lnternational trade

De.iding to export The first step in €xporting is likely io inlolve an iniermediary

t\try export? The two mosi important reasotr are likely to be:
1 To increase sales and revenue. Expoiting i{il allow you
In ,lp u J e F u . p d c d p di' h . n , r e a +
"dunliBeof"nl
production,reducemit cosisilrough economiesof.cale
and increase profits if thin8s go well.
,r To diversify. Relying on jrst yotrr own domeshc market is
risklaSelllngto other countriesallows you to splcad the
Bui befoie decidingto export thereis a lot of !6earch to be
done on the foreign market:
/, Backglound:economi. siiuation,poltical stabiliry
(eg lffal agent,distributor).They will have local knowledge
and contacts in the unfamiliar market- If ihings go w€ll,
the exporter may then decide io establish its own presmce
in the foreiSn market such as settinB up a sales office and
wareholse.This allows diiect contactwith cuslom€rs,faster
d e l , r e r ya n d r a r e c o n E o n
l r r h c I n c r lm i - 1 p , .
Two key issuesfor an exporterare a)the method ofpaymeni
seethe tablebelow and b) who pays for transportation.
This latier issueis coveredin the contiactby specltyingthe
relevantlncotem (IntemationalCommer.ial Term)for iliat
particllar consiSnment(= quantity of goodsshippcd at the

a Markei sizeand likely product demand.

'f Competiiionrsimilar productsalreadyin the market.
,, Disiribution channels:agents(who act on your behau and
receivea commission/but don'i buy goodson their own
account),or distribuiors (who actuallypulchasctoods
from you for resale,likea wholesaler).
,, Promoiionalmaterial:salesand support matcrial needed
in the loc.l lanSuage.
1,,customcrservice:Proceduresforenquiries,comPlaints,
w.rrrarltyclaims,servicing,€tc.
,, Lcgal rcquircments:iechnical,safetyand cnvironmental
Other options
Exporiing is one way to selLyour goodsinto a foreign narket,
b r . rt h e r ca r eo t h e ro p l i o n s . rr i l r b l e r o L r r 8 ecr o m f . _ . rr
/j, Ioint venhtre:two companies(a foreign companyancl
a localpartner)work iogetherbrt keep their own lcgal
r ForeignDirect Invesiment(FDl): a busin€sssetsLrp
operationsin a foreign couniry,or acquires(= buys).
'oca' comPany.
r Licensing:. companysellsthe right to usc a patented
manufacturingprocess,orsomecommercialerperiise,
or a irad€mark,in exchangefor. feeor a royalty.One
particularcaseof this is franchising.

L€tte.of credit(UC)
paymentto
one bankguarantees
(Pre-payment) anotherbank.Theirnpo er
Cash-in-advance Pays
Documentary
collection
Theimpoderpay$th€ invoiceln whenlhe exporlerpresenlscenain A cheapervaiationof an L/C.The
advance,beforeshipment. Whe.e listeddocumenlsto theirbank. lwo banksmakeno guarantees,
ih6y onlypaya part in advance,it's Typicaldocumenlsneededare: but simplyhandlethe exchangeoi
calleda 'downpayment'. lransponation documenls{eg bill
of lading),insurance
documenis,
commercial documenls(eg invoice).

oderaccouni Consignment
Durc..has€
Thesuppliefshipslhe goods,and
Theimporterreceiveslhe goods
the importerpayslaler,according
and holdslhemin stock,but only
to lhe termsof lhe contraci.Thisis pays lor them afterihey have been
morersky,and is onlyusediflhe
soldto the end users.
lmponerhasestablisfred a qood
credlthislory.

LO
 TRADE
3 INTERNATIONAL

Exercises
3.1 Find a word in the text opposite that matches each 3.4 completethe text about Incotermswith the words in
definition below. The words appear in order the box. Noticethe glossaryat the bottom.
1 fthreeworc&)spreadng cons ov€f d ldrgernumberoi
un ts, and ihereforeproducng th ngs moreche:ply ./€arrr.e customr .iacunentation freight
handling laading ptentses temlnal ttansi ttu.k
2 (threewords)instead of you
of you,or dsa representatve
What are ln(oterms?
3 wrttenpromise
thata company 1
w reparsomethnglf lncotermt of buyerandseler n
statethe responsiblties
relatonto marnetranspodatonnotjusttheshrpping
4 b q bu d ngwherelargeamounts
ol qoods
arenored costsslch as nsurance,
cosls,but all otherassociated
' andqrcund
duties,
s sp€calrks or knowledge
6 nameor designon d productthatshowsrts m.de by d
partcudr compdny The buyerpaysfor the seacrossing
7 non€ypdd ior professona setuce5,or a one'tim€amount A prcequotedEXWiswherethe te ler makesthe goods
avail.ble.lthelrownr , anolne
8 moneypaidto sorn€one you'r€
whosedeasor invenlrons buyercolleclsthemthere.Thebuyerhasrespons billtyfor a
U ,n g costsandrsksfromthal po nt onwards.
lhe othertranspori
Now do the samefor th€ wordsin'Financing lf th€prceisFAS,lhen theseer a socovers
thecostof
internationaltrade' opposite-
9 document (aleocalleda 'b ')
reqlestnq paynrent p o ( o l s hp m e n t a
. n d o f ! n l o a dn g t h e . o n t an € 6 o n t ot h e
'roo ne ouyerpaysror -
1A fthreewotds) n givn9 d€ta! of goodsthata shrp.etc|s shrpp usa the.ons fromthatpo nt.
carryng,. so actEasa conlractto tr.nsportlhosegoods FOBs alrnostthesame,exceptherethesellerpaysfor
oadrnqontotheshrp,nottheb!ye.

3.2 Make phrasesby matching an it€m from each Thesellerpayslor the seacrossing
N o { + F g o o d _a ' " 0 1 _ l - F . l r p i 1 " p r p a sb e " - ' " 1
so that the se er also paysthe '
lun yourdom€et
c m.rket
(= goodsand the ryslemof movrngtheseqoodt cons,
2 relyon behali
on somebodys
3 spredd - of anyunderured
capac
1y then thererre f!rlher hcoterrnsto be used
thenik Wrth CFRthe seler paysthe lreght costsand handlesthe
5 estab sh a presence to the termsof the contra.l expon 7 (= paperwork),bLrtdoes
not pay lhe nsuranc€wh le the goodsare n
7 h a n de i h e e x . h a n q e lega dentiy s a t s e a .W i h C F i h e s e l e rp a y s
8 pay accordnq nsurancers well. 8ut in both casesthe r responsbi ty
endsat the port ol denination,wh le the goodsarc st on
3.3 Studythe methodsof paymentshown in the box board.The buyerhas responsbilty for unloadnq iees, oca
opposite.Thencompletethe diagramby writing the five noraqe at a e , the mpo( cen.e,
methodson the horizontalaxis. duti€sand tax€s,the custombroker'sfeesand onward
de iveryto th€ buyer'sown premses.
In rhe final c.se, DDq it! lhe sellerwho paystor
everything,and who also hdsto handledny clstoms
'o probems.The buyerhas no
.dditonalcosts or isks at all but of (oLrrsethe pnce
RISK
quoted in the contfactw I reflectthis!

EXW Exworks C F RC o n & F € g h t

tAs: kee A ongsde ship C F r C o n , l n s ! r a n&
. eF r e g h t
DDP Delivered DutyPad

I Y P E SO F F I N A N C I N G S e ep a g €1 4 6J o r s o m e d i s c u s s i o tno p i c s .

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