of taxes and duties

Release of shipment

End

© ManagementStudyGuide.com. All rights reserved.Visit https://grandemareopenseatoknowledge.wordpress

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,

Challenges and Opportunities

4International

Trade – Theories and Policies

5Foreign Direct

Investment

6International

Finance

7Strategy of

International Business

8International

Trade and Business

Operations

9Trade

Regulations and Restrictions

Course Objectives


International Trade is an arena in which small and large companies can compete effectively. Modern information and communications technology make it possible to enter the import-export business with a home office and a computer. All one needs is access to a marketable product line

Trade is an indispensable part of a national economy, society would rapidly come to a stand still without trade. It is estimated that a full 20% of the labor force in the U.S. is directly or indirectly employed in the international trade sector

What is International Trade?


1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade


Contents


Globalization

Today, the term “Globalization” has become a catch-phrase, throughout the world. Globalization involves removing restrictions on foreign trade and foreign investment so as to leverage the benefits of comparative advantage in terms of capital, technology, and skilled labor.

Even small scale industries have started to look for foreign markets. It has 2 main components – the globalization of market and globalization of products. The former refers to the fact that in many industries historically distinct and separate national markets are merging into one huge global market place.

The globalization of products refers to the tendency among many firms to source goods and services from different locations around the globe in an effort to take advantage of national difference in cost and quality of the factors of production


International trade refers to dealing with capital, goods, and services across international borders of territories. International trade is present throughout the history, its economic, social, and political importance has been on the rise in recent centuries.

Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system.

Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.

International trade


1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade


Contents

© ManagementStudyGuide.com. All rights reserved.© ManagementStudyGuide.com. All rights reserved.Visit https://grandemareopenseatoknowledge.wordpress

IntroductionWorld Trade Organization (WTO) was formed in 1995. It is the only global international organization dealing with the rule of trade between nations. The objective is to help producers of goods and services, exporters and importers conduct their business. The argument for WTO can be listed as:

The system helps promote peace.

Disputes are handled constructively.

Rules make life easier for all.

Free trade cuts the cost of living.

It provides more choice of product and qualities.

Trade raises incomes.

Trade stimulates economic growth.


International trade and WTO

Leading trading nations entered into the General Agreement on Tariffs and Trade (GATT) in 1947 to ensure orderly, fair and transparent international trade. The fundamental principle of such agreement are:

Most Favored Nation (MFN) – Every signatory will extend to every other signatory member, the same and equal treatment in a non-discriminatory manner.

The second principle is “National treatment” – that imported goods and domestically produced goods will be treated alike, except for payment of customs duty at the time of import


Reforms for growth of foreign trade


Impediments to growth on international trade

Success is still not achieved on non-tariff barriers affecting world trade. Many countries maintain the following 4 categories on non-tariff barriers restricting market access.

Standards, testing,

labeling and certification

Export subsidies

Barriers on services

Lack of intellectual

property protection


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



Trade Related Intellectual Property Rights (TRIPS)

The member of countries of WTO have moved to “product patent regime” under the TRIPS agreement to meet their obligations under the areas covered by the agreement. India’s achievement in this field have been in the passing of TRIPS plus legislations in the field of copyright law.


Trade Related Investment Measures (TRIMS)

Substantial modifications have already been made for the foreign investment regime, increasing the number of sectors where foreign investment can take place and also increasing the foreign equity limit on these investment.


Anti-dumping and safeguards

Anti-dumping and countervailing duties are imposed under the Custom Tariff Act, 1975. The Act and rules are on the lines of the respective GATT agreement on anti-dumping and countervailing duties.


Environment

With the rapid increase in the international trade and consequent increase in cross-border movement of products, the linkages between trade and environment has become an important issue for the international community. GATT/WTO being the chief trade body addressing international trade issues, has taken cognizance of it.

Environment


Removal of Quantitative Restriction (QR)QR refers to limits set by countries to curb imports or exports. This can be in the form of quotas, licensing requirements, or in the form of canalizing of imports.

