Foreign trade part 2 Flashcards
What are the phases of an export operation ?
- Preparation phase
- Contractual phase
- Implementation phase
Steps of the preparation phase (export)
- Acquiring market information
- Obtaining market access
- Foreign demand
- A preliminary calculation
- Business offer
Steps of acquiring market information
- Acquiring general market information
- Territorial market research
- Commodity market research
- Pricing market research
Acquiring general market information
General information is information about import and customs conditions, market structures, competitors, economic conditions of the country, cultural and social factors
Territorial market research
Its aim is to acquire information about business conditions, market organisation, industries, population and its competitors, tax and customs regulations in a given foreign territory
Commodity market research
Its aim is to acquire information about commodity market structure (quality, properties and quantity of goods and services), competitors (domestic and foreign) and consumers
Pricing market research
Its aim is to acquire information about prices and prising strategies of competing goods and services
What is export
Export is a very important part of foreign trade. An export operation in a transaction representing the sale of goods and services abroad. It contributes to a favourable balance of trade. The money needed for import of goods and services are obtained by means of an export operation.
Obtaining market access
This procedure is aimed at obtaining access to new market and new customers directly (direct business contracting, sending business offers directly to customers, personal visits) and indirect (participation in exhibitions, fairs, advertising, offering catalogue)
Foreign demand
A foreign trade can arise as a result of an obtained market access or an own initiative of foreign customers
A preliminary calculation
First and non-biding calculation of a business offer. It includes all relevant costs (the price of goods or services, insurance costs, transport costs)
A business offer
It represents the acceptance of foreing demand by an exporter. It can be binding or non-binding and reguested (offering list requested by a potential customer) or unrequested (offering list sent randomly)
Steps of the contractual phase (export)
- Receipt and acceptance of order
- Conclusion of a bill of sale
Receipt and acceptance of order
When exporter receives an order from a foreign customers, he should review it and accept or refuse it. If a received order is accepted, an export sends a draft of a bill of sale to the foreign customer.
Conslucion of bill of sale (exporr)
When a foreign customer receives the draft of bill of sale and he agrees to the conditions, a final bill of sale is signed by both parties.
Steps of the implementation phase (export)
- Delivery of goods
- Receipt of payment
- A final calculation
Delivery of goods
An exporter ships goods to a foreign customer in accordance with the agreed conditions (quality, quantity, insurance, transport means, delivery time) and issues documents (an invoice, transport documents, insurance documents, customs documents, certificate of origin) All necessary documents are delivered together with goods
A final calculation
An exporter compares real costs with the preliminary calculation and conducts a final calculation. According to the result of a final calculation, exporter can be in a profit or loss.
What is an import ?
An import operation is a transaction representing the purchase of goods and services from abroad. It widens the supply at domestic market. Goods and services in which the country isn’t self-sufficient are imported.
What are the phases of an import operation ?
- Preparation phase
- Contractual phase
- Implementation phase
Steps of preparation phase (import)
- Analysis of import needs
- Identification of foreign suppliers
- Expression of demand
- Evaluation of business offers
Analysis of import needs
An importer finds out whether a given product is already at a domestic market and if it isn’t, he determines the requirements of import (quality, properties, quantity, price, origin and transport means)
Identification of foreign suppliers
An import identifies suitable foreign suppliers and acquires all necessary information about them
Expression of demand
An importer expresses his non-binding demand to suitable foreign suppliers with the aim of acquiring a binding or non-binding business offer. The business offer can be requested (sent by foreign suppliers who received an inquiring list) or unrequested (sent by foreign suppliers who look for buyers on their own. A special form of demand is a public tender (a competition with predefined requirements won by a contestant who offered the most favourable bid)
Evaluation of business offers
An importer compares received business offers and draws up a preliminary calculation for each of them. He selects the most favourable one.
Steps of the contractual phase (import)
- Placing of order
- Conclusion of a bill of sale
Placing of order
An order has to contain all necessary information about goods and services (price, quantity, properties, quality), supplier and buyer, delivery conditions (transport means, delivery time) and terms of payment
Conclusion of a bill of sale
A bill of sale, based on trading practices (unwritten rules of international trade) is signed by both parties
Steps of the implementation phase (import)
- Reception of goods
- Payment of goods
- A final calculation
Reception of goods
Delivery and reception of goods are according to the agreed condition in a bíll of sale
Payment of goods
An importer ensures that a supplier receives the payment for goods according to the conditions in bill of sale
A final calculation (import)
An importer compares real costs with preliminary calculation. According to the result he is in profit or loss.
A bill of sale in foreign trade
A bill of sale is a formal contract by which a seller agrees to sell and a buyer agrees to buy goods or services under certain terms and conditions spelt out in writing in the document signed by both parties. Also called a agreement of sale, contract for sale, sale agreement, or sale contract.
Right and obligation of seller
Right to get paid for sold products
Obligated to deliver products under the agreed conditions with all documentsR
Right and obligation of buyer
Right to receive the products under the agreed conditions with all documents
Obligated to tale over the products and pay
Forms of bill of sale in foreign trade
- Contract - it is a voluntary arrangement between two or more parties (a contract arises when the parties agree there is an agreement) Formation of a contract generally requires an offer, acceptance, consideration and a mutual intent to be bound
- An enclosing list - it contains more detailed business conditions (in actions)
- A contract note - it is a simplified form a a contract (mostly used by stock brokers), it contains all important conditions (all other conditions are included in general terms and conditions)
Main conditions of formation of bill of sale
- each party to a contract has to be an adult (18 years or more) and have the capacity to enter the agreement (minors, intoxicated persons, and those with a mental affliction may have insufficient capacity to enter a contract);
- a bill of sale arises because of some legal reason (e.g. an agreement between seller and buyer);
- the content of a bill of sale mustn’t be contrary to law and good morals;
- the subject of a bill of sale must be real (subject mustn’t be something unsaleable, such as sunlight or air);
- a bill of sale has to be concluded voluntarily, seriously, comprehensibly and clearly (it mustn’t be concluded under pressure, under the use of physical violence, under the influence of narcotics, or for fun);
- a bill of sale must not be unconscionable (an unconscionable contract is a contract that’s so unfair and one-sided that a court can properly decide not to enforce it).
