Introduction to international trade and finance

Completed this subject, students will be able to: • Understand the key concepts and terminologies ininternational trade • Understand the forces in international trade environment • Under

Introduction to International Trade and Finance

Completed this subject, students will be able to:

• Understand the key concepts and terminologies ininternational trade

• Understand the forces in international trade environment

• Understand the roles and responsibilities of all partiesinvolved in international trade and finance

• Understand the process involved in international trade andsources of laws and convention applicable to such process

• Understand and select the appropriate methods ofinternational payment

• Understand the current banking practices and forms ofinternational trade finance

• Take a Certificate of International Trade and Finance(CITF)

Course overview

Topic 1: Introduction

Topic 2: The international trade environment

Topic 3: Contracts and documents

Topic 4: Methods of payment

Topic 5: Trade Finance Management

Course timeline

No Learning topics/ Discussion/ Tests Class period

2 The international trade environment 6

Course Assessment

• Class attendance: 10%

• 01 Case study (covering topic 1, 2, 3): 15%

• 01 Mid-term test: (covering topic 4): 15%

• Final exam: 60%

Case study

Select a Vietnamese company which have already involved inexporting Imagine that you are a trade consultant who needs tosuggest a new country market for the company to make an entry.Write a report which covering the following contents:

- Introduction

- Company background

- Reasons for finding a new foreign market

- Select a potential country market and do PESTEL analysis tosupport your choice

- Select a method of entry and explain your choice

- Conclusion

Writing language: English Word limit: 3000

Deadline: 23/5

• Finance of International trade - Eric Bishop (2004)

• ICC publication: Incoterms 2010, UCP 600, ISBP 745

• UN Convention on Contracts for the International Sale ofGoods (CISG)

Student’s Responsibilities

• Attend class regularly

• At home: Read and prepare answers for questions of thenext class

• In class: take notes and submit answer sheets on group basis

• Work in groups for homework, in-class discussion and casestudies

• Raise your voice if you have any ideas or questions related tothe lecturers

Topic 1: Introduction

1 The concept of International Trade

2 Risks and risk mitigants in international trade

3 Parties involved in international trade

1 The concept of International trade

Definition:

International trade is the exchange of goods, services or

performance and capital across international borders or territories

Borders or Territories ???

Border: a line separating two political or

geographical areas, especially countries.

Territory: an area of land under the jurisdiction

of a ruler or state

Customs depot

Customs depot Goods

Goods

Read the article on page 1, 2 & 5 and answer the question:

- What are motivations of international trade to Buyer/ Seller?

- Who is the Buyer? Who is the Seller?

- What are the different names of Buyer/ Seller?

- When do we call Buyer/ Seller by its other names?

- Are the objects of international trade always things that can

be seen?

Comparative advantage

Table 1.1: Using Ricardo’s theory of comparative advantage:

Wine Cloth Total production

units for 1 litre/wine and 1

rolls of cloth by England for 1

litre of wine from Portugal

1 litre of wine and 2 rolls of

cloth

2 rolls of cloth and 1 litre of

wineNet gain from comparative

advantage

1 roll of cloth 1 roll of cloth

2 Risks and Risk Mitigants

Discussion:

Whether international trading is more difficult and risky than

domestic one? Why?

Hints: See page 9, 10, 22, 23, 24

2 Risks and Risk Mitigants

Factors How they create difficulties

2.1 Risks involved in international trade

How do the following types of risk create adverse effects to the Buyer/ Seller?

• Transport risk/ Transportation risk/ Risk of transporting

• Fraud or risks related to financial crime

2.2 Risk mitigants

Read the articles on page 10 & 11 and explain how the following organizations can help reduce risks involved in international trade:

• Local chambers of commerce

• Standard protocols and interpretations of legal issues

3 Parties involved in international trade

Customs depot Goods/ Services

Intermediaries : Risk mitigants, local authorities, NGOs

Business organizations

- Limited or Unlimited (What is limited/ unlimited? See page 6)

- One owner or more than one owner

- Private or public (what is private/ public? See page 8 & page 9)

3.1.Business organization

Types of business

organization

One owner

2 owners and more

Unlimited Liability

Limited liability

Shares are traded on the open market

Shares are not traded

on the open market Sole

3.2 Freight forwarder

Organizations that manage the movement of goods

internationally using the appropriate mode of transport

Discussion: What does the phrase “manage the movement of

goods” mean?

Hints: See page 61

3.3 Insurance companies

Discussion:

- What to insure?

- Why to insure?

- Who must buy insurance? The seller or the buyer?