Under the GATT, imports have to be controlled only through tariffs or customs duties and not through quantitative restrictions such as quotas, licenses etc.

All member countries have to abide by its provisions. There are, however, some exceptions to this rule.

One such exception is that a country can take recourse to QRs on grounds of “Balance of Payments” difficulties.


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



Theories

Theory of Mercantilism

Theory of Absolute Advantage

Theory of Comparative Advantage

Heckscher-Ohlis Theory

Leontief Paradox

Product Life Cycle Theory

Porter’s Diamond Model


Theory of Mercantilism

The doctrine of mercantilism, propagated in the 16th and 17th centuries, advocated that countries should simultaneously encourage exports and discourage imports.

Mercantilism was premised on the notion that exports are per se good because they earn a country gold, while imports are per se bad because they result in outflow of gold.

Consequently, a country should strive to reduce its dependence on imports by producing as much as it could itself.

If one country succeeds in achieving a large export surplus, it can only do so if other countries run as equivalent trade deficit.


Theory of Absolute Advantage

Smith attacked the mercantile-list assumption and argued that countries differ in their ability to produce goods efficiently

The Britain had an absolute advantage in the production of textiles, while the French had an absolute advantage in production of wine. These examples illustrate the principle called “Absolute Advantage”

This theory was propounded by Adam Smith in 1776, states that a country has an absolute advantage in the production of an item when it is more efficient than any other country in producing it.


Theory of Comparative Advantage

Trade based on absolute advantage is easy to understand. But what happens when one country can produce all products with an absolute advantage? Would trade occur?

Here we encounter the doctrine of comparative advantage first introduced by David Ricardo in 19th century. The doctrine emphasizes relative rather than absolute cost difference.

The doctrine demonstrates that mutually advantageous trade can occur when one trading partner has an absolute advantage.

It makes sense for a country to specialize in the production of those goods that it produces less efficiently from other countries.


Heckscher-Ohlin theory

Swedish economists Eli Heckscher and Bertil Ohlin put forward theory of Comparative Advantage. According to this theory, the comparative advantage of a country arises from differences in national factor endowments.

Heckscher-Ohlin theory predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make use of factors that are locally scarer.

The U.S. has long been a substantial exporter of agricultural goods, reflecting in parts its unusual abundance of arable land. In contrast, China excels in the export of goods produced in labor intensive manufacturing industries, such as textiles and foorwear.

This reflects China’s relative abundance of low labor costs. The U.S. which lacks abundance of low labor costs has been a primarily importer of these goods.


The Leontief Paradox

Wassily Leontiff postulated that since U.S. was relatively abundant in capital compared to other nations, the U.S. would be an exporter of capital intensive goods and an importer of labor intensive goods. To his surprise, however, he found that U.S. exports were less capital intensive than U.S. imports. Since this result was at variance with the prediction of the theory, it has become known as Leontief Paradox.


The Product Life Cycle Theory

Raymond Vermon proposed the Product Life Cycle Theory. His observations was that large proportion of the new products were developed by U.S. firms and sold in U.S. market. Vernon argued that most new products were initially produced in the U.S.

Apparently the pioneering firms believed that it is better to keep production facilities close to the market and the firm’s center of decision making, given the risk inherent in introducing new products Product Life Cycle Theory can be demonstrated in cycles as shown in the next slide.


The Product Life Cycle Theory

Sales in own country

Limited sales in other countries

Regular exports from parent country

Production in foreign country

Reverse exports to parent company from foreign country

New product development


Porter’s Diamond model

Michael Porter is a famous Harvard business professor. He conducted a comprehensive study of 100 industries in 10 nations to learn why do some nations succeed in international competition.

Why Indians did well in the software industry?

Why Japanese are doing well in automobile industry?

According to Porter, a nation attains a competitive advantage if its firms are competitive. Porter hypothesizes that 4 broad attributes that shape the environment in which local firms compete.

