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International Business
Operations
Lecture 2/13
26.9.2019
Ing. Eva Křenková, Ph.D.
Office hours: every Monday 11:00 – 12:00
NB213
E-mail: eva.krenkova@vse.cz
 Fall 2019 (!!the schedule can be adjusted during the semester!!)
LECTURE SEMINAR
19.9. Risks Introduction
26.9. Market entry modes Case studies - risks
3.10. International sales contract Case study 3.4 – Export quotation
10.10. Delivery terms International sales contract – documents
17.10. Terms of payment Case study 4.4 – Calculating export price
24.10. Bill of Exchange, check Case study – market entry
31.10. Documentary credit Midterm TEST, Practicing bills of exchange
7.11. Financing Practicing L/C
14.11. Logistics Factoring, forfaiting, leasing
21.11. Logistics Practicing logistics and insurance
28.11. Insurance Case studies – freight calculation
5.12. Customs clearance Preparation for the final + 1st presentation
12.12. Intra-EU trade, VAT Presentation of the term projects 3
Last week at 2MO352 lecture …

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• Certain categories of products must bear CE marking
if you intend to sell them in: the EU or member states of EEA
• A CE mark is a manufacturer’s claim that its product meets specified
essential safety requirements set out in relevant European
directives.
• Different types of product are governed by different European
directives.
• Under the regulations, products that conform to the relevant
safety standards are CE marked and can be placed on the market
across the EEA.
• Failure to do so can result in prosecution.
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016XC0726(02)&from=BG
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• If the producer supplies consumer products
which aren’t covered by these specific directives,
they must not be CE marked.

• However, the producer still has a general duty to ensure

they are safe for normal or reasonably foreseeable use
under the General Product Safety Regulations

Exporters:
https://ec.europa.eu/growth/single-market/ce-marking/manufacturers_en

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Importers
• When importing from non-EU countries,
importers must check that products fulfil all EU safety,
health and environmental protection requirements before
placing them on the market.

The importer has to verify that:

• the manufacturer outside the EU has taken the necessary
steps to allow the product to be placed on the EU market
• the necessary documentation such as the EU Declaration of
Conformity and the technical documentation is available
upon request
• contact with the manufacturer is possible at any time

Importers:
https://ec.europa.eu/growth/single-market/ce-marking/importers-distributors_en 7
 Topic of today …

Market Entry Strategies

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• The decision of market entry mode will be
influenced by several factors:
– Trade policy conditions
– Economic environment
– Political environment
– Legal environment
– Characteristics of products
– Characteristics of business partners
– And other

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 The mode of entry to
foreign markets

Export and
import of
goods and Non-equity mode
services of entry
TRADE CONTRACTING

Equity mode
of entry
INVESTMENT
Export and Import of goods and services
• Direct export
• Indirect export
– Export via wholesalers and retailers; Distributorship
– Exclusive distributor
– Commercial agent
– Commission agent

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• Direct export
– export without any external assistance
– B2B, B2C

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• Distributorship
– Wholesalers and retailers run a business in their
own name, on their own account and take all of
associated risk
– Their gain is price margin = the difference
between buying and selling price

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• Exclusive distributor

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• Exclusive distributor
– The contractor agrees that the goods specified in
the contract will not be supplied in a given area
to a person other than the customer
– !clear specification of the area
– !clear specification of the type of goods
– !distributorship contract in written form

Source:15ICC
• Commercial agent

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• Commercial agent
– Commercial agent is an independent sales representative.
– Agents do not buy the goods or take ownership of them.
– The principal contracts directly with the customers. The
agent only „introduces“ the principal and buyers by
conducting marketing and prospecting activities in the
territory.
– The agent finds parties interested in concluding such
commercial transactions as are specified in the contract.
– Without being given the power of attorney by the principal
the commercial agent may not, in the name of his
principal, conclude commercial transactions, receive
performance for him, or undertake other acts of law in the
name of the principal.
– The agent is an intermediary.
Source: IBO,
17 ICC
• Commercial agent
– Agency contract require careful drafting because they govern
longlasting relationship
– Must be in writing
– DUTIES OF AGENT
• To use reasonable diligence
• To disclose all material facts
• Not to make secret profits
• Not to divulge confidential information
• To account to the principal
– DUTIES OF THE PRINCIPAL
• To pay the commision
• Agent´s expenses and indemnity – only if such reimbursement was
agreed on
• Commision on repeat orders - ?
• Principal´s ability to accept or reject orders - ?

Source:18ICC
• Commercial agent
• Del credere contracts
– Under such contract the agent agrees to
reimburse the principal for any loss the principal
may suffer from non-payment by the customer.
Because the potential exposure of the agent
under such an agreement is great, these
agreements are frequently subject to legal
limitations on the extent to which the agent must
indemnify the principal
• 100 % reimbursement
• Limited percentage reimbursement

Source:19ICC
• Commercial agent
• Termination of contract
– The agent is entitled to an indemnity after
termination of his contract if the commercial agent
has acquired new customers for the principal or has
significantly increased the volume of business for
the principal with existing customers and the
principal continues to derive substantial benefits
from the business with such customers

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• Commercial agency vs. distributorship
..?… contract
Principal Customer

…?… contract Sales

Agent
Pitch

Customer

Principal Distributor
Customer
…?… contract Stocks
and
Sales Customer
…?…. contracts
Service

Source:21ICC
• Commission Agent´s Contract
– Commission agent undertakes to arrange in his
own name, but at the principal´s account a
certain business matter for the principal, and the
principal undertakes to pay him a commission for
his services

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• Commission agent
• DUTIES OF THE AGENT
– Transfer to the principal , without due delay, the
rights acquired as a result of arranging certain
business transaction on his behalf and turn over
to him everything that he has acquired as a result
of such transaction

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• Commission agent
– Ownership title to movables entrusted to the
commission agent for sale is held by the principal
until title to them passes to a third party
– If the person with whom the commission agent
concluded a contract for his principal breaches his
obligations towards the principal, the commission
agent is obliged, on account of the principal, to
demand fulfilment of these obligations or, if the
principal agrees, to pass to the principal the claims
arising from these obligations

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Non- Equity Modes of Entry to Foreign
Markets
• Companies take adventage of transfering
know-how while exploiting the facilities of
their foreign partners
• Licencing
• Fanchising
• Management contracts
• Cooperation agreements

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 Licencing
• Permission to use an intangible asset by
another person,
such as manufacture an invention protected
by a patent

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 Licencing
• Reasons for selling the rights to foreign intangible
assets
– Will enable to establish production
– Trade barriers do not permit direct export
– Political instability
– Reciprocal commercial advantage
– And other

• Reasons for buying the rights to foreign intangible

assets
– Not enough means to develop its own R&D
– Foreign patent is protected that no original solutions are
possible
– Protection exists in foreign country

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 Franchising
• Franchisor grants a franchisee the right to
exploit a bundle of intellectual property rights,
brand goodwill and business strategies in
exchange for payments which are usually
calculated as a percentage royalty on sales.
• Franchise fee – initial franchise fee – one-time
payment
• Royalty fee – ongoing fee; usually % of gross
sales (5-9%)
Source:28ICC
 Franchising
• Franchisor may seek to expand internationally
either through
– Direct franchising
– Master franchise

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• Franchising in the Czech republic
• Examples:
BENU Lékarna, McDonalds, Cross Café,
Potrefená husa, The PUB, Mercure, ibis, ReMax

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