INTERNATIONAL BUSINESS METHODS:

The most common methods of international business are as follows:

a)
b)
c)
d)
e)
f)

International Trade
Licensing
Franchising
Joint Ventures
Acquisition of existing business
Establishing new foreign subsidiaries.

INTERNATIONAL TRADE:
It is simple import & exports i.e. buy at lower rate & sell at high rate.
LICENSING:
A company can give technology (copy right, patents, trade mark& trade name etc. In exchange of
certain fee.
FRANCHISING:
It is a very popular form of SME these days like KFC, Pizza Hut etc. It is defined as a continuing
arrangement between the parent company i.e. franchisor and an entrepreneur i.e. franchisee. The
agreement is for a certain period which can be extended as decided mutually.
ADVANTAGES:
To the franchisor
Expand distribution without increased capital
investment.
Community acceptance of the product
Marketing & distribution expenses are shared.
Some operating cost may be transferred to the
franchisee.
Flat fee can be collected from franchisee
Through agreement, quality control can be
maintained.
Percentage on sale can be earned.
DISADVANTAGES:

To the franchisee
Sound management, training and decision
making may be available.
Market tested product so less risk will be there.
Advertising & promotion is already there.
Acceptance in large system of retailers.

Franchisor

Franchisee

Long distance control over franchisee.

Gives up much freedom in management

decision.

Expanses on training sometimes very high.

Profits are always shared.

Loss of some ownership

Franchises may be very expensive.

Product can be stolen

Undue interference.

Credit may be available.

Advisory available.
Credit may be available.

Success depends on wise planning & its results. The agreement may include energy, money,
ideas, location, experience, training, management, name, know-how etc.

DIFFERNET TYPE OF FRANCISES:

1-Straight product distribution
Only product is provided in salable form like general store products.
2-Product license franchises:
Only name is used but product is manufactured as per specifications of the franchisor.
3-Trade name franchise:
Trade name is given but no control over product or service.
JOINT VENTURES:
Jointly operated & owned by two or more entities like General Mill & NESTLE for cereals. It
helps to penetrate the foreign market.
Existing business:
Such a business has a track record so can be run more easily sometimes.
So advantages are as follows:

The business is operating & success can be judged.

Customers are known & feedback is easy.

Financial data is available for inspection.

Business activity can be verified

Bankers etc. have an impression of business.

Competitors know the business.

While purchasing an existing business following points are required to be considered.

Financial picture

Why for sale, is it TITANIC?

What are business trends?

Books should be checked.

LETTER OF CREDIT, THE SPIRIT OF INTERNATIONAL TRADE

International trade demands a flow of goods from seller to buyer and of payment from buyer
to seller. The goods movement may be evidenced by appropriate documents. Payment,
however, is influenced by trust between the commercial parties, their need for finance and,
possibly, by governmental trade and exchange control regulations.
Consequently, the documentary credit is frequently the method of payment. The buyers bank
pays the seller against presentation of documents and compliance with conditions
stipulated by the buyer.
A world-wide use, with an immense daily turnover in transactions and value, necessitates a
universal standard of practice. The International Chamber of Commerce (ICC) provides this
with its Uniform and Practice for Documentary Credits (UCP), but their effectiveness is
reduced unless the commercial parties and the banks involved understand the basics of the
operations.
POSSIBLE PROBLEMS
The seller says,
We want to be certain that the buyer is able to pay on time once the goods have been shipped.
How can we minimize risk of non-payment?
The buyer says,
We do not know the seller can we be sure that he will deliver on time?
The seller worries,
We are supplying the buyer with goods that we ourselves have bought from a sub-contractor.
How can we prevent the buyer from finding out and contacting our supplier directly?
The buyer thinks,
Before we pay, how can we check that the goods are exactly those we ordered?
BOTH THE PARTIES WANT:
"How can the banks help us in the practical arrangements for these transactions, especially by
assisting us with all the necessary documentation?
Additional services desired:
We would prefer to delay paying for the goods until we have sold them. Will our bank provide
credit for the intervening period?
Where can we get information on currency restrictions, and import or export licenses?
What the seller wants
Contract Fulfillment
Assurance that he will be paid in full within the agreed time limit.
Convenience
The convenience of receiving payment at his own bank or through a bank in his own country.

