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Ans World Trade Organization

The World Trade Organization (WTO) is an organization that intends to supervise and
liberalize international trade. The organization officially commenced on January 1, 1995 under
the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT),
which commenced in 1948. The organization deals with regulation of trade between participating
countries; it provides a framework for negotiating and formalizing trade agreements, and a
dispute resolution process aimed at enforcing participants' adherence to WTO agreements which
are signed by representatives of member governments and ratified by their parliaments.[4][5] Most
of the issues that the WTO focuses on derive from previous trade negotiations, especially from
the Uruguay Round (1986±1994).

The organization is currently endeavoring to persist with a trade negotiation called the Doha
Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable
participation of poorer countries which represent a majority of the world's population. However,
the negotiation has been dogged by "disagreement between exporters of agricultural bulk
commodities and countries with large numbers of subsistence farmers on the precise terms of a
'special safeguard measure' to protect farmers from surges in imports. At this time, the future of
the Doha Round is uncertain."[6]

The WTO has 153 members,[7] representing more than 97% of the world's population[8], and 30
observers, most seeking membership. The WTO is governed by a ministerial conference,
meeting every two years; a general council, which implements the conference's policy decisions
and is responsible for day-to-day administration; and a director-general, who is appointed by the
ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva,
Switzerland.

General Agreement on Tariffs and Trade

GATT
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Annecy Round - 1949

The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The
main focus of the talks was more tariff reductions, around 5000 in total.

[edit] Torquay Round - 1951

The third round occurred in Torquay, England in 1950. Thirty-eight countries took part in the
round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the
tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana
Charter signified the establishment of the GATT as a governing world body.[3]

[edit] Geneva Round - 1955-1956

The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries
took part in the round. $2.5 billion in tariffs were eliminated or reduced.

[edit] Dillon Round - 1960-1962

The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named
after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first
proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9
billion in tariffs, it also yielded discussion relating to the creation of the European Economic
Community (EEC).

[edit] Kennedy Round - 1964-1967

Kennedy Round took place from 1964-1967.

[edit] Tokyo Round - 1973-1979

Reduced tariffs and established new regulations aimed at controlling the proliferation of non-
tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions
were made on $190 billion worth.
[edit] Uruguay Round - 1986-1994

The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand
the competence of the GATT to important new areas such as services, capital, intellectual
property, textiles, and agriculture. 123 countries took part in the round.

Agriculture was essentially exempted from previous agreements as it was given special status in
the areas of import quotas and export subsidies, with only mild caveats. However, by the time of
the Uruguay round, many countries considered the exception of agriculture to be sufficiently
glaring that they refused to sign a new deal without some movement on agricultural products.
These fourteen countries came to be known as the "Cairns Group", and included mostly small
and medium sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New
Zealand.

The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade
liberalization agreement in agricultural products in the history of trade negotiations. The goals of
the agreement were to improve market access for agricultural products, reduce domestic support
of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export
subsidies on agricultural products and to harmonize to the extent possible sanitary and
phytosanitary measures between member countries.

Q ‰ What is MNC? Explain the 3 stages of evolution

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Ownership criterion some argue that ownership is a key criterion. A firm becomes
multinational only when the headquarter or parent company is effectively owned by nationals of
two or more countries. For example, Shell and Unilever, controlled by British and Dutch
interests, are good examples. However, by ownership test, very few multinationals are
multinational. The ownership of most MNCs are uninational. (see videotape concerning the
Smith-Corona versus Brothers case) Depending on the case, each is considered an American
multinational company in one case, and each is considered a foreign multinational in another
case. Thus, ownership does not really matter.

Nationality mix of headquarter managers An international company is multinational if the

managers of the parent company are nationals of several countries. Usually, managers of the
headquarters are nationals of the home country. This may be a transitional phenomenon. Very
few companies pass this test currently.

‘usiness Strategy global profit maximization

According to Howard Perlmutter (1969)*

Multinational companies may pursue policies that are home country-oriented.

or host country-oriented or world-oriented. Perlmutter uses such terms as ethnocentric,

polycentric and geocentric.However, "ethnocentric" is misleading because it focuses on race or
ethnicity, especially when the home country itself is populated by many different races, whereas
"polycentric" loses its meaning when the MNCs operate only in one or two foreign countries.

According to Franklin Root (1994), an MNC is a parent company that

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, 1969, pp. 9-18.

