International Trade Environment Flashcards
Country Risk
Political risks
Changes in government or political system
Sanctions
Barriers to trade
Language and cultural risks
Customs, practices and etiquette culture
Negotiation styles
Language
Tech related risks
Legal and IT requirements-whether they comply with local legislation
Tech capability
Environmental risks
Manufacturing risks
Sustainable policies
Economic risk
GDP growth rates, interest rates and employment levels
Transfer risks
Whether able to exchange local currency for currency agreed for payment if the country is dependent on foreign currency
Risk mitigation Payment in advance Insurance Payment guarantee(standby L/C) Documentary credits
Commercial risk
Possibility that one of the parties to a contract may be unable or unwilling to fulfill its obligations. Could be either the seller or buyer
Risk mitigations Payment guarantee(standby L/C) Documentary credits Documentary collection Credit insurance Performance related guarantees Payment in advance Payment after delivery Inspection before delivery
Transportation risks
Incoterms rules are a set of standardized terms that mean exactly the same to both parties regards to transport and insurance and who bears the risks involved in transportation.
They are interpreted the same way by courts in every country
Legal risk
Intellectual property
Patents that is respected in some countries be the same for others
Legal systems
How the country will interpret the underlying contract
International agreements and local law
Do local trade laws take international agreements into consideration
ICC rules
How do courts interpret the ICC rules or accept
Administrative risk
Mistakes during preparation of documents for documentary collection and documentary credits as they are difficult and mistakes will increase costs due to delay and not making shipping deadlines
Manufacturing risks
When dealing with manufacturing goods, there will be a production process and various associated risks involved. All manufactured goods require investment
If buyer cancels then the investment will be in loss
Risk mitigation
Penalty clauses in a contract
Documentary credit as its irrevocable
Trade missions and expo
Trade missions are co-ordinated overseas visits by a group of individuals representing their company. The aim is for them to meet potential overseas buyers or sellers.
Normally organized by chamber or commerce, industry bodies or local trade associations
Exhibition or trade show also called expo is an event where companies exhibit their latest products and services to potential buyers
Status enquiry or credit reference
Report that is collated from all of the information and history available on a company and made available to the enquirer often for a fee. It is a historical look at how a company has traded
Direct and Indirect exporting
Direct export is when a company sells direct to the end user
Indirect export is where the company engages the services of an intermediary that specializes in finding foreign markets and buyers for its products
Direct has more control over the export goods and higher profits compared to indirect
However compared to indirect, direct export requires greater time investment and need specialist experience or expertise
Joint venture and contractual joint venture
Joint venture is a legal entity formed between two or more parties sometimes referred to as co-operative agreement
Contractual joint venture is an agreement between two existing legal entities without the creation of another legal entity
Licensing
Is the granting of intellectual property rights-trademarks, patents etc to another manufacturer in exchange for a fee
The company that is granted the license is know. As the licensee and the granting company is the licensor
The licensee will agree to pay a fee or commission on its sales
Licensor loses control over the manufacturing products and run the risk that an inferior product that bears their brand and name will be sold in overseas market
Franchising
A company permits an overseas party to use its business model or brand in a specified territory for a given period
Compared to licensing the franchisor has greater control over presentation and pricing of products
Closer involvement with the overseas marketplace, providing training, marketing and promotion
Franchisee has a greater incentive than an actual employee in the company as it had invested a direct stake in the business
Consignment of goods
Transaction where the seller sends goods to an overseas distributor who is responsible for managing and selling the goods for the seller for a commission.
Seller remains title of goods until they are sold
