Introduction and the international trade environment

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

—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:

1 Languages differences à difficult for

communication

2 Businesses may be trading with each other that are

operating different time zones

3 Culture differences

4 Documentation complex

5 Law and regulation

6 Foreign currencies

7 Time to delivery the goods

•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

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

1 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

2 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

3 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

4 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

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

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:

1 To make payment through secure and reliable system

2 To collect amounts payable to its customer in respect of check

and other instruments (bill of exchange)

3 To provide regular statements

4 To keep its customers’ affairs confidential, subject only to

certain laws that require information to be disclosed

5 To have a clear complaints procedure

6 To repay advance as agreed

7 To pay reasonable charges

8 With customer; to protest against fraud and prevent criminal

activity