Three Stages of Evolution

1. Export stage

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The licensee may transfer industrial secrets to another independent firm, thereby creating
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Direct Investment

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3. Multinational Stage

The company becomes a multinational enterprise when it begins to plan, organize and coordinate
production, marketing, R&D, financing, and staffing. For each of these operations, the firm must
find the best location.

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US Multinational Corporations Exxon, GM, Ford, etc.

Q3 Mention the differences between currency markets and
exchange rate markets in the context of international business
environment
Ans currency markets

s The foreign exchange market (forex, FX, or currency market) is a global, worldwide
decentralized over-the-counter financial market for trading currencies. Financial centers around
the world function as anchors of trading between a wide range of different types of buyers and
sellers around the clock, with the exception of weekends. The foreign exchange market
determines the relative values of different currencies.[1]

The primary purpose of the foreign exchange is to assist international trade and investment, by
allowing businesses to convert one currency to another currency. For example, it permits a US
business to import British goods and pay Pound Sterling, even though the business's income is in
US dollars. It also supports speculation, and facilitates the carry trade, in which investors borrow
low-yielding currencies and lend (invest in) high-yielding currencies, and which (it has been
claimed) may lead to loss of competitiveness in some countries.[2]

In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying
a quantity of another currency. The modern foreign exchange market began forming during the
1970s when countries gradually switched to floating exchange rates from the previous exchange
rate regime, which remained fixed as per the Bretton Woods system.

Market participants
Banks

The interbank market caters for both the majority of commercial turnover and large amounts of
speculative trading every day. A large bank may trade billions of dollars daily. Some of this
trading is undertaken on behalf of customers, but much is conducted by proprietary desks,
trading for the bank's own account. Until recently, foreign exchange brokers did large amounts
of business, facilitating interbank trading and matching anonymous counterparts for large fees.
Today, however, much of this business has moved on to more efficient electronic systems. The
broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading
rooms, but turnover is noticeably smaller than just a few years ago.[Ô

  ]

*ommercial companies

An important part of this market comes from the financial activities of companies seeking
foreign exchange to pay for goods or services. Commercial companies often trade fairly small
amounts compared to those of banks or speculators, and their trades often have little short term
impact on market rates. Nevertheless, trade flows are an important factor in the long-term
direction of a currency's exchange rate. Some multinational companies can have an unpredictable
impact when very large positions are covered due to exposures that are not widely known by
other market participants.

*entral banks

National central banks play an important role in the foreign exchange markets. They try to
control the money supply, inflation, and/or interest rates and often have official or unofficial
target rates for their currencies. They can use their often substantial foreign exchange reserves to
stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is
doubtful because central banks do not go bankrupt if they make large losses, like other traders
would, and there is no convincing evidence that they do make a profit trading.

Forex Fixing

Forex fixing is the daily monetary exchange rate fixed by the national bank of each country. The
idea is that central banks use the fixing time and exchange rate to evaluate behavior of their
currency. Fixing exchange rates reflects the real value of equilibrium in the forex market. Banks,
dealers and online foreign exchange traders use fixing rates as a trend indicator.

The mere expectation or rumor of central bank intervention might be enough to stabilize a
currency, but aggressive intervention might be used several times each year in countries with a
dirty float currency regime. Central banks do not always achieve their objectives. The combined
resources of the market can easily overwhelm any central bank.[10] Several scenarios of this
nature were seen in the 1992±93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90%[Ô


  ] of the foreign exchange transactions are speculative. In other
words, the person or institution that bought or sold the currency has no plan to actually take
delivery of the currency in the end; rather, they were solely speculating on the movement of that
particular currency. Hedge funds have gained a reputation for aggressive currency speculation
since 1996. They control billions of dollars of equity and may borrow billions more, and thus
may overwhelm intervention by central banks to support almost any currency, if the economic
fundamentals are in the hedge funds' favor.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers
such as pension funds and endowments) use the foreign exchange market to facilitate
transactions in foreign securities. For example, an investment manager bearing an international
equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign
securities purchases.

Some investment management firms also have more speculative specialist currency overlay
operations, which manage clients' currency exposures with the aim of generating profits as well
as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a
large value of assets under management (AUM), and hence can generate large trades.

Retail foreign exchange traders

Retail traders (individuals) constitute a growing segment of this market with the advent of retail
forex platforms, both in size and importance. Currently, they participate indirectly through
brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the CFTC
and NFA have in the past been subjected to periodic foreign exchange scams.[11][12] To deal with
the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in
relation to the amount of Net Capitalization required of its members. As a result many of the
smaller and perhaps questionable brokers are now gone or have moved to countries outside the
US. A number of the forex brokers operate from the UK under FSA regulations where forex
trading using margin is part of the wider over-the-counter derivatives trading industry that
includes CFDs and financial spread betting.

