International Business

The SWOT is a useful - if sometimes not fully understood - tool for identifying a company's current and relative (not long-term or absolute) strengths and weaknesses. Done competently, a SWOT analysis can help develop strategy. However, the efficacy of a SWOT is often degraded by the biases of the author or the quality of the data available to the author. The following example is based on a Japanese company's UK operations division and concentrates on logistical considerations.

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The Human Capital Index, which compares the practices of 2000 companies world-wide, found that superior human resource management correlates positively with financial returns (Watson-Wyatt, 2007). A firm's “genetic code” is mainly the composite of its employees’ capabilities, knowledge, and integration. The quality, creativity, self-perception, thinking, and actions of employees is the DNA of the firm. Since few firms are democracies, high-level decision makers are valuable. The genetic code of the firm is a better predictor of success than distinctive or core competencies (Koch, 2011).

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Money laundering can be simply defined as “the act of concealing the source of illegally gotten money”. In the United Kingdom, companies have been under considerable government pressure to create and enforce anti-money laundering policies. This pressure has increased since 2007, when the Money Laundering Regulations were introduced. The following is a synthesis of practices and guidelines (formal and informal) that I have recorded in discussions on matters of corruption and money laundering with procurement and supply chain professionals.

By their nature, international procurement and supply chain transactions are at risk of abuse by parties intent on money laundering. The nature of international business necessitates currency exchange, which can conceal the origins of money. Very large one-off payments for single items, especially if unaccompanied by strong bargaining behaviour, should be treated with utmost suspicion. Effort should be made to receive payments from previously declared and authorised company bank accounts and credit cards. Requests for transfers into and out of unusual currencies, as part payments or whole, should also be treated with extreme suspicion. True cash, i.e. bundles of notes, is to be refused – there is no easier way of transferring ill gotten money and simultaneously putting the receiver at immediate high risk. ...continue reading

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Trade credit is often extended by carriers (for example: operators such as Hamburg Sud, where I worked for a spell) to regular or high-volume/-value customers. For firms who require frequent shipping, credit provision is one benefit of holding managed accounts with the carrier (other benefits are customer service-related). When cash-flow constraints limit the availability of funds, credit facilitates business continuity. When the restraint is lifted (when the funds from a major sale are received, for example), the firm can then repay the credit extended by the borrower. In the case of shipping, firms may experience demand spikes. To meet their orders, firms might have to increase capacity. Any expansion of plant will come at high cost. If overseas orders are particularly voluminous and sudden, the transportation budget that normally covers shipping costs quite adequately will probably be insufficient. To deliver however, the firm will need to ship. Offering favourable credit terms provides firms with much needed flexibility. Carriers who can extend trade credit are especially attractive to small and medium-sized export-oriented manufacturers. The normative assumption is that the customer will repay the carrier when financial stability is re-established.

Normally, credit obtained directly from the shipper is simpler to obtain and cheaper to service than credit obtained from a third party, such as a bank. Trade credit rarely inflicts the interest rates and penalties that characterise bank loans. For the carrier too, trade credit is beneficial: provision of trade credit also allows vessels to sail with an economically rational quantity of cargo. ...continue reading

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International Trade is a risk-prone activity. Transportation related risk is largely external to the firm. That is, transportation is more likely to be interrupted and cargo lost due to factors outside the control of either the selling or buying party. Cargo loss can result from illicit human intervention (crime or terrorism), accidents (crashes, derailments, shipwreck), political incidents (trade embargo or trade war), administrative error (placing of cargo on the wrong vessel), and so on. Such events will incur losses for both the buying and the selling companies. The buyer will be without the product or materials required to continue production or business. The seller may lose the payment from the disappointed buyer. Either or both parties may have to bear the costs of recovering the goods and rearranging onward or return shipment. ...continue reading