These 4 attributes constitute ‘Diamond’. They are

Factor conditions

Demand conditions

Related and supporting industries

Firm strategy, structure and rivalry


Porter’s Diamond model

Government Firm strategy, structure and rivalry

Factor conditions Demand conditions

Related and supporting industries


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



Foreign Direct Investment (FDI)

FDI

The flow of FDI could occur through international acquisition or Greenfield investment. When a firm undertakes FDI, it becomes a multinational enterprise. FDI occurs when a company invests in real assets in a foreign country to produce or to market a product.

Acquisitionis a cross border investment in which a foreign investor acquires an established local firm and makes the acquired local firm a subsidiary business within its global portfolio. Greenfield investment may be defined as FDI in which investment involves the establishment of a completely new operation in a foreign land


FDI and developing countries

FDI is the outcome of the mutual interest of multinational firms and host countries.

India as an economy has huge domestic market, a vast pool of low cost skilled and unskilled labor, good legal system, globally accepted management practices and a host of other factors that naturally attract foreign investment.

The developing countries small stock of invested FDI is heavily concentrated in just a few countries, including China plus Latin American countries like Mexico and Brazil.

In developing countries, the FDI is increasingly seen as a useful source of funds.

It is an important source of non-debt inflows which along with financial resources bring in now technology and management expertise.


Trends in FDI

The world in general experienced a dramatic FDI boom beginning in the early 1990s, a trend that countries today, despite the financial crisis, which hit portfolio flows but not FDI. International flows of private capital to most developing countries rose sharply over this period. The surge in global FDI that began in the late 90s gathered pace in 21st century. The major recipient of FDI are China, Brazil, Mexico, Singapore, Thailand, Chile, Poland, and Venezuela.

FDI in India has grown considerably since the process reform began in 1991, with FDI flows from approxi-mately $154 million in 1991, increased every year, peaking to more than $3.8 million in 1997-98. Driven by large cross-border mergers and acquisitions (M&A), these inflows increased by an average of nearly 50 percent a year during 1998–2000, reaching a record $1.5 trillion in 2000. Inflows declined to $729 billion in 2001, mostly as a result of the sharp drop in cross-border M&A among the industrial countries, coinciding with the correction in world equity markets. Worldwide, the value of cross-border M&A declined from the record $1.1 trillion in 2000 to about $600 billion in 2001.


Benefits of FDI

At its most basic levels, investment by multinationals brings capital into the economy.

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More importantly, multinational investment brings in new technologies and new methods of doing business, and increases the set of employment opportunities available to local workers.

It can serve as a powerful force for increasing the skills of labor pool.

FDI helps the host country to build and/or expand various networks such as procurement and marketing networks through the existing organization of the MNC.

FDI also brings the potential for linkages to the domestic economy and increased domestic economic activity through purchase of local inputs and the production of inputs for use by local producers.

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Determinants of FDI

There is no consensus on the relevant determinants of FDI. A few developed countries like U.S., U.K., France, Germany, Other EU countries, Japan, and Canada are the major source of FDI in developing countries. Usually, there are a number of firm-specific and country-specific factors that effect location decisions of individual FDI projects.

Some factors are

Laws, rules and regulations

Administrative procedures and efficiency

Infrastructure related factors

Cost of revenues

Other factors which are not included under the above heads


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



Exchange rate theories

Exchange rate theories

Purchasing power parity theory

Interest rate parity theory or

international Fischer effect


Purchasing Power Parity theory

This theory calculates how much money is needed to purchase the same goods and services in two countries. It is used to calculate foreign exchange rate. Using that PPP rate, an amount of money thus has the same purchasing power in different countries. Among other uses, PPP rates facilitate international comparisons of income, as market exchange rates are often volatile, are affected by political and financial factors that do not lead to immediate changes in income and tend to systematically understate the standard of living in poor countries


Interest Rate Parity Theory

Investors will be indifferent to interest rates available on bank deposits in two countries. Capital mobility and perfect substitutability are two assumptions central to interest rate parity.