There are two main types of retail FX brokers offering the opportunity for speculative currency
trading    and 
  or   .    serve as an agent of the customer in the
broader FX market, by seeking the best price in the market for a retail order and dealing on
behalf of the retail customer. They charge a commission or mark-up in addition to the price
obtained in the market. 
  or   , by contrast, typically act as principal in the
transaction versus the retail customer, and quote a price they are willing to deal at. The customer
then has the choice whether or not to trade at that price.

In assessing the suitability of an FX trading service, the customer should consider the
ramifications of whether the service provider is acting as principal or agent. When the service
provider acts as agent, the customer is generally assured of a known cost above the best inter-
dealer FX rate. When the service provider acts as principal, no commission is paid, but the price
offered may not be the best available in the market²since the service provider is taking the other
side of the transaction, a conflict of interest may occur.

oon-bank foreign exchange companies

Non-bank foreign exchange companies offer currency exchange and international payments to
private individuals and companies. These are also known as foreign exchange brokers but are
distinct in that they do not offer speculative trading but rather currency exchange with payments
(i.e., there is usually a physical delivery of currency to a bank account).

It is estimated that in the UK, 14% of currency transfers/payments[13] are made via Foreign
Exchange Companies.[14] These companies' selling point is usually that they will offer better
exchange rates or cheaper payments than the customer's bank. These companies differ from
Money Transfer/Remittance Companies in that they generally offer higher-value services.
Money transfer/remittance companies

Money transfer companies/remittance companies perform high-volume low-value transfers

generally by economic migrants back to their home country. In 2007, the Aite Group estimated
that there were $369 billion of remittances (an increase of 8% on the previous year). The four
largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and
best known provider is Western Union with 345,000 agents globally followed by UAE Exchang

exchange rate markets

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Ans pNTE-NATpONAL P-p ATp
ATpON

Privatization is the transfer of government owned assets to the private sector. As a result of
changing economic policies, privatization took place at a significant pace around the world
during the last decade of the 20th century. Ranging from the desire to downsize government in
developed countries, to the demise of communism in Eastern and Central Europe, and to the
opening of the economies of various Latin American countries, privatization has significant
direct and indirect effects on international business and international law.

Privatization opens unprecedented opportunities for investment throughout the world. Thus, it is
a major force in the globalization of business, and it is of great interest to investors and
businesses around the world.

Privatization is taking place in various kinds of economies. Prior to revolutions during the late
1980s and early 1990s, private ownership of property was not allowed in the communist
countries of Eastern and Central Europe. In accordance with Marxist theory, communist
governments owned virtually everything. Privatization is, therefore, a necessary tool for those
countries converting to market-based economies. As a result, in the 1990s, the formerly
communist countries of Central and Eastern Europe have been engaged in an unprecedented
number of transfers of assets to private persons and entities.

In Latin America, a parallel movement has taken place. As early as the 1930s and again during
the 1960s and 1970s, huge segments of the economies of various Latin American countries were
nationalized. Segments of the economy that were reserved to government included electric
power, telecommunications, and development of natural resources. One result was that
international investors were kept out of major segments of the economies of Latin American
countries. Yet, from the perspective of the Latin American countries, nationalization was not a
success. A majority of the nationalized industries were inefficient and caused a severe drain on
the countries' finances. Latin American governments were compelled to subsidize the industries,
which, in turn, caused the governments to fall more deeply in debt internationally. For example,
the World ‘ank calculates that in the early 1990s, state-owned businesses were responsible for
about 60 percent of the external debt of Latin American countries. As a result of heavy debt
loads, various Latin American countries defaulted on their loans to international banks. Huge
restructuring programs and bailout programs were negotiated. In turn, international lenders were
hesitant to extend additional credit to Latin American countries. As a result, Latin American
economies became stagnant; they could not attract significant amounts of long-term capital
investment. In response, in the 1990s, Latin American governments turned to privatization and
actively sought investment by foreign businesspeople and organizations.

-ole of Privatisation?
1.Making more money on bad products
2.
..."Privatisation means endorsing / assigning the ownership of a public property/business to a
private party."