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Dishonest, opportunistic, and unscrupulous importers and exporters might to disguise description, value, and/or origin of goods on the export licence documentation. The description of goods submitted to obtain the export licence may not truthfully describe actual contents of a package, carton, or container. This will likely be done in order to evade contraband regulations, that is, to effectively smuggle illicit or controlled items beyond customs borders to supply a black or grey market. Biological items, such as animals and plant life, are common ingredients in exotic foodstuffs. The ecological implications of introducing non-native creatures and flora or fauna could be severely negative. Similarly, endangered species, particularly those that cannot be legally obtained or bred in the United Kingdom, are highly sought after by collectors and producers and consumers of traditional ethnic medicines, so have a very high cash value. This increases the likelihood of illicit import. A genuine description of such an item will result in export licence refusal. If it is successfully exported, truthful labelling will result in immediate inspection and likely confiscation. The importer may also face fines and criminal charges. For this reason, fraudulent descriptions of high-value forbidden items are frequent events. ...continue reading

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With a few exceptions, it is the responsibility of the exporter and importer to declare their import intention to Customs in accordance with the Customs and Excise Management Act (revised). This obligation is typically handled by the freight forwarder, who registers the import entry into HM UK Customs’ database – the “Customs Handling of Import and Export Freight (CHIEF). The CHIEF is accessible to registered organisations such as freight forwarders that are formally authorised by their clients, the importers, to register their imports. Customs permits declarations of intention to import made by parties other than the original importer. Direct and indirect declarations have equal legal validity.

Goods are usually not declared until the moment of their arrival in the UK, registration via CHIEF will occur days or weeks before physical goods meet the physical United Kingdom. Prior registration allows time for performance of creditability checking and speed up the customs declaration process.

Imports can be declared via another online database called the “Customs Freight Simplified Procedure” (CFSP). The CFSP allows less well-prepared imports to be processed. The system has only two requirements: ...continue reading

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A small number of requirements constitute the obligatory protocol of export: a simplified declaration, local clearance, low value/non-statistical procedure (for quota compliance and taxation liability), and a complete declaration.Most of the information required by these procedures can be forwarded as data. Customs likes to keep statistical records of imports, as the data this represents factors into the national balance of payments significantly. Personal effects of low value goods on not of statistical interest, nor are they in most cases dutiable. For example, an ex-patria relocating to the United Kingdom is unlikely to be charged import duties on the importation of used household effects. Low value goods will not be taxed provided their value does not exceed a standard limitation. ...continue reading

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As might be obvious from the previous posts on incorterms, several Incoterms are applicable to waterway transportation only: FAS, FOB, CFR, CIF, DEQ, and DES.

The following Incoterms apply to all modalities, including Intermodal: EXW, FCA, CPT, CIP, DAF, DDU, and DDP.

In some cases, it is advisable to attach wording to Incoterms that clarifies the responsibilities of the buyer, seller, and carrier. For example, use of the term “DDP VAT unpaid” indicates unambiguously that the seller does not bear responsibility for the payment of VAT.

While undeniably useful, Incoterms also have their limitations: ...continue reading

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  1. CFR: Cost And Freight (followed by the named port of destination). This code signifies that the seller bears responsibility for clearing goods exported, delivering those goods beyond the ship’s rail at the port of export, and paying all transportation costs involved in moving the goods to the named port destination. CFR applies only to waterway transport. The “named port of destination” is always domestic to the buyer. Under this code, the buyer assumes all responsibility for risk of loss or damage, and bears any additional transportation costs beyond the ship’s rail at the port of export.
  2. CIF: Cost, Insurance, and Freight (followed by the named port of destination). Under this code, the seller clears the goods for export and bears responsibility for the delivery of the goods beyond the rail at the port of export. The seller of transport to the port of destination, and is responsible for paying and procuring Marine insurance in the name of the buyer. Once the goods have passed beyond the ship’s rail and port of export, they become the buyer’s responsibility. The buyer assumes responsibility for risk of loss or damage at that point and until delivery at the final destination. The “named port destination” is always domestic to the buyer. ...continue reading
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