Interest rate parity takes on two distinctive forms: uncovered interest rate parity refers to the parity condition in which exposure to exchange rate risk is uninhibited, whereas covered interest rate parity refers to the condition in which a forward contract has been used to cover exchange rate risk.

Each form of the parity condition demonstrates a unique relationship with implications for the forecasting of future exchange rates: the forward exchange rate and the future spot exchange rate.


Exchange rate system

The exchange rate system we see today is the latest stage in a world of continuing change. The system that have preceded the present floating exchange rate system varied between Gold standard and systems in which the U.S. dollar was considered as “good as gold”.


Gold standard

Gold standard established a system of fixed exchange rates between participating countries.

Stable exchange rates were considered a necessary ingredient to increase trade among nations.

Gold served as an automatic adjustment tool for countries experiencing “Balancing of Payments” problems


The Bretten Woods System

The bitter experience of the world war forced many countries to create a stable and multilateral monetary system, which would help in the restoration of international trade. U.S. and U.K. took the lead in this regard and a conference was convened at Bretten Woods in U.S. in July 1944. In accordance, the international Monetary Fund was established in 1946. The exchange rate system under the International Monetary Fund came to be known as “Bretton Woods System”.


Floating rate system

Exchange rate systems vary from fixed exchange rate at one extreme to floating exchange rate at the other. A fixed exchange rate may be set by the Central Bank whereas a floating exchange rate allows the value of the currency to be determined by day-to-day trading in foreign exchange markets, on the basis of market forces, supply and demand for currencies.


International Monetary Fund (IMF)

IMF is an international organization created at the Bretton Woods Conference on July 22, 1944. Its main objective was to stabilize exchange rates and assist the reconstruction of the world’s international payment system post World War II. The IMF works to improve the economies of its member countries. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds on a temporary basis. The organization's stated objectives are to promote international economic cooperation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs. It is headquartered in Washington, D.C.


Factors determining exchange rate

Long-term factors

• Balance of Payments

• Strength of the Economy

• Interest rate

• Inflation

• Fiscal and monetary policies

Short-term factors

• Central bank intervention

• Daily export receipts and import payments

• Foreign investment flows

• Political factor

• Speculation


Foreign exchange risk

Foreign exchange is a risk factor that is often overlooked by small and medium-sized enterprises (SMEs) that wish to enter, grow, and succeed in the global marketplace.

Although most U.S. SME exporters prefer to sell in U.S. dollars, creditworthy foreign buyers today are increasingly demanding to pay in their local currencies.

From the view point of a U.S. exporter who chooses to sell in foreign currencies, foreign exchange risk is the exposure to potential financial losses due to devaluation of the foreign currency against the U.S. dollar.

Obviously, this exposure can be avoided by insisting on selling only in U.S. dollars.


Risk managementThe following are the various reasons for which an organization may go in for risk management

• More effective strategic planning.

• Enhancing shareholder value by minimizing losses and maximizing opportunities.

• A systematic, well-informed and thorough method of decision making.

• Minimized disruptions.

• Better utilization of resources.

• Strengthening culture for continued improvement.


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



Role of Strategy

A firm’s strategy can be defined as “the action managers take to attain the goals of the firm”. To be profitable in a competitive global environment, a firm must pay attention to both reducing the cost of production and to differentiating its product offering. Firms that operate internationally are able to:

Earn a greater return from their skills and core competencies

Realize location economies where they can be performed most efficiently

Realize greater experience curve economies, which reduces the cost of production


Choice of strategy

Firms use strategies to compete in the international markets. These strategies can be classified as

Value creation strategies

Multidomestic strategy

Low-cost strategy

Transnational strategy


Entry strategies

Firms use 6 different modes to enter foreign markets

Turnkey projects

Exporting

Licensing

Franchising

Joint ventures

Wholly owned subsidiaries


Reasons for global market entryThe main reason for a company to enter global markets can be:

To yield potential new opportunities and extend the products life cycle.

Another motive for firms to become multinational into secure the needed resources.