Uses

1)Development would be faster(due to competetion with the other private parties)

2)Innovative solutions (due to again competetion with the other private parties)
3)effective & time bound results
4)cost cuttings
Privatization is the implementation of a decision to sell companies owned by the State to private
individuals/ companies.
Benefits of privatization are making the erstwhile public sector commercial enterprise survive in
competitive markets through better efficiency, higher productivity, improved product quality and
customer service, and reduction of waste and leakages due to State ownership.
There are no limitations of privatization except that hitherto unproductive or less productive
labor would have learn afresh the art of servivng through hard work and excellence.

3.Privatisation according to me is to get the job done thro' private organisations. The role of
privatisation is to make things look perfect and orderly. Privatisation also tends to make things
more costlier but there is value for money and the services are also excellent. Privatisation will
deprive the lower class of the services which otherwise will be available to them at lower cost. I
think the industries in India will benefit out of this move.

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 pnternational Commercial Terms (pNCOTE-MS)

The pNCOTE-MS (International Commercial Terms) is a universally recognized set of

definitions of international trade terms, such as FOB, CFR and CIF, developed by the
International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract
responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool.
The exporter and the importer need not undergo a lengthy negotiation about the conditions of
each transaction. Once they have agreed on a commercial term like FOB, they can sell and buy at
FOB without discussing who will be responsible for the freight, cargo insurance, and other costs
and risks.

The INCOTERMS was first published in 1936---pNCOTE-MS 1936---and it is revised

periodically to keep up with changes in the international trade needs. The complete definition of
each term is available from the current publication---pNCOTE-MS ‰. The publication is
available at your local Chamber of Commerce affiliated with the International Chamber of
Commerce (ICC).

Many importers and exporters worldwide are accustomed to and may still use the pNCOTE-MS
198, the predecessor of pNCOTE-MS 199 and pNCOTE-MS ‰.

Under the pNCOTE-MS ‰, the international commercial terms are grouped into E, F, C and
D, designated by the first letter of the term (acronym), as follo

pnternational Commercial Terms

( pNCOTE-MS ) G-OUP TE-M Stands for

EXW {+ the named place}

Ex Works

Ex means from. Works means factory, mill or warehouse, which is the seller's premises.
EXW applies to goods available only at the seller's premises. Buyer is responsible for
loading the goods on truck or container at the seller's premises, and for the subsequent
costs and risks.

In practice, it is not uncommon that the seller loads the goods on truck or container at the
seller's premises without charging loading fee.

In the quotation, indicate the named place (seller's premises) after the acronym EXW, for
example EXW Kobe and EXW San Antonio.

The term EXW is commonly used between the manufacturer (seller) and export-trader
(buyer), and the export-trader resells on other trade terms to the foreign buyers. Some
manufacturers may use the term Ex Factory, which means the same as Ex Works.

FCA {+ the named point of departure}

Free Carrier
 The delivery of goods on truck, rail car or container at the specified point (depot) of
departure, which is usually the seller's premises, or a named railroad station or a named
cargo terminal or into the custody of the carrier, at seller's expense. The point (depot) at
origin may or may not be a customs clearance center. Buyer is responsible for the main
carriage/freight, cargo insurance and other costs and risks.

In the air shipment, technically speaking, goods placed in the custody of an air carrier is
considered as delivery on board the plane. In practice, many importers and exporters still
use the term FO‘ in the air shipment.

The term FCA is also used in the RO/RO (roll on/roll off) services.

In the export quotation, indicate the point of departure (loading) after the acronym FCA,
for example FCA Hong Kong and FCA Seattle.

Some manufacturers may use the former terms FOT (Free On Truck) and FO- (Free On
Rail) in selling to export-traders.

FAS {+ the named port of origin}

Free Alongside Ship

Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within
reach of its loading equipment so that they can be loaded aboard the ship, at seller's
expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance,
and other costs and risks.

In the export quotation, indicate the port of origin (loading) after the acronym FAS, for
example FAS New York and FAS ‘remen.

The FAS term is popular in the break-bulk shipments and with the importing countries
using their own vessels.

FO‘ {+ the named port of origin}

Free On ‘oard

The delivery of goods on board the vessel at the named port of origin (loading), at seller's
expense. Buyer is responsible for the main carriage/freight, cargo insurance and other
costs and risks.
 In the export quotation, indicate the port of origin (loading) after the acronym FO‘, for
example FO‘ ancouver and FO‘ Shanghai.

Under the rules of the INCOTERMS 1990, the term FO‘ is used for ocean freight only.
However, in practice, many importers and exporters still use the term FO‘ in the air
freight.

In North America, the term FO‘ has other applications. Many buyers and sellers in
Canada and the U.S.A. dealing on the open account and consignment basis are
accustomed to using the shipping terms FO‘ Origin and FO‘ Destination.