Prompt Payment
Prompt payment for the sale of the goods, so as to improve the liquidity of his business.
Advice
The knowledge necessary to conduct complex trade transactions.
What the buyer wants
Contract Fulfillment
Assurance that he does not have to pay the seller until he is certain that the seller has fulfilled his
obligations correctly.
Convenience
The convenience of using an intervening third party in whom both buyer and seller have
confidence-such as a bank with its documentary expertise-when making payment.
Credit
A managed cash-flow, by the possibility of obtaining bank finance.
Expert assistance
Expert assistance and facilities in dealing with often complex transactions, particularly with the
specific procedures to be followed.
TIME FOR PAYMENT
SELLER
In advance
He needs payment before shipment, as he cannot otherwise finance production of the goods the
buyer has ordered.
At time of Shipment
He wants assurance of payment as soon as the goods are shipped.
He has to meet regulations stipulating payment at time of shipment rather than before or after it.
After shipment
He is prepared to wait for payment for a certain time after shipment, as he trusts the buyer and
appreciates his position.
BUYER
In advance
He trusts the seller, knowing that the contract will be carried out as agreed, and he is therefore
prepared to pay in advance.
At time of Shipment
He does not want to take the risk of paying before being certain that the goods are shipped on
time and that they are as stipulated in his contract with the seller.

He has to meet regulations stipulating payment at time of shipment rather than before or after it.
After shipment
He possibly wants to sell the goods before he pays the seller.
DOCUMENTARY CREDITS
Definition
In simple terms, a documentary credit/letter of credit is a conditional bank undertaking of
payment.
Expressed more fully, it is a written undertaking by a bank (issuing bank) given to the
seller (beneficiary) at the request, and on the instructions, of the buyer (applicant) to pay at
sight or at a determinable future date up to a stated sum of money, within a prescribed time
limit and against stipulated documents.
These stipulated documents are likely to include those required for commercial, regulatory,
insurance, or transport purposes, such as commercial invoice, certificate of origin, insurance
policy or certificate, and a transport document of a type appropriate to the mode(s) of transport
used.
Documentary credits offer both parties to a transaction a degree of security, combined with a
possibility, for a creditworthy party, of securing financial assistance more easily.
Buyer
Because the documentary credit is a conditional undertaking, payment is, of course, made on
behalf of the buyer against documents which may represent the goods and give him rights in
them.
However, according to arrangements made between him and the bank-and, in some cases, by
reason of local laws or regulations-he may have to make an advance deposit at the time of
requesting the issuance of the credit, or he may be required to place the issuing bank in funds at
the time documents are presented to the overseas banking correspondent of the issuing bank.
Seller
Because the documentary credit is a bank undertaking, the seller can look to the bank for
payment, instead of relying upon the ability or willingness of the buyer to pay subject to
fulfillment of certain terms and conditions.
ISSUING A CREDIT
The buyer and the seller conclude a sales contract providing for payment by documentary credit.
The buyer instructs his bank-the issuing bank-to issue a credit in favor of the seller
(beneficiary).
The advising or confirming bank informs the seller that the credit has been issued.
The issuing bank asks another bank, usually in the country of the seller, to advise or confirm the
credit.