Some of the raw materials like rubber, minerals, petroleum are available in some countries.

In some industries, the technology is driving globalization because of economies of scale. There is a pressure to buy from the lowest cost global suppliers.


Global marketing management

In 1990s it was global integration vs. local responsiveness

1990

In 1980s it was globalization vs. localization1980

1970s In 1970s the argument was framed as standardization vs. adaptation


Benefits of global marketing

• Economies of scale in production and distribution

• Lower marketing costs• Power and scope• Consistency in brand image• Ability to leverage good ideas quickly and

efficiently• Uniformity of marketing practices• Helps to establish relationships outside

of the "political arena"• Helps to encourage ancillary industries to

be set up to cater for the needs of the global player

• Benefits of eMarketing over traditional marketing


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



The operating environment

Viva La difference

The import-export environment differs from that of domestic enterprises because all transactions are cross-border in nature and are thus impacted by international laws and by the national laws and politics of at least two countries that govern the conduct of sellers, buyers, and all other related parties

Confusion and conflict

Aside from confusing assortment of sometimes conflicting laws and regulations, there are logistical constraints on the physical movement of goods. Energy utilization and adaptation specifications vary among countries. There are differences in banking procedures, currency prices, and just about everything else that affects International Trade


The operating environment

Reliance on specialized services

Traders rely on services that specialize in given areas of International Trade. These include, in addition to those named above, cargo surveyors, marine insurers, inspection and quality assurance firms, and government agencies to name a few. They all make sure that goods are properly handled and documented and that all parties fully understand their rights and obligations


The parties of an import-export transaction

The exporter is considered to be the seller and shipper of record. This implies that the exporting company is making the sale and has title to the unit until some agreement between the two parties indicates that title is to be transferred from seller to buyer. The name of the buyer would be shown as the ultimate consignee, the party intended to receive the goods and title to the compressor and from whom payment was expected

The exporter



Multinational Corporations tend to export their output directly to a global network of affiliates. These overseas companies may be dealers, distributors or agents; they can also be products that buy for their own consumption and not for resale

Most product manufacturers are also exporters

For international trade transaction recording purposes, it is only important that the exporter to be a resident of one country and the importer be a resident of another. An export sale is completed once the title has passes from exporter to importer, an invoice has been issued, an accounts receivable established, and the transaction recorded in the international ledgers of the countries involved

When is an export an export

Exporter Importer



Consignment shipments are export shipments with no title change from exporter to importer. There is only physical transfer of inventory from one country to another. A final invoice is not cut, and no accounts receivable is created. Recording errors frequently occur among nations because of mistakes made by the trading community in appropriately labeling shipping documentation as either a sale or a consignment

When is an export not an export

Exporter Importer

No title change



An Export Trading Company (ETC) is mercantile firm that buys from local supply sources and resells overseas. These traders can be helpful to small manufacturing companies that are not in a position to develop their own foreign market. A U.S. company that sells merchandise to an ETC is making a domestic sale. The ETC is the exporter and shipper of record

Export Trading Company

Local Supply sources Resells overseas


The importer

The Importer is the buyer or ultimate consignee

Exporters and Importers are usually well known to one another. This is especially true in the case of multinational companies, where a U.S., exporter’s foreign customer can be its own subsidiary or a joint venture partner.

No strangers here


The importer

Under the ‘Arms length’ role of law in the United States and in most countries, buyers and sellers are considered ‘unrelated’ persons or residents for transaction purposes. Hence, a U.S. exporter liked Allied-Signal that ships goods to its wholly owned subsidiary in Indonesia, Allied-signal Indonesia, will be shown as the seller and shipper of record, and Allied-Signal Indonesia will be the buyer and ultimate consignee

‘Arms-length’ role of law


The importer

Parties importing directly from an exporter are not always those that plan to use or consume the items purchased. They may be distributors or dealers that resell to consumers or end users. Exporters thus have choices in their overseas marketing strategies. They can target end users, they can call their goods to importers, or they can try to sell through import agents, who function as a local sales representatives