FO‘ Origin means the buyer is responsible for the freight and other costs and risks.
FO‘ Destination means the seller is responsible for the freight and other costs and risks
until the goods are delivered to the buyer's premises, which may include the import
customs clearance and payment of import customs duties and taxes at the buyer's country,
depending on the agreement between the buyer and seller.

In international trade, avoid using the shipping terms FO‘ Origin and FO‘ Destination,
which are not part of the INCOTERMS (International Commercial Terms).

CF- {+ the named port of destination}

Cost and Freight

The delivery of goods to the named port of destination (discharge) at the seller's expense.
Buyer is responsible for the cargo insurance and other costs and risks. The term CF- was
formerly written as C&F. Many importers and exporters worldwide still use the term
C&F.

In the export quotation, indicate the port of destination (discharge) after the acronym
CF-, for example CF- Karachi and CF- Alexandria.

Under the rules of the INCOTERMS 1990, the term Cost and Freight is used for ocean
freight only. However, in practice, the term Cost and Freight (C&F) is still commonly
used in the air freight.

CpF {+ the named port of destination}

Cost, pnsurance and Freight
 The cargo insurance and delivery of goods to the named port of destination (discharge) at
the seller's expense. Buyer is responsible for the import customs clearance and other costs
and risks.

In the export quotation, indicate the port of destination (discharge) after the acronym
CpF, for example CpF Pusan and CpF Singapore.

Under the rules of the INCOTERMS 1990, the term CpF is used for ocean freight only.
However, in practice, many importers and exporters still use the term CpF in the air
freight.

CPT {+ the named place of destination}

Carriage Paid To

The delivery of goods to the named place of destination (discharge) at seller's expense.
Buyer assumes the cargo insurance, import customs clearance, payment of customs duties
and taxes, and other costs and risks.

In the export quotation, indicate the place of destination (discharge) after the acronym
CPT, for example CPT Los Angeles and CPT Osaka.

CpP {+ the named place of destination}

Carriage and pnsurance Paid To

The delivery of goods and the cargo insurance to the named place of destination
(discharge) at seller's expense. Buyer assumes the import customs clearance, payment of
customs duties and taxes, and other costs and risks.

In the export quotation, indicate the place of destination (discharge) after the acronym
CpP, for example CpP Paris and CpP Athens.

DAF {+ the named point at frontier}

Delivered At Frontier
 The delivery of goods to the specified point at the frontier at seller's expense. Buyer is
responsible for the import customs clearance, payment of customs duties and taxes, and
other costs and risks.

In the export quotation, indicate the point at frontier (discharge) after the acronym DAF,
for example DAF ‘uffalo and DAF Welland.

DES {+ the named port of destination}

Delivered Ex Ship

The delivery of goods on board the vessel at the named port of destination (discharge), at
seller's expense. Buyer assumes the unloading fee, import customs clearance, payment of
customs duties and taxes, cargo insurance, and other costs and risks.

In the export quotation, indicate the port of destination (discharge) after the acronym
DES, for example DES Helsinki and DES Stockholm.

DEQ {+ the named port of destination}

Delivered Ex Quay

The delivery of goods to the quay (the port) at destination at seller's expense. Seller is
responsible for the import customs clearance and payment of customs duties and taxes at
the buyer's end. Buyer assumes the cargo insurance and other costs and risks.

In the export quotation, indicate the port of destination (discharge) after the acronym
DEQ, for example DEQ Libreville and DEQ Maputo.

DDU {+ the named point of destination}

Delivered Duty Unpaid

The delivery of goods and the cargo insurance to the final point at destination, which is
often the project site or buyer's premises, at seller's expense. Buyer assumes the import
 customs clearance and payment of customs duties and taxes. The seller may opt not to
insure the goods at his/her own risks.

In the export quotation, indicate the point of destination (discharge) after the acronym
DDU, for example DDU La Paz and DDU Ndjamena.

DDP {+ the named point of destination}

Delivered Duty Paid

The seller is responsible for most of the expenses, which include the cargo insurance,
import customs clearance, and payment of customs duties and taxes at the buyer's end,
and the delivery of goods to the final point at destination, which is often the project site
or buyer's premises. The seller may opt not to insure the goods at his/her own risks.

Q5 m  m  "mm  m   #  " 

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A standard, commercial letter of credit (LC[1]) is a document issued mostly by a financial
institution, used primarily in trade finance, which usually provides an irrevocable payment
undertaking.

