International payment nowadays is very important yet risky. Risk management is issue which managers pay much attention to, especially managers of import-export firms. The purpose of this study is to detemine the financial risks and commercial risks which COMA-IMEX, an import-export enterprise now facing with and what feasible solutions COMA-IMEX should take to solve them. The report is divided into four chapters. In chapter 1, the researchers give a brief presentation on the establishment and development of Construction Machinery Import Export Center (COMA-IMEX) and introduction about their functions, missions and the company’s structure. In additions, there are overview of risk management at COMA-IMEX in recent years. In chapter 2, the researchers present theoretical framework which is supported to the report. This chapter covers key terms and definitions of risk management, types and classification of risks, etc. Then, in chapter 3, by doing research of financial status and business statement of COMA-IMEX, the researchers gives comments on reality of import/export business at COMA-IMEX as well as COMA-IMEX’s achievement and failures. Finally, in chapter 4, the researchers makes some recommendations to strengthen risk management at COMA-IMEX
Trần Minh Phương – CQ503768 – Business English 50A TABLE OF CONTENTS TABLE OF ABBREVIATIONS i TABLE OF FIGURES ii EXECUTIVE SUMMARY iii INTRODUCTION 1 Introduction of the research topic Purpose and scope of the research Research questions Methodology CHAPTER 1: INTRODUCTION .3 1.1 An overview of COMA-IMEX .3 1.1.1 History and development of COMA-IMEX 1.1.2 Functions and missions .3 1.1.3 Organizational structure 1.2 Overview of risk management in international payment at COMA-IMEX 1.2.1 International payment reality in recent years 1.2.2 Reality of risks at COMA-IMEX CHAPTER 2: THEORETICAL FRAMEWORK .8 2.1 Key terms and definitions 2.1.1 International payment .8 2.1.2 Risks 2.1.3 Risks in international payment 2.2 Commercial risks 2.2.1 Risks to sellers 10 2.2.2 Risks to buyers 10 2.3 Risks in payment (financial risks) .12 2.3.1 Credit risk .13 2.3.2 Country risk 13 2.3.3 Legislative risk 15 Trần Minh Phương – CQ503768 – Business English 50A 2.3.4 Foreign exchange risk .15 2.3.5 Interest rate risk 16 2.3.6 Risk of selecting unsuitable conditions while negotiating international payment terms 18 CHAPTER 3: FINDINGS AND ANALYSIS 19 3.1 Business results in recent years 19 3.1.1 Reality of financial general status and business operation at COMAIMEX 19 3.1.2 Overall assessment of COMA-IMEX’s real situation of international payment 21 3.2 Reality of risk management at COMA-IMEX 24 3.2.1 Types of risks which COMA-IMEX often faced with 24 3.2.2 Preventive solutions to risks which have been used so far at COMAIMEX 27 3.3 Overall assessment of risk management in international payments 29 3.3.1 Achievements 29 3.3.2 Failures 30 CHAPTER 4: RECOMMENDATION .31 4.1 Suitable methods of payment .31 4.2 Suitable currency in payment 31 4.3 Payment methods diversification 32 4.4 Choosing partners 32 4.5 Human resources 33 4.6 Relationship with banks .34 4.7 Selecting and negotiating import/export contract conditions 35 4.8 Strengthening COMA-IMEX’s business and position .35 4.9 Others 36 CONCLUSION 37 REFERENCES Trần Minh Phương – CQ503768 – Business English 50A TABLE OF ABBREVIATIONS COMA-IMEX Construction Machinery Corporation – Import Export Centre L/C Letter of Credit Incoterms International Commercial terms UCP The Uniform Customs and Practice for documentary credits WTO World Trade Oganization ISBP International Standard Banking Practice E/R Earning/Revenue T/T Telegraphic Transfer D/P Documents against payment D/A Documents against acceptance CIF Cost & Insurance & Freight i Trần Minh Phương – CQ503768 – Business English 50A TABLE OF FIGURES Table – Business statistics at COMA-IMEX from 2009-2011 .19 Chart - Main sources of revenue at COMA IMEX (2009-2011) 21 Table – Prime cost in USD and JPY (2009-2010) 22 Table – E/R percentage of COMA-IMEX from 2009-2011 22 Chart - Percentage of Sales from import/export 23 ii Trần Minh Phương – CQ503768 – Business English 50A EXECUTIVE SUMMARY International payment nowadays is very important yet risky Risk management is issue which managers pay much attention to, especially managers of import-export firms The purpose of this study is to detemine the financial risks and commercial risks which COMA-IMEX, an import-export enterprise now facing with and what feasible solutions COMA-IMEX should take to solve them The report is divided into four chapters In chapter 1, the researchers give