Importers have different shapes


The freight forwarder

The freight forwarder is to the exporter what a travel agent is to traveler. The freight forwarder’s function is to arrange for the transportation of goods from the exporter’s warehouse to the importer’s port of entry and/or warehouse destination. It is also the responsibility of the freight forwarder to prepare all export and shipping documentation on behalf of the exporter and to present the documents to an international bank for collection


The customs broker

The customer broker’s function is to help clear imported merchandise through local customs on behalf of the buyer. This includes the payment of all import taxes abd charges and arranging for the transport of the goods to be buyer’s facility. Large customs brokers and freight forwarders tend to be part of the same multinational transport and customs service companies


International Banks

International banks are designed to facilitate trade by helping exporters expedite the flow of documents and payments. It is important that both the seller’s and buyer’s banks have correspondent relationships. This means that each bank may represent the other in specified transactions


The Common Carrier

The Common Carrier is the transportation firm that hauls the freight. Goods move via truck, air freight, ocean freight, or through any combination of these modes. Most shipments are now containerized or bulk/tanker shipped. Greater speed and safety make air freight a very attractive alternative to ocean freight, which often involves time consuming piggy-back transport modes. Containerized ocean freight shipments are commonly used today when air freight is not an option. Slower than air freight is not an option. Slower than air freight, they offer the advantage of warehouse to warehouse transport under a single freight bill


Insurance

In-transit insurance is rarely legally required, but it makes good business sense to have goods insured against loss and/or damage while moving from one country to another. Further, many letters of credits specify that marine insurance must be obtained and that a certificate of insurance must be furnished along with other required documents before payment can be made


Import agents

Import agents are preferred by the companies that consider maximum freight control to be important. An agent (importer) functions in a fiduciary relationship with a principal (the exporter). This means that the importer may act based in the exporter’s express and/or implied instructions


Advantages and disadvantages

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Advantages

The advantages of an import agency relationship lies in the fact that because ownership of the goods remains with the exporter until sold by the agent, the exporter can define the local market selling price, the sales strategy, the sales territory, the payment terms and anything else considered to be of importance to the long-term market success of the product or product line

Disdvantages

The disadvantages of an agency arrangement to an exporter are both financial and legal. Legally, exporters are vulnerable to possible third-party liability lawsuits in which unrelated parties alleging insurers seek monetary damages


Import distributors

An import distributor, by definition, is an independent company that buys and then resells goods for its own account. It assumes title to the exporter’s goods on or before delivery of those goods to its warehouse. As a general rule, title to the goods will pass to the buyer by the time the goods clear customs


Advantages and disadvantages

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Advantages

The advantages of an import distributorship are both financial ane legal. Once title passes from seller to buyer, a receivable is established, and the clock starts ticking toward the collection due date based on agreed-upon payment terms

Disdvantages

These relate mainly to the exporter’s lack of marketing and management control in view of the fact that the goods are now owned by the distributor. Therefore, it is almost impossible for export sellers to control distributor resale prices, even if clauses guaranteeing that right are built into the distributorship agreement


Product warranties

These are promises by a manufacturer that its products will perform as stated in published literature. They can be explicit or implicit. Warranties are explicit when a manufacturer includes a written statement describing what guarantees it offers in the event of product performance failure and for how long a period of time those guarantees are good


Warranty disclaimers

Warranty disclaimers (e.g., ‘Goods sold as is” etc.) should be in writing. If written warranties are not offered and if there are no written disclaimers, then courts in many countries usually hold producers liable under the principle of implied warranty. This means that a full warranty is in force for a ‘reasonable’ time


Product liability

A manufacturer’s liability when someone has been injured or property has been damaged by the direct or indirect use of the product. Sometimes, a product situation can arise out of a warranty problem. Many times, it happens because of the incorrect use of product; sometimes it occurs because a product falls on someone or something breaks up or explodes and destroys property and injures people