The letter of credit can also be payment for a transaction, meaning that redeeming the letter of
credit pays an exporter. Letters of credit are used primarily in international trade transactions of
significant value, for deals between a supplier in one country and a customer in another. In such
cases, the International Chamber of Commerce Uniform Customs and Practice for Documentary
Credits applies (UCP 600 being the latest version).[2] They are also used in the land development
process to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will
be built. The parties to a letter of credit are usually a beneficiary who is to receive the money,
the issuing bank of whom the applicant is a client, and the advising bank of whom the
beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or
canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if
any. In executing a transaction, letters of credit incorporate functions common to giros and
Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive
payment include a commercial invoice, bill of lading, and documents proving the shipment was
insured against loss or damage in transit.
‘ill of Lading
A bill of lading (‘L - sometimes referred to as ‘OL or ‘L) is a document issued by a carrier to
a shipper, acknowledging that specified goods have been received on board as cargo for
conveyance to a named place for delivery to the consignee who is usually identified. A  
bill of lading involves the use of at least two different modes of transport from road, rail, air, and
sea. The term derives from the verb "to lade" which means to load a cargo onto a ship or other
form of transportation.

A bill of lading can be used as a traded object. The standard short form bill of lading is evidence
of the contract of carriage of goods and it serves a number of purposes

ë| It is evidence that a valid contract of carriage, or a chartering contract, exists, and it may
incorporate the full terms of the contract between the consignor and the carrier by
reference (i.e. the short form simply refers to the main contract as an existing document,
whereas the long form of a bill of lading (Ô



 
) issued by the carrier
sets out all the terms of the contract of carriage);
ë| It is a receipt signed by the carrier confirming whether goods matching the contract
description have been received in good condition (a bill will be described as Ô

if the
goods have been received on board in apparent good condition and stowed ready for
transport); and
ë| It is also a document of transfer, being freely transferable but not a negotiable instrument
in the legal sense, i.e. it governs all the legal aspects of physical carriage, and, like a
cheque or other negotiable instrument, it may be endorsed affecting ownership of the
goods actually being carried. This matches everyday experience in that the contract a
person might make with a commercial carrier like FedEx for mostly airway parcels, is
separate from any contract for the sale of the goods to be carried; however, it binds the
carrier to its terms, irrespectively of who the actual holder of the B/L, and owner of the
goods, may be at a specific moment.

2$  m m% m   m m & mm

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Entry strategies
There are a variety of ways in which organisations can enter foreign markets. The three main
ways are by direct or indirect export or production in a foreign country (see figure 7.2).

Exporting

Exporting is the most traditional and well established form of operating in foreign markets.
Exporting can be defined as the marketing of goods produced in one country into another. Whilst
no direct manufacturing is required in an overseas country, significant investments in marketing
are required. The tendency may be not to obtain as much detailed marketing information as
compared to manufacturing in marketing country; however, this does not negate the need for a
detailed marketing strategy.

Figure 7.‰ Methods of foreign market entry

The advantages of exporting are

ë

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The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of
control has to be weighed against the advantages. For example, in the exporting of African
horticultural products, the agents and Dutch flower auctions are in a position to dictate to
producers.

A distinction has to be drawn between passive and aggressive exporting. A passive exporter
awaits orders or comes across them by chance; an aggressive exporter develops marketing
strategies which provide a broad and clear picture of what the firm intends to do in the foreign
market. Pavord and Bogart2 (1975) found significant differences with regard to the severity of
exporting problems in motivating pressures between seekers and non-seekers of export
opportunities. They distinguished between firms whose marketing efforts were characterized by
no activity, minor activity and aggressive activity.

Those firms who are aggressive have clearly defined plans and strategy, including product, price,
promotion, distribution and research elements. Passiveness versus aggressiveness depends on the
motivation to export. In countries like Tanzania and Zambia, which have embarked on structural
adjustment programmes, organisations are being encouraged to export, motivated by foreign
exchange earnings potential, saturated domestic markets, growth and expansion objectives, and
the need to repay debts incurred by the borrowings to finance the programmes. The type of
export response is dependent on how the pressures are perceived by the decision maker. Piercy
(1982)3 highlights the fact that the degree of involvement in foreign operations depends on
"endogenous versus exogenous" motivating factors, that is, whether the motivations were as a
result of active or aggressive behaviour based on the firm's internal situation (endogenous) or as
a result of reactive environmental changes (exogenous).

If the firm achieves initial success at exporting quickly all to the good, but the risks of failure in
the early stages are high. The "learning effect" in exporting is usually very quick. The key is to
learn how to minimise risks associated with the initial stages of market entry and commitment -
this process of incremental involvement is called "creeping commitment" (see figure 7.3).

