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Chapter 3:International Trade Basic - Coggle Diagram
Chapter 3:International Trade Basic
International Business in Changing Global Environment
In international business, capital is no longer the key success factor. International business success greatly depends on human factors
Human side of international business
•Communication
•Motivation
•Leadership
Methods of Payment In International Trade
Cash-In-Advance
• With cash-in-advance payment terms, the exporter can avoid credit risk because payment is received before the ownership of the goods is transferred.
Letter of Credit
•An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents.
Types of Letter of Credit
1.Irrevocable and revocable letters of credit
2.Confirmed and unconfirmed letters of credit
3.Transferable letters of credit
4.Standby letters of credit
5.Revolving letters of credit
6.Back-to-back letters of credit
Documentary Collection
•A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of a payment to the remitting bank (exporter’s bank), which sends documents to a collecting bank (importer’s bank), along with instructions for payment.
Document Against Payment
•In this method of payment, the exporter ships the goods to his buyer and send his draft (bill of exchange) with the necessary export documents through his bank. The exporter bank then sends the documents to the corresponding bank in the buyer’s country.
Document Against Acceptance
•In this method of payment, exporter send the documents to his buyer through his bank. The buyer’s bank handover the documents to the buyer only upon acceptance which implies that he agrees to pay the amount of draft (bill of exchange)
Open Account
•An open account transaction is a sale where the goods are shipped and delivered before payment is due, which is usually in 30 to 90 days.
Negotiating the Price
Tips in price negotiation…
•Never offer the lowest price at the first quotation
•No buyer will consider the price offered is cheap.They will always bargain to get cheaper price
•Never give the buyer options you don’t want them to select
•Do not make assumptions
Bill of Lading
•A bill of lading is a legal document between the shipper of goods and the carrier detailing the type, quantity and destination of the goods being carried. The bill of lading also serves as a receipt of shipment when the goods are delivered at the predetermined destination
Shipping Terms for International Trade
FAS – Free Alongside Ship
The seller delivers when the goods are placed alongside the buyer's vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment
FOB – Free on Board
Under FOB terms the seller bears all costs and risks up to the point the goods are loaded on board the vessel. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination
CFR – Cost and Freight
The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export.
CIF – Cost, Insurance & Freight
This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination.
Pro-forma Invoice
A pro-forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods. Typically, it gives a description of the purchased items and notes the cost along with other important information, such as shipping weight and transport charges. Pro- forma invoices are often used for customs purposes on imports.
Increasing the Sales
How to increase the sales of your products…
•Attract your customer… professionally
•Make the deal during site-visit by customer
•Make the customer think that the business is profitable
•Don’t be afraid to start with small order
Why are we not getting any orders?
• Communication barriers
• Can’t get the customer’s trust
• No urgency from the buyer sides
• Different purchasing style
• Buyers are not satisfied with the quality of the products
Order processing and shipment
•Monitoring of production
•Provide status report
•Inspection and report service
•Keep the buyer updated
•Arrange for shipment
•Preparation of the documentations
•After sales services