a brief presentation on the establishment and development of Construction Machinery Import Export Center (COMA-IMEX) and introduction about their functions, missions and the company’s structure In additions, there are overview of risk management at COMA-IMEX in recent years In chapter 2, the researchers present theoretical framework which is supported to the report This chapter covers key terms and definitions of risk management, types and classification of risks, etc Then, in chapter 3, by doing research of financial status and business statement of COMA-IMEX, the researchers gives comments on reality of import/export business at COMA-IMEX as well as COMA-IMEX’s achievement and failures Finally, in chapter 4, the researchers makes some recommendations to strengthen risk management at COMA-IMEX iii Trần Minh Phương – CQ503768 – Business English 50A INTRODUCTION Introduction of the research topic In the speedy-growing economic world nowadays, it is essential that every country integrates in order to narrow the rich-poor gap between developed and developing countries Pacific Asia, in the recent years, has been the most dynamic part of the economic world Being a nation in this area, Vietnam is not out of the trend One of the most important long-term strategies of Vietnam after joining WTO is import-export promotion Through import-export business, Vietnam will be able to bring the world domestic goods, to gain foreign currencies, as well as to create more jobs, and to decrease the unemployment rate, etc It is undeniable that doing import-export helps Vietnam speed up the economics improvement In the course of conducting import and export business, payment transaction plays an extremely important role: it is essential for running the contract smoothly The payment transaction holds direct influences on capital turnover, reproducing process, investment and profits of the company However, there are many difficulties and complex problems which happen during the payment transaction, such as policy risk, exchange risk, credit risk, interest rate risk, etc These problems can only be predicted and solved with professional experiences and good technical skills In particular, prevention of financial risks in business activities in general and in international payment is an important task for all enterprises, including COMA-IMEX Therefore, “How to prevent financial risks in international payment transaction?” has become a question for managers That is the reason why I am doing my research: “Risk management in the international payment at COMAIMEX” Purpose and scope of the research The research has been carried out during my internship with helps from managers of COMA-IMEX and under the instruction of Mrs Nguyen Thi Thanh Van Due to the limit scope, the report mainly aims at: Analyzing general business as well as import/export business of COMA-IMEX from 2009-2011 Researching and analyzing risk management methods that COMAIMEX has been used so far Suggesting some solution to improve efficiency of risk management at COMA-IMEX Trần Minh Phương – CQ503768 – Business English 50A Research questions There are questions which the research deals with: What is the reality of risk management in international payment at COMA-IMEX in recent years? How can COMA-IMEX improve the risk management in international payment? Methodology The research has been carried out using data from financial reports of COMA-IMEX from 2009 to 2011, course books about international payment, international trade and risk management from well-known scholars Observations as well as interviews are important method which researchers use to work on the report Trần Minh Phương – CQ503768 – Business English 50A CHAPTER INTRODUCTION 1.1 An overview of COMA-IMEX 1.1.1 History and development of COMA-IMEX COMA-IMEX is one of 29 members of Construction Machinery Corporation that specializes in machinery trading, established by Decision no.1027/QDBXD dated 07.26.2000 from the Minister of Construction The Construction Machinery Corporation is a state owned enterprise established in accordance with the Decision No.993/BXD-TCLD dated November 20th 1995 issued by the Minister of Ministry of Construction, basing on the former Union of Construction Machinery Enterprise founded in 1975 The international name of the center is IMPORT EXPORT CENTRE, abbreviated as COMA-IMEX The centre has been registered with certification of business registration no 313597 from Hanoi Planning Committee on Sep 5th 2000 Currently, COMA-IMEX is located at 13th floor, COMA building, Lane Hoa Binh 6, 125D Minh Khai, Hai Ba Trung district, Hanoi 