Course Overview Topic 1: Introduction and the international trade environment —The concept of International trade — The external factors faced in International trade market —Risks involved in International trade — Research market and method of entering an overseas market —Role of intermediaries in international trade finance
24/03/2015 Contents —Introduction and course overview — The external factors faced in International trade market —Risks involved in International trade — Research market and method of entering an overseas market —Role of intermediaries in international trade finance International trade Main differences trading with international trade: Languages differences difficult for communication Businesses may be trading with each other that are operating different time zones Culture differences Documentation complex Law and regulation Foreign currencies Time to delivery the goods 24/03/2015 Global Trade Rules • UCP 600 •ISBP 745 •URC 522 •ISP98 •URDG 758 … The external factors faced in International trade market PESTEL model reflect the external factors affecting to International trade market • Political (influenced by multilateral or bilateral agreement; historical relationship bw countries, political regime ) • Economic (industrial growth, impact of currency fluctuation bw countries, level inflation, employment level bw countries affect trade ) • Social (religious or culture differences, culture custom, language be a barrier to trade, negotiation style bw two countries ) • Technology • Environmental • Legal 24/03/2015 Risks involved in international trade • Languages and culture • Legal issue • Exchange and currency risk: fluctuate of foreign currency or movement in exchange rate can create an unexpected P&L in transaction • Finance: working capital cycle in international trade transaction is great deal longer than domestic transaction, exporter want to receive deposit before shipment (1-3 months) to buy material to produce goods, to secure export sales, exporter can need additional finance to facilitate the transaction • Credit risk: buyer not paying or country with a poor credit risk of where buyer is resident • Transport risk: damage the good during shipment until final destination Questions A risk that buyer will not pay for the goods is also known as: a Credit risk b Financial risk c Legal risk d Exchange risk An unexpected movement in exchange rates on a transaction can cause an unexpected: a P&L b Income or expenditure c Sales or cost d Asset or liability 24/03/2015 Questions The model used to assess external factors that affect a business and the market it operates in is known as a PASTEL b PESTEL c PISTEL d POSTEL Religious and cultural differences of countries trading with each other are known as a Political aspects b Economic aspects c Legal aspects d Social aspects Research market When a business decides to enter into an overseas market, they can conduct via research on the countries that they want trade Many sources of information that can be used for research: • Government department (ex: UK trade and investment –UKTI; International trade administration (ITA) of Department of commerce in US • Chambers of commerce: provide a range of services: training, provide country report, lawyer • Trade mission (coordinated overseas visit buy a group of bz individual representing their company to meet potential buyer or seller) and exhibition /trade shows: expo to show the latest products and services to potential buyer • Banks • Status enquires and credit control • The internet and media • Networking 24/03/2015 Research market • Banks: assistance with range of services as produce economic reports on individual countries, giving information about standard living, consumer expenditure, foreign currency reserves + obtain credit information and reports on both potential customers and supplier + advise importer or exporters all aspects of making and receiving payment from overseas, risk involved and the mechanisms it can offer to minimise the risk + advise the details in various trade finance products that may be available and advise how these work Research market Status enquires and credit control • Banks: can provide contain just a few line comment of creditworthiness of customers • Credit reference agencies: can check in www.crediguru.com: list of various credit reference agencies used in the world • Credit rating agency: Fitch, Moody’s and Standard and Poor provide rating on credit standing of any large bz that raised capital on international markets • Credit insurer: provides of credit insurance will also provide credit report 24/03/2015 Method of entering an overseas market • Direct to end user • Appointment of an agent or distributor • Through a joint venture • Through international franchising or licensing Role of intermediaries in International trade finance The bank/customer relationship: To make payment through secure and reliable system To collect amounts payable to its customer in respect of check and other instruments (bill of exchange) To provide regular statements To keep its customers’ affairs confidential, subject only to certain laws that require information to be disclosed To have a clear complaints procedure To repay advance as agreed To pay reasonable charges With customer; to protest against fraud and prevent criminal activity 10 ... Global Trade Rules • UCP 600 •ISBP 745 •URC 522 •ISP98 •URDG 758 … The external factors faced in International trade market PESTEL model reflect the external factors affecting to International trade. .. research on the countries that they want trade Many sources of information that can be used for research: • Government department (ex: UK trade and investment –UKTI; International trade administration... making and receiving payment from overseas, risk involved and the mechanisms it can offer to minimise the risk + advise the details in various trade finance products that may be available and advise