Hints: See page 62

3.2 The World Trade Organization

• Formed in 1995

• General Agreement on Tariffs and Trade (GATT)

• 159 members

The WTO provides a forum for negotiating agreements aimed

at reducing obstacles to international trade and ensuring a

level playing field for all, thus contributing to economic

growth and development The WTO also provides a legal and

institutional framework for the implementation and monitoring of these agreements, as well as for settling disputes arising from their interpretation and application.

3.2 The World Trade Organization

Watch a video about WTO and take notes asmuch as you can

3.3 The International Chamber of

• Publications: Incoterms, UCP, ISBP

Watch a video about ICC and take notes asmuch as you can

Topic 2: International Trade Environment

1 External factors affecting international trade

2 Marketing research before a foreign entry

3 Methods of entering an overseas market

1 External factors affecting international trade

What are the above factors called in Vietnamese?

Case study: Imagine that you are managers of a Vietnamese

seafood company which wants to export to German market.What should you include in your PESTEL analysis?

Hints: See page 20 & 21

1 External factors affecting international trade

2 Marketing research

Discussion:

to research???

•Creditworthiness

•Reputation

Evaluating the

counterparty

2 Marketing research

See page 25  30, page 55 & 56 and fill out the following table:

Sources Types of information

Government department

Chambers of commerce

Trade missions, exhibitions and shows

Banks

Credit reference agencies

Credit ranking agencies

Credit Insurers

The Internet and the media

Networking

Self-check

3 Methods of entering an overseas market

The company must decide whether market factors

favor

Manufacturing “at

home”

Indirect export

Direct export

Manufacturing

abroad

Joint venture

Licensing/

Franchising

3.1 Manufacture “at home”

• Sell direct to the foreign end users

Direct Exporting

• Engage the services of anintermediary that specializes infinding foreign markets andbuyers

Indirect Exporting

Vocabulary check

What are the differences among:

A Export B Exporting C Exportation

1 What are the advantages/disadvantages of direct exporting ?

2 What are the advantages/disadvantages of indirect exporting?

3 When should a company adopt direct exporting/indirect

exporting?

Case study:

Watch a video and list the reasons that force Vietnamese seafoodcompanies select indirect exporting instead of direct exporting

Hints: See page 30 & 31

3.1 Manufacture “at home”

3.1.1 Direct exporting

Discussion:

SUMIMOTO is a company based in Japan specializing in autoparts The company has built a manufacturing plant inVietnam since 2015 Have SUMIMOTO adopted directexporting ?

A If SUMIMOTO has a subsidiary which has done business

registration in Vietnam

B If the manufacturing plant is within a special customs

supervision area in Vietnam

3.1.2 Indirect exporting

• Agents

• Distributors

• Co-marketing

3.1.2 Indirect exporting

Obligations/ Rights Agent Distributor

Find and contact the foreign markets/ buyers

Employed by the principal on a commission

basis and retainer fee

Take ownership of the goods

Assume higher risks

Purchase the goods outright and resell

Set the price in overseas markets

Negotiate the sale on behalf of the principal

Negotiate the sale on behalf of itself

Earn a profit

Provide after-sales support

See pages 32 & 33 and fill out the table

Intensive distributors

Number of distributors selling the same

products in

a particular market

increases

3.1.2 Indirect exporting

Intermediaries Agents Distributors

Export management companies

Export trading houses

Confirming houses

Buying agents

Discussion: The following intermediaries are agents or distributors? Hints: See page 31 & 32

3.1.2 Indirect exporting

Discussion:

List advantages and disadvantages of indirect exporting

Hints: See page 31

3.2.1 Joint Venture

Finnish

Firm

Joint Venture

in Vietnam

Vietnamese Customers

A Finnish firm, a German firmand a Brazilian firm create ajoint venture in Vietnam

German

Firm

Brazilian

Firm

3.2.1 Joint Venture

Italian Firm

Joint Venture in Vietnam

Vietnamese customers

An Italian firm creates a joint

venture with a Vietnamese

partner to enter the

Vietnamese market

Vietnamese

Firm

3.2.1 Joint Venture

Discussion:

List advantages and disadvantages of Joint Venture

Hints: See page 34

Fee/

Commission

on sale

1 Who is the licensee/ licensor ?

2 What do the intellectual property rights include?

3 What are advantages/ disadvantages of international licensing ?

3.2.3 International Franchising

American Franchisor

Vietnamese Investors

Vietnamese Consumers

Intellectual Property Rights, Training, Business Advice, Marketing assistance, etc.