1.1.2 Functions and missions 1.1.2.a COMA-IMEX’s functions - Organize activities of sending Vietnamese experts and worker to work short term oversea with permission from Ministry of Construction - Import goods such as: machines, raw materials… as the market demands - Activities involves financial leasing 1.1.2.b COMA-IMEX’s missions - Organize short-term courses to improve management skills as well as technical skills and foreign languages for employers - Negotiate and perform business contracts on foreign trade and other economic contracts - Labour export Trần Minh Phương – CQ503768 – Business English 50A 1.1.3 Organizational structure There is a simple structure inside COMA-IMEX with 29 personnel in total General Director, Deputy Directors, functional departments with a manager and a deputy manager of each department… as described below: Chart – Organizational Structure of COMA-IMEX The Board of Director including General Director and two Deputy Directors are responsible for controlling and commanding all business activities of COMA-IMEX Accounting Department is responsible for staff salary payment and other accounting activities; administrative business, receptions, monitoring and maintaining working facilities are also included in their responsibilities Import/Export Sales Department advises and helps Director on import/export business; does other works that involves import/export as required by Director Labour Export Department advises and helps Director on labour exporting by contracts Training Department is responsible for training and organizing courses to provide employees with skills and knowledge before sending them abroad All other training-involved works are their responsibilities Trần Minh Phương – CQ503768 – Business English 50A Labour Management Department assists Director in managing labours working short term aboard, deals with other issues involving exported employees’ benefits and disputes during and after their working durations All departments and employees are expected to other works as General Director requires 1.2 Overview of risk management in international payment at COMAIMEX 1.2.1 International payment reality in recent years In recent years, the main goods to export at COMA-IMEX are small metallic details such as keys, door-hinges while main goods to import are heavy construction machineries of all kind Importing machinery is also main source of revenue at COMA-IMEX in latest years, due to the high price of these kinds of goods (a contract to import one unit of construction machinery may reach the number of US100,100 in basis value, when COMA-IMEX sell the imported machine, profit may be in range of 5% to 10% of the contract) In 2009, revenue from sales of imported goods is 21,612,278,060VND while revenue from exporting is only 2,369,702,668VND, which takes only 9.88% of the total revenue (23,981,980,728VND) Revenue from importing is 10 times more than exporting, which means in 2009, importing is COMA-IMEX’s key business In 2010 and 2011, importing is still COMA-IMEX’s key revenue, but the difference between import and export has been narrowed In 2010, revenue from importing is down to 15,791,573,880VND (71.73% of total revenue) but export activities brought COMA-IMEX 6,222,191,144VND (28.27%) which means nearly as half as revenue from importing goods Last year (2011), both revenue from import and export increased rapidly which led the total revenue jumped up as twice as in 2010 Export revenue in 2011 is about one third of revenue from importing From the numbers above, researchers point out that COMA-IMEX’s financial condition is quite healthy, main business – importing – brings COMA growing and stable revenue However, COMA-IMEX is gradually improving its field of exporting, the unbalance between import and export is less and less, which have been proved in the year of 2010 In 2010, revenue from importing decrease sharply, if it was not for increasing revenue of export then COMA-IMEX cannot reached that high total revenue ... import/export business at COMA-IMEX as well as COMA-IMEX? ??s achievement and failures Finally, in chapter 4, the researchers makes some recommendations to strengthen risk management at COMA-IMEX iii Trần... general status and business operation at COMAIMEX 19 3.1.2 Overall assessment of COMA-IMEX? ??s real situation of international payment 21 3.2 Reality of risk management at COMA-IMEX. .. research deals with: What is the reality of risk management in international payment at COMA-IMEX in recent years? How can COMA-IMEX improve the risk management in international payment? Methodology