Figure 7.3 Aggressive and passive export paths

Exporting methods include direct or indirect export. In direct exporting the organisation may use
an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect, the Grain
Marketing Board in Zimbabwe, being commercialised but still having Government control, is a
Government agency. The Government, via the Board, are the only permitted maize exporters.
Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya may be merely a
promotional body, dealing with advertising, information flows and so on, or it may be active in
exporting itself, particularly giving approval (like HCDA does) to all export documents. In direct
exporting the major problem is that of market information. The exporter's task is to choose a
market, find a representative or agent, set up the physical distribution and documentation,
promote and price the product. Control, or the lack of it, is a major problem which often results
in decisions on pricing, certification and promotion being in the hands of others. Certainly, the
phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting very
demanding. Similarly, exporters are price takers as produce is sourced also from the Caribbean
and Eastern countries. In the months June to September, Europe is "on season" because it can
grow its own produce, so prices are low. As such, producers are better supplying to local food
processors. In the European winter prices are much better, but product competition remains.

According to Collett4 (1991)) exporting requires a partnership between exporter, importer,

government and transport. Without these four coordinating activities the risk of failure is
increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital
role in the logistics procedures such as booking air space and arranging documentation. A typical
coordinated marketing channel for the export of Kenyan horticultural produce is given in figure
7.4.

In this case the exporters can also be growers and in the low season both these and other
exporters may send produce to food processors which is also exported.

Figure 7.4 The export marketing channel for Kenyan horticultural products.

Exporting can be very lucrative, especially 'if it is of high value added produce. For example in
1992/93 Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural
produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56 million. In some
cases a mixture of direct and indirect exporting may be achieved with mixed results. For
example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or may
sell it to a relief agency like the United Nations, for feeding the Mozambican refugees in Malawi.
Payment arrangements may be different for the two transactions.

Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one
country agrees to permit a company in another country to use the manufacturing, processing,
trademark, know-how or some other skill provided by the licensor".

It is quite similar to the "franchise" operation. Coca Cola is an excellent example of licensing. In
Zimbabwe, United Bottlers have the licence to make Coke.

Licensing involves little expense and involvement. The only cost is signing the agreement and
policing its implementation.

Licensing gives the following advantages

ë Good way to start in foreign operations and open the door to low risk manufacturing
relationships
ë Linkage of parent and receiving partner interests means both get most out of marketing effort
ë Capital not tied up in foreign operation and
ë Options to buy into partner exist or provision to take royalties in stock.

The disadvantages are

ë Limited form of participation - to length of agreement, specific product, process or trademark

ë Potential returns from marketing and manufacturing may be lost
ë Partner develops know-how and so licence is short
ë Licensees become competitors - overcome by having cross technology transfer deals and
ë Requires considerable fact finding, planning, investigation and interpretation.

Those who decide to license ought to keep the options open for extending market participation.
This can be done through joint ventures with the licensee.

Joint ventures

Joint ventures can be defined as "an enterprise in which two or more investors share ownership
and control over property rights and operation".

Joint ventures are a more extensive form of participation than either exporting or licensing. In
Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing.

Joint ventures give the following advantages

ë Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with
know-how in technology or process
ë Joint financial strength

ë May be only means of entry and

ë May be the source of supply for a third country.

They also have disadvantages

ë Partners do not have full control of management

ë May be impossible to recover capital if need be
ë Disagreement on third party markets to serve and
ë Partners may have different views on expected benefits.

If the partners carefully map out in advance what they expect to achieve and how, then many
problems can be overcome.

Ownership: The most extensive form of participation is 100% ownership and this involves the
greatest commitment in capital and managerial effort. The ability to communicate and control
100% may outweigh any of the disadvantages of joint ventures and licensing. However, as
mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more
unstable the environment the less likely is the ownership pathway an option.

These forms of participation exporting, licensing, joint ventures or ownership, are on a

continuum rather than discrete and can take many formats. Anderson and Coughlan8 (1987)
summarise the entry mode as a choice between company owned or controlled methods -
"integrated" channels - or "independent" channels. Integrated channels offer the advantages of
planning and control of resources, flow of information, and faster market penetration, and are a
visible sign of commitment. The disadvantages are that they incur many costs (especially
marketing), the risks are high, some may be more effective than others (due to culture) and in
some cases their credibility amongst locals may be lower than that of controlled independents.
Independent channels offer lower performance costs, risks, less capital, high local knowledge
and credibility. Disadvantages include less market information flow, greater coordinating and
control difficulties and motivational difficulties. In addition they may not be willing to spend
money on market development and selection of good intermediaries may be difficult as good
ones are usually taken up anyway.