Advising/ confirming bank

There are usually two banks involved in a documentary credit operation. The issuing bank is the
bank of the buyer. The second bank, the advising bank, is usually a bank in the sellers country.
The second bank can be simply an advising bank, or it can also assume the more important role
of a confirming bank.
In either case, it undertakes the transmission of the credit. Article 8 (UCP) requires the advising
bank to take reasonable care to check the apparent authenticity of the credit which it advises.
Issuing bank
If the second bank is simply advising the credit, it will mention this fact when it forwards the
credit to the seller. Such a bank is under no commitment to make payment to the seller, even
though it may be nominated in the credit as the bank authorized to pay, to accept drafts, or to
negotiate.
If the advising bank is also confirming the credit, it will so state. This means that the
confirming bank, regardless of any other consideration, must pay, accept, or negotiate without
recourse to the seller, provided all the documents are in order and the credit requirements are
met.
SOME IMPORTANT RELEVANT SCHEDULE OF BANK CHARGES
IMPORTS:
Sr.#

Annual amount

Quarterly payment Minimum payment

for one LC

up to Rs.25M

0.40% per quarter

up to Rs.50M

0.35% per quarter

up to Rs.100M

0.29% per quarter

Above

Negotiable

LC amendment

Negotiable

&
charges

handling

One off transaction Normal mark up

rate

Documents retired No commission

with 10 days

If retired during 15 From 0.29% to

days or more
0.46%
i.e.

Rs.1,400
negotiable

or

negotiable

EXPORTS:
1

LC advising

Rs.1,400
quarter

LC
advising Rs.1,200
amendment

LC confirmation

per

Minimum
Rs.1,400

$=Rs.19.32 in 1989.
IMF Support Arrangements to Pakistan
(1980-2004)
Date
ofAmount
Arrangement Arrangement (SDR
(expiration) million)

Disbursement Signed during

(SDR million) rule of

EFF

1268.00

1079.00

Ziaul Haq

273.15

194.48

Benazir
Bhutto

382.41

382.41

Benazir
Bhutto
Nawaz Sharif

24-11-80
(23-11-83)

SBA

28-12-88
(7-3-90)

SAF

28-12-88
(27-12-91)

SBA

16-9-93

265.40

88.00

EFF/

(15-9-94)

379.10

123.20

ESAF

22-2-94

606.60

172.20

562.59

294.69

(21-2-97)
22-2-94
(21-2-97)
SBA

13-12-95
(31-3-97)

Benazir
Bhutto

EFF/ESAF
SBA

20-10-97

454.92

113.75

(19-10-2000)

682.38

265.37

29-11-2000

465.00

465.00

Pervez
Musharraf

1033.70

861.42

Pervez
Musharraf

(30-9-2001)
PRGF

7-12-2001
(5-12-2004)

Nawaz Sharif

LATEST LOAN:
Stand-By Arrangement (SBA) 2008-10
Main Features
a)Pakistan submitted to the IMF a Request for Stand-By Arrangement on 20 November, 2008
amounting SDR 5.17 billion ($ 7.6 billion) equal to 500% of Pakistan's quota in the Fund. It has
increased to $11.7B. Pakistan has requested to extend it up to 31-12-10 as it was expired on 3009-10.
b) The Arrangement is for a period of 23 months.
c) It is on interest rate of 3.51-4.51%. The amount will be disbursed in seven tranches - the first
tranche of SDR 2.067 billion has been received on 29 November, 2008 and the balance amount
will be disbursed in six quarterly instalments during 2009-10. The amount and interest will be
repaid in five Years from 2011.
IMF NEW LOAN OF USD6.47B: UNDER STRICT MONITORING & RELEASE IN
INSTALLMENTS
CONDITIONS:
a)

GAS tax to be levied at 0.4% of GDP which comes to Rs.94B in December.

b)

Currently, The GDP size is USD235B

c)

Subsidy on electricity will be reduced to o% in three years.

d)

For domestic consumers, 30% rise in electricity tariff from 01 October , 2013

e)

Budget deficit to come down from 8.5% to 3.5% in 3 years.

f)

Tax net to be broadened.

g)

Tax evasion should be controlled.

h)

PIA, Steel Mill & Railway to be improved or privatized.

i)

If any condition is not met, the further release of installment will be stopped.