Capital

Vietnamese Franchisee

Lump Sum &

Royalty

Franchising

Agreement

3.2.3 International Franchising

Discussion:

1 What do the intellectual property rights include?

2 What are advantages/ disadvantages of internationalfranchising?

3 What are differences between franchising and licensing?

Hints: See page 35 & 36

3.2.3 International Franchising

Topic 3: Contract and Documents

1 The ordering process

2 The contract and contract management

3 UN Convention on CISG

4 Incoterms 2010 rules

5.Dispute handling and arbitration

6 Documents used in international trade

1 The ordering process

Arrange the following tasks according to the ordering process and specify who will do in each step:

A Make an enquiry

B Arrange for shipment of

the goods

C Consider the enquiry and

make modifications if any

D Ship the goods

E Receive the goods and

L Check the creditworthiness

of the buyer

M Write a quotation and submit

1 The ordering process

2 The contract and contract management

• A firm offer + An acceptance of a firm offer

• An intention to create a contract

2.2 Conditions for a valid contract to come into effect

Discussion:

Seller X send an offer to Buyer Y Which reactions of Y will form a contract:

A Give entire acceptance

B Give acceptance but with reservations or conditions

C Reject the offer entirely

Hints: See page 42 & 43

2.3 Usual terms of a contract

Terms What is included

2.4 Contract management

See page 45 and answer the following tasks belonging to which department:

Tasks Departments in charge

Find the buyers/ Receive

enquiries

Quote delivery dates and prices

Prepare export documentation

Decide method of settlement

Fulfill the contract

Manage contract processing and

check progress

2.5 Sources of laws governing the contract

3.1 Convention or agreements among/

between countries

3.2 Laws of a specific country

3.3 International practices and customs

3 UN Convention on Contracts for the International Sale of Goods (CISG)

Read the article on page 46 & 47 and answer the question:

1 What is the CISG about?

2 Who did develop the CISG? When?

3 When did the CISG come into effect?

4 How many countries have ratified the CISG?

5 Who will use the CISG?

6 What are benefits of the CISG?

3 UN Convention on Contracts for the

International Sale of Goods (CISG)

Content of the CISG:

• Sphere of application and general provisions

3 UN Convention on Contracts for the

International Sale of Goods (CISG)

Discussion:

- What are the downside of the CISG?

- If Vietnam has joined the CISG? We do not need pass

through any laws and regulations about contract?

Hints: See page 49

4 International Commercial Terms

(Incoterms)

See page 91 and answer the question:

- What are Incoterms about?

- What are the benefits of using Incoterms?

- What are “Shipping terms” and “terms of delivery” about?

Allocations of costs buyer/seller according to Incoterms 2010

Incoterm

2010

Customs

Export-declaration

Carriage

to port of export

Unloading

of truck in port of export

Loading charges in port of export

Carriage (Sea Freight/Air Freight) to port of import

Unloading charges in port of import

Insurance

Loading

on truck in port of import

Carriage to place of destination

Import customs clearance

Import taxes

EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer

FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer

CIP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer

DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer

DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer

DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

4 International Commercial Terms

(Incoterms)

buyer to the seller?

How is the cost allocatedbetween the buyer andthe seller?

What are obligations ofthe buyer and the seller?

4 International Commercial Terms

(Incoterms)

A THE SELLER’S OBLIGATIONS B THE BUYER’S OBLIGATIONS

A1 General obligations of the seller B1 General obligations of the buyer

A2 Licences, authorizations, security

clearances and other formalities

B2 Licences, authorizations, security clearances and other formalities

A3 Contracts of carriage and insurance B3 Contracts of carriage and insurance

A4 Delivery B4 Taking delivery

A5 Transfer of risks B5 Transfer of risks

A6 Allocation of costs B6 Allocation of costs

A7 Notices to the buyer B7 Notices to the seller

A8 Delivery document B8 Proof of delivery

A9 Checking – packaging – marking B9 Inspection of goods

A10 Assistance with information and

related costs

B10 Assistance with information and related costs

5 Dispute handling and arbitration

Three basic means of resolving a dispute:

- Reaching a mutually satisfactory compromise

- Arbitration

- Presenting to courts

See page 50 and list the advantages and disadvantages

of each method above

What are documents used in international

trade? Why do need them?

6 Documents used in international trade

6.1 Financial documents

6.2 Transport documents

6.3 Commercial documents

6.4 Insurance documents

How many kinds of financial documents can you

think of?

6.1 Financial documents

• Bill of Exchange

• Promissory Note

2 By which law Bill of exchange is governed?

3 How many parties involved in a Bill of exchange