The first phase of bill of sale
Formation:
1. A draft of bill of sale - When it is drawn by the seller it’s binding, when it is drawn by buyes it’s non-binding
2. Acceptance - When a draft of a bill of sale is accepted, it means both parties confirmed an order
3. Conclusion of a bill of sale - A bill of sale is officially concluded when both parties sign it
The second phase of bill of sale
Fulfilment
1. Delivery of goods - Buyer takes over the goods
2. Payment for goods - Buyer pays the seller before or after the delivery
Compulsory features of a bill of sale
- Identification of contracting parties
- Quality of goods
- Quantity of goods
- Price of goods
Identification of contracting parties
name, registered office and executives of contracting parties must be stated in a bill of sale
Quality of goods
Changeable goods - each piece of goods of the same kind has the same features (a new car from batch production)
Unchangeable goods - each piece of goods has different features (a car from a bazaar)
Types of weight
Gross weight = goods + package
Net weight = only goods
Tare weight = only package
Quantity of goods
Determined in pieces, weight, area, lenght, volume in two ways
1. The exact amount - delivered quantity must be the same as ordered quantity
2. The approximate quantity - quantitative derivations are allowed (goods that can evaporate or dry out)
Price of goods
Can be firm (determined, not negotiable) and flexible (indirectly determined and dependent on agreed terms, for example according to situation at stock market)
1. Drawback (cash discount) - discount when paying ahead of schedule
2. Deduction (price discount) - discount at a certain amount, loyalty discount, introductory discount, exhibition discount or fair discount
3. Dividend (incentive bonus) - discount in the case of quality or quantity discrepancy of the delivered goods
Optional features of bill of sale
- packaging of goods
- delivery of goods
- terms of payment
Packaging of goods
Either a bill of sale determines the packaging in which the goods should be packages or seller uses standard packaging according to standards of both countries (including a proper handling signs)
3 handling signs
- Fragile (a wine glass or sing FRAGILE) - Should be applies to easily broken cargoes, cargoes with these sign should be handled carefully
- Top (two arrows pointing up) - The package must always be transported, handled and stored in such way that the arrows always point up. Rolling or swinging must be avoided
- Keep dry (umbrella) Cargo should be protected from humidity and must be accordingly stored under cover
Delivery of goods
Information about delivery of goods includes delivery time, place of ownership transfer, place of costs and risk transfer
Delivery time
Term trades
1. Approximate determination of delivery time: within 6 months of the conclusion of bill of sale
2. Accurate determination of delivery time: by 20.1.2007
3. Sequential delivery time: the start and end of delivery determined (regular deliveries)
4. Delivery time on request: requested delivery as needed (successive deliveries)
5. Fixed delivery time: on 20.1.2007
Promt trades
1. Immediately: within 8 days of the conclusion of bill of sale
Place of ownership transfer
The place where the seller delivers goods to the buyer (physically or symbolically
Place of costs and risk transfer
A bill of sale determines who bears costs (insurance costs, transport costs, storage costs) and risk (damage or loss) while respecting INCOTERMS (international commercial terms)
Seller’s premises:
1. Buyer provides transportation
2. Buyer bears the risk
Buyer’s premises:
1. Seller provides transportation
2. Seller bears risk
Another location:
1. Seller provides transportation and bears risk until handing over to carrier
2. Buyer bears risk from the moment of handing over the goods to the carrier by seller
3 incoterms
- EXW (Ex works) - transfer of risk to importer is effective immediately after collection from exporter’s premises. The importer transports the goods on his own expense
- DAP (Delivered at place) - The exporter pays for the transport to the place of destination, The import customs and all import duties are covered by importer. The risk transfer corresponds to the place of delivery
- DDP (Delivered duty paid) - The exporter pays for everything. The transfer or risks corresponds to the place of delivery
Terms of payment
A bill of sale determines the place, method and maturity date of payment
1. Place of payment - a specific place where payment should be made
2. Payment method - a way of making the payment, determination of currency
3. Maturity date of payment - payment can be made before (advanced payment), during (payment on delivery) and after delivery of goods
Breaches of a bill of sale by the seller
- Non-compliance with the type and quality of goods
- Non-compliance with the quantity of the goods
- Non-compliance with the delivery time
- Non-delivery of documents or errors in documents
Types of defects
Obvious - can be seen at first glance
Hidden - can be found after detailed examination
Breaches of a bill of sale by the buyer
- Non-acceptance of the goods without giving any reason
- Non-payment for good in time or not at all
What to do after a breach of bill of sale
Any breach of a bill of sale must be claimed in due time as a written complaint. It has to be sent to the other party without delay. A claimed breach of a bill of sale must be justified (supported by evidence). A written complaint can also contain a proposal for solving a problem. The other party assesses the merits of a complaint and gives a statement. It can be assessed as accepted, refused or the way handled according to the proposal of the complaining party. Both parties must agree upon of complaint handling.
Receipt of payment (export)
An exporter receives money from foreign customer in accordance to the bill of sale