Protection of intellectual assets

The Word, shape, and the symbol combinations that appear on labels and packaging. They can be protected from infringement nationally and internationally by having them registered in all markets where a company plans to operate

The accumulated appeal that a company enjoys with the trade, its customers, and even with its competition

Copyright Goodwill



The patents, trade names, trademarks and copyrights, the sum of which identify a company’s goods and services as belonging to it

Inventions and unique innovations that a company possesses which distinguishes its product from all others

Intellectual assets Patent



Company and product logos and names that symbolically determine a company’s goods and services making them recognizable to end users and consumers and distinguishable from those of the competition

This can be the name under which a business functions. This simple act of initially registering a trade or business name at the city, country, or state level for tax purposes protects the use of that name from infringement by others without the consent of the business owner

Trademark

Trade name


Group insurance coverage

This type of policy taken by carriers covers goods only while they are in the care, custody, and control of the carrier and/or its agents or its independent contract pickup and delivery carriers. Except in very special instances subject to advance negotiation


Marine Risks

This is to insure the shipper against most of the causes of loss for which the carrier cannot be held liable called ‘perils of the sea’, these causes include:

• Fire and explosion

• Collision, stranding and sinking

• Jettisons, assailing thieves, and batters

• Latent defect of the vessel

• Faults or errors in navigation and/or management of the vessel

• General average and salvage charges

Marine risk insurance also protects goods while on shore against the following

• Fire, lightning, sprinkler leakage, and explosion

• Hail, flood, earthquake and windstorm

• Landslide, volcanic eruption, and avalanche

• Subsidence of docks and structures


Shipping and selling terms

The language used in defining and determining the time and place for goods to change ownership from seller to buyer. It is important to pinpoint this ownership change, or change of title, for insurance purposes. It is also important in determining when a sale has been consummated for invoicing purposes. The shipping and selling terms also help establish exporters’ and importers’ respective obligations while the goods are in transit and beyond their physical control


Shipping documentation

Commercial invoices

Shipper’s export declaration

Sight or time draft


Shipping documentation

Bill of lading or other transport document

Certificate of origin Insurance policy or certificates


Common problems faced by exporters

The goods, of not claimed, may incur demurrage, warehousing, insurance, and other related charges billable to exporter until such time as the importer wishes to pay for the collection or the exporter makes other arrangements to see the goods. The goods may have to be reshipped at the exporter’s expense

Insurance coverage by the seller or buyer may be inadequate. If the merchandise is either damaged or lost, the importer would probably refuse to honor the collection. To avoid this problem, exporters should investigate ‘contingency’ or ‘difference in conditions’ insurance policies and consider protecting their financial interests on all foreign shipments


Common problems faced by exporters

The exporter may have to wait an indeterminate length of time to receive payment/acceptance. This is dependent on various factors, such as the method by which payment is made (terminal-based communication, SWIFT, cable, or mail) and the availability of foreign exchange in the country of the buyer

The importer may not have a valid import license, which could result in refusal to accept goods or in a delay in payment or acceptance of the draft. The exporter should always verify that the importer has a valid license (if required) before shipping on a collection basis


Documentary drafts

Documentary draftsDocumentary drafts

Sight draftSight draftTime draft (or Usance

draft)Time draft (or Usance

draft)

Both these types are used extensively in International Trade. Sight drafts generally result in faster payment and less risk to the exporters. Time drafts give importers more time to pay and therefore present more risk to exporters

Both these types are used extensively in International Trade. Sight drafts generally result in faster payment and less risk to the exporters. Time drafts give importers more time to pay and therefore present more risk to exporters


Sight and Time drafts

If the draft is drawn at sight, the documents are released to the buyer (drawee) upon payment of the draft. This term of settlement is referred to as D/P (Documents against Payment) or CAD (Cash against Documents

Sight draft

Time draft

If the draft is a time draft (drawn to be payable 30,60,90, etc. days after sight or date), the documents are released to the buyer upon acceptance of the draft. This term of settlement is referred to as D/A (Documents Against Acceptance) payment is to be made, at maturity of the draft, by the acceptor of the draft. The accepted draft is called a trade acceptance


