International Business Final Exam Prep Ii

Front 1

What ar potential challenges to exporting?

Back 1

 Management focus – hard on middle mgmt if not prepared
 Develop new promotional material – translation costs, translator
 Subordinate short-term profits to long-term gains – enough money from domestic sales
 Incur added administrative costs
 Allocate personnel for travel
 Wait long for payments
 Modify your product or packaging
 Finding good distributors for the product overseas – and good relationships
 Apply for additional financing
 Obtain special export licenses

Front 2

Why do companies import?

Back 2

 Sell more product
 Make more profits
 Test market
 Protect domestic market – by providing products they want
 Guarantee supply of materials
 Acquire technology
 Diversify to reduce vulnerability
 Management ego for expansion

Front 3

What are the risks to an importer?

Back 3

 Risks In Transit – undamaged goods
 Currency Risk – exchange rate fluctuations
 Interest Rate Risk – interest rate fluctuations
 Documentary Risk – subject to delays at customs

Front 4

What are letters of credit?

Back 4

 Letters of Credit are guarantees of payment to help you make purchases or transact business with companies with whom you have limited trading experience or credit history
 3rd party in-between that ensures both operating parties receive their payments and goods, usually banks

Front 5

What are the various forms of letters of credits?

Back 5

 Standby Letter of Credit (aka non-performing letters of credit)
 Documentary Revocable/Irrevocable (unconfirmed/confirmed) LCs
 Special Letters of Credit
o Back-to-Back LC
o Deferred Payment (Usance) LC
o Red Clause LC
o Revolving LC
o Transferable LC

Front 6

What are some common problems with letters of Credit?

Back 6

Common Problems with Letters of Credit
 Shipment schedule cannot be met (weather extremes, mechanical/IT breakdown, border crossing delay)
 Stipulations concerning freight costs are unacceptable
 Price becomes too low due to exchange rate fluctuations
 Quantity of product ordered is not expected amount
 Description of product ordered is insufficient or too detailed (effects customs classification)
 Stipulated documents are difficult or impossible to obtain (permits and permissions)

Front 7

What are some sources of export financing?

Back 7

1. PEMD - Program for Export Market Development
2. NEBS - New Exporters to Border States
3. AECB - Association for the Export of Canadian Books
4. EDC - Export Development Canada
5. CCC - Canadian Commercial Corporation
6. BDC - Business Development Canada

Front 8

What is PEMD?

Back 8

Program for Export Market Development – aim to increase export sales of Cdn goods and services by sharing the costs of activities that companies normally could or would not undertake alone, thereby reducing risks

Front 9

What is NEBS?

Back 9

New Exporters to Border States – targets Cdn companies not yet exporting to US, provides practical export information and first-hand exposure to US markets

Front 10

What is AECB?

Back 10

- Association for the Export of Canadian Books – help develop and sustain Cdn publishers’ export sales

Front 11

What is EDC?

Back 11

Export Development Canada – federal export insurance agency provides market reports and advises exporters on how to minimize risk in int’l business transactions; insures you against losses due to 3 types of political risk:
o Transfer and inconvertibility of funds (inability to repatriate 4X)
o Expropriation
o Political violence

Front 12

What is CCC?

Back 12

Canadian Commercial Corporation - export sales agency that helps Cdn exporters win sales, on improved terms, in government and private-sector markets around the world

Front 13

What is BDC?

Back 13

Business Development Bank of Canada – working capital for exporters, helps SME finance export activities with criteria and exceptions

Front 14

What is Keiretsu?

Back 14

-driving force behind japan's industrial success. (eg. mitsubishi)

-This economic corporate culture and cooperation, that fits the Japanese culture, lowers transactions, and in collaborative research efforts, expedite development of new technologies

- Financial and non-financial benefits accrue – reduced risk through mutual support, control of stock voting power, cooperation in marketing and product development, guaranteed markets and sources of supply, ties with a trading company that supplies needed raw material imports and handles export trade, and a bank to supply financial resources

-International keiretsu-style practices have received positive evaluation, particularly in auto parts industry

Front 15

What is Sogo Shosha?

Back 15

 General trading companies dealing with a wide range of products and materials (eg. Mitsubishi Corp)
 Arose due to desire to develop foreign trade that was independent of foreign control
 Functions include: obtaining modern equipment, new technology and raw materials; financing purchases; and arranging for the shipment and exporting of final products

Front 16

What is Countertrade?

Back 16

 Exchanging goods or services that are paid for, in whole or part, with other goods or services
or
 Transactions which have a basic characteristic a linkage between exports and imports of goods and services in addition to financial settlements

Front 17

Why should a company engage in countertrade?

Back 17

 World debt crisis made ordinary trade financing very risky
 Many countries cannot obtain trade credit or financial assistance to pay for desired imports
 Countries are increasingly returning to the notion of bilateralism as way to reduce trade imbalances
 Countertrade viewed as mechanism to gain entry into new markets
 Providing countertrade services helps sellers differentiate its products from those of competitors


Also, from creative countertrade book:

 Expand or maintain foreign markets
 Increase sales
 Sidestep liquidity problems
 Repatriate blocked funds
 Clean up bad debt situations
 Build customer relationships
 Keep from losing markets to competitors
 Gain foreign contracts for future sales
 Find lower-cost purchasing sources

Front 18

What are the reasons that the london countertrade roundtable lists for engaging in countertrade?

Back 18

 Money – some people cannot pay in currency they want
 Political environment – to protect or stimulate local jobs and industries
 Political environment – rules and regulations to protect host country; reflection of political and economic policies which seek to plan and balance overseas trade
 To gain competitive advantage over competing suppliers

Front 19

Name four countertrade strategies.

Back 19

 Defensive – sell products at rock-bottom prices and promise to help country with export development
 Passive – participate at minimal level, because they have product leverage
 Reactive – reacting to cooperate with buyer country, use as competitive tool
 Proactive – do so aggressively as marketing tool

Front 20

What are the six (6) main times of countertrade?

Back 20

 Offset – promote import substitution and minimize balance of payments deficit for military purchases
o Direct offset – supplier agrees to incorporate materials, components or sub-assemblies which are obtained from importing country
o Indirect offset – purchaser requires suppliers to enter into long term industrial cooperation and investment
 Counterpurchase – foreign supplier undertakes to purchase goods and services from the purchasing country as a condition of securing the order
 Tolling – supplier provides raw material and hires capacity of the factory to turn it into finished goods
 Barter – goods exchanged for goods
 Buyback – suppliers of capital plant or equipment agree to be paid by the future output of the investment
 Switch Trading – goods paid for by uncleared credit surpluses