Once in a market, companies have to decide on a strategy for expansion. One may be to
concentrate on a few segments in a few countries - typical are cashewnuts from Tanzania and
horticultural exports from Zimbabwe and Kenya - or concentrate on one country and diversify
into segments. Other activities include country and market segment concentration - typical of
Coca Cola or Gerber baby foods, and finally country and segment diversification. Another way
of looking at it is by identifying three basic business strategies stage one - international, stage
two - multinational (strategies correspond to ethnocentric and polycentric orientations
respectively) and stage three - global strategy (corresponds with geocentric orientation). The
basic philosophy behind stage one is extension of programmes and products, behind stage two is
decentralisation as far as possible to local operators and behind stage three is an integration
which seeks to synthesize inputs from world and regional headquarters and the country
organisation. Whilst most developing countries are hardly in stage one, they have within them
organisations which are in stage three. This has often led to a "rebellion" against the operations
of multinationals, often unfounded.

Export processing zones (EP
)

Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are
primarily an investment incentive for would be investors but can also provide employment for
the host country and the transfer of skills as well as provide a base for the flow of goods in and
out of the country. One of the best examples is the Mauritian EPZ12, founded in the 1970s.

 
  
 
 
     


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CASE 7.‰ The Mauritian Export Processing
one

Since its inception over 400 firms have established themselves in sectors as diverse as textiles,
food, watches. And plastics. In job employment the results have been startling, as at 1987,
78,000 were employed in the EPZ. Export earnings have tripled from 1981 to 1986 and the
added value has been significant- The roots of success can be seen on the supply, demand and
institutional sides. On the supply side the most critical factor has been the generous financial and
other incentives, on the demand side, access to the EU, France, India and Hong Kong was very
tempting to investors. On the institutional side positive schemes were put in place, including
finance from the Development Bank and the cutting of red tape. In setting up the export
processing zone the Mauritian government displayed a number of characteristics which in
hindsight, were crucial to its success.

ë The government intelligently sought a development strategy in an apolitical manner

ë It stuck to its strategy in the long run rather than reverse course at the first sign of trouble

ë It encouraged market incentives rather than undermined them

ë It showed a good deal of adaptability, meeting each challenge with creative solutions rather
than maintaining the status quo

ë It adjusted the general export promotion programme to suit its own particular needs and
characteristics.

ë It consciously guarded against the creation of an unwieldy bureaucratic structure.

CASE 7.1 Nali Producers - Malawi

Nali group, has, since the early 1970s, been engaged in the growing and exporting of spices.
Spices are also used in the production of a variety of sauces for both the local and export market.
Its major success has been the growing and exporting of Birdseye chilies. In the early days
knowledge of the market was scanty and thus the company was obtaining ridiculously low
prices. Towards the end of 1978 Nali chilies were in great demand, yet still the company, in its
passive mode, did not fully appreciate the competitive implications of the business until a
number of firms, including Lonrho and Press Farming, started to grow and export.

Again, due to the lack of information, a product of its passivity, the firm did not realise that
Uganda, with their superior product, and Papua New Guinea were major exporters, However, the
full potential of these countries was hampered by internal difficulties. Nali was able to grow into
a successful commercial enterprise. However, with the end of the internal problems, Uganda in
particular, began an aggressive exporting policy, using their overseas legations as commercial
propagandists. Nali had to respond with a more formal and active marketing operation. However
it is being now hampered by a number of important "exogenous" factors.

The entry of a number of new Malawian growers, with inferior products, has damaged the
Malawian chili reputation, so has the lack of a clear Government policy and the lack of financing
for traders, growers and exporters.

The latter only serves to emphasise the point made by Collett, not only do organisations need to
be aggressive, they also need to enlist the support of Government and importers.

It is interesting to note that Korey (1986) warns that direct modes of market entry may be less
and less available in the future. Growing trading blocs like the EU or EFTA means that the
establishing of subsidiaries may be one of the only means forward in future.

It is interesting to note that Korey5 1986 warned that direct modes of market entry may be less
and less available in the future. Growing trading blocks like the EU or EFTA means that the
establishment of subsidiaries may be one of the only ways forward in future. Indirect methods of
exporting include the use of trading companies (very much used for commodities like cotton,
soya, cocoa), export management companies, piggybacking and countertrade.