Advantages and disadvantages to Exporters

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Advantages

The main advantage is reduced risk of premature release of goods. Under a documentary collections, the exporter may guard against the release of goods until the importer has paid or accepted a draft

One disadvantage is delays in or slow payment. If, for example, the importer is required to obtain import license but has not yet done so, the exporter must wait until the license is approved and issued to obtain payment. Also, due to slow way in which some countries process collections, payment may be delayed. Another disadvantage is additional costs due to non-payment or non-acceptance by the importer

Disdvantages


Advantages and disadvantages to Importers

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Advantages

Buying on a collection basis means the importer avoids the the detailed requirements of opening a letter of credit. This means a lower cost of importing. The importer also avoids the costs of an import letter of credit and may benefit from a lower purchase price as well, as the exporter may be able to pass along certain savings

Disdvantages

There can be damage to the importer’s reputation if non-payment or non-acceptance is claimed. If the importer is unable to pay or accept the draft for some reason or chooses not to, the exporter may provide specific instructions to ‘protest’ on its behalf


Data verification

The two correspondent banks (at the exporter’s and the importer’s) are responsible for verifying that certain conditions specified in the documentation as previously agreed upon by the selling and buying parties are met before the release of those documents


Data verification

Verifying the quantity and quality of the merchandise being shipped against the documents:

Banks deal in documents alone, ensuring only that documents specified in the transmittal letter are provided to them by the exporter for presentation to the importer. Banks have no further obligation to examine the documents

Guaranteeing payment in the event of non-payment or non-acceptance of the draft:

Banks are required to release documents only if specified conditions are met by the importer, usually including payment or acceptance of draft


Letter of credit

An issuing or opening bank’s promise to pay a certain amount of money to a beneficiary, subject to specific performance by the beneficiary within a given period of time. The issuing bank is the importer’s bank, also known as the remitting bank. Its correspondent bank is usually the exporter’s bank, also called the collecting bank


Contents

1Globalization and

International Trade

2International

Trade and WTO

3Agreements,


4International


5Foreign Direct

Investment

6International

Finance

7Strategy of


8International

Trade and Business

Operations

9Trade



Export quotas

Restrictions on the quantity of product that can be exported from a country. The purpose of these quotas is to conserve scarce resources by ensuring that enough stocks or inventories are retained to meet domestic needs before meeting foreign demand


Export taxes

Imposed on an ad hoc basis by government , not so much to prevent exports, but to generate revenue or encourage value adding changes to a product before it is exported


Import quotas

Restrictions on the quantity of product that can be imported from overseas. They often create great difficulties for importers that depend entirely on offshore sources for their supplies. The rationale for import quotas stems from a desire to protect domestic procedures from being overwhelmed b foreign competition. This is accomplished by dividing market share on an allocation basis


Import taxes

Value-added excise taxes. They exist in three formats

• A percentage-based value-added tariff

• A fixed-rate tariff

• Combination percentage and fixed-rate tariff

The emphasis in the United States is mostly on the first and second formats


Technical restrictions

Restrictions imposed by governments on imports that allegedly do not meet local standards. Some are legitimately intended to maintain high quality standards, but many are used as a means of restricting imports, even when the superiority of the imported item can be demonstrated


Summary

© ManagementStudyGuide.com. All rights reserved.

• International Trade is an arena in which small and large companies can compete effectively. Modern information and communications technology make it possible to enter the import-export business with a home office and a computer. All one needs is access to a marketable product line.

• Trade is an indispensable part of a national economy, society would rapidly come to a stand still without trade.

• International trade refers to dealing with capital, goods, and services across international borders of territories.

• Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders.

• Acquisition is a cross border investment in which a foreign investor acquires an established local firm and makes the acquired local firm a subsidiary business within its global portfolio.

• To be profitable in a competitive global environment, a firm must pay attention to both reducing the cost of production and to differentiating its product offering.

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