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What Is International Trade?: Topic 1: Introduction
What Is International Trade?: Topic 1: Introduction
International trade is the exchange of goods, services or performance ( một công đoạn sản xuất-
thuê ngoài outsource ) and capital across international borders ( biên giới) or territories ( lãnh thổ )
Border : a line separating( phân chia) two political or geographical areas, especially countries.
Territory : an area of land under the jurisdiction( quyền thực thi pháp lý ) of a rule or state
Jurisdiction : the official power( quyền lực chính quyền) to make legal decisions and judgments
( xét xử )
Buyers :
- Require raw materials or components ( linh kiện ) for production that cannot be sourced from
domestic market.
- Unable to manufacture in the domestic market
- It is cheaper to have product manufactured oversea ->> outsource ( thuê ngoài )
- Import products for selling ( distributor or agent- đại lý )
Sellers:
The buyer is a person or organisation that wants the business to provide the goods or services in
exchange for a payment. (importer, final consumer, distributor, agent)
A seller is a person or organisation that provides the goods or services ( exporter, manufacturer,
distributor,agent.)
Services : intangible goods ( hàng hóa vô hình), such as banking services, transportation services ,
processing ( chế biến) , tourism ( du lịch )
- Make communication more difficult -> additional delays ( trì hoãn), and costs and
misunderstandings
- It is more difficult to enforce ( tuân thủ ) contractual( hợp đồng ) rights and obligations ( nghĩa
vụ )
Documentation complex:
- Differences in laws and regulation : common law- thông luật ( precedent – case law – tiền lệ
pháp + civil law – luật ban hành )
- Tariffs, non-tariffs, new legislation – pháp chế ( certificate requirement- yêu cầu chứng chỉ, new
agreement – hiệp ước between countries, and convention - công ước ) facilitate / hinder –
thuận tiện / trở ngại trade
- Fail to update new laws and regulation legal risk
- Foreign currency / exchange rate fluctuation- sự giao động causes unexpected – không mong
đợi financial gains- mục tiêu tài chính or loss ( against – đối với domestic curencies )
- Longer journey with take more times and costs bear more transportation risks buy
insurance ( costly )
Operational risk
- Operational risk = Risk occurs during business operations (production, sales & marketing,
management, logistics...)
- There is a greater probability of operational risk (such as employee error, employee fraud, failed
systems, poor communication) in international trade (why?)
- Risk occurs due to differences in legal system of different countries (common law/ civil law,
different regulations) or failure in update laws and regulation
- An unexpected profit or loss (in domestic currency) in a transaction due to the movement of
exchange rate, or in other words, the fluctuation of one currency (strengthening or weakening)
against other currencies
- Factors that influence the choice of currency:
+ Relative bargaining power (what if the buyer has a stronger bargaining power?)
+ Customs and practice (oil = USD)
Financial risks
- Working capital: is the difference between a company's current assets, such as cash, accounts
receivable (customers' unpaid bills) and inventories of raw materials and finished goods, and its
current liabilities, such as accounts payable (suppliers).
- Working capital cycle: The time gap (time period) between the receipt of payment from the
customers and the payment for materials/components/goods to the suppliers
- The working capital cycle for an international trade transaction is usually a great deal longer
than that for a domestic transaction (longer time for shipment - shipment of materials, finished
goods, in order to secure an export sale, the seller may have to grant extended sales term)
- Financial risk is risk occurs when a company fails to make payment to lenders (suppliers, banks,
informal lenders)
- Financial risk is higher when we have longer working capital cycle
This additional time may put a strain on the working capital facility of a business and it may
need additional finance in order to fund the (working capital cycle) time gap between shipment
and receipt of payment (for example, the buyer may make a deposit or the seller use some
trade finance products provided by banks)
Counterparty risk
Credit risk
- Credit risk will not only include the risk of the buyer not paying for the underlying goods but can
also incorporate the country of the buyer's government.
- For example, a country with a poor credit risk rating may have difficulties in its ability to make
funds available to buyers to pay for goods or services purchased from overseas.
Transport risk/ Transportation risk/ Risk of transporting
- The length of time the goods will need to travel to get to their final destination will be much
further than for a domestic transaction. This poses additional risk that there will be more chance
of the goods being damaged or tampered with while in transit
- --> Solutions: Appropriate insurance is available to cover such risks
- Money laundering
- Tax invasion
- Forged documents
- What are risk mitigants in international trade? (NAME, THEIR SERVICES & ACTIVITIES, WHAT
TYPES OF RISKS THEY MITIGATE? HOW THEY CAN MINIMIZE SUCH RISKS)
Risk mitigants Who are they? Services they Types of risk they
provide can mitigate
- What are business organizations? Types of business organization? (ÔN LẠI CÁI BẢNG KHÔNG
CẦN ĐỌC SÁCH
Types of business One owner 2 owners Unlimited Limited Shares are Shares
organization and more liability liability traded on are not
( trách ( trách the open traded
nhiệm vô nhiệm hữu market on the
hạn , trả hạn , chi open
toàn bộ trả nợ market
nợ , truy trong tài
đòi đến tài sản của
sản cá nhân công ty )
)
Sole proprietor X X Share are not traded
/trader ( doanh
nghiệp 1 thành
viên)
Partnership X X
( công ty hợp
danh )
Limited liability X X
partnership
( công ty hợp
danh trách
nhiệm hữu hạn )
Limited X General Limited
partnership partners partners
( công ty hợp ( cổ đông ( cổ công
danh hữu hạn ) góp vốn góp vốn
ban đầu sau )
thành lập )
Limited X X
corporation ( tập
đoàn hữu hạn )
Private limited X X X
companies ( công
ty cổ phần nội bộ
)
Public limited X X X
companies ( công
ty cổ phần đại
chúng )
Lưu ý phân biệt ICC và WTO (loại hình tổ chức, services & activities)
So sánh ICC_ the International Chamber of Commercial WTO _ the World Trade
( văn phòng thương mại quốc tế ) Organization ( tổ chức thương mại
thế giới )
Loại hình The world business organization , a presentative The largest multilateral agreementt
tổ chức body that speaks with authority on behalf of was formed in 1995
enterprise from all sectors in every part ò the
world.( 1919)
Activities Rule setting Provide a forum for negotiating
and Dispute resolution agreements
services Policy advocacy Contributing to economic growth
and development
A legal and institutional framework
for the implementation and
monitoring of these agreements.
Sources Types of information
- SEO tool
Networking - Seminars & Conferences held by local chambers of
commerce or trade associations: Other people who have
recent experience in international trade are often an
excellent source of advice and information
- Methods of entering an overseas market: manufacturing at home (direct & indirect export, co-
marketing); manufacturing abroad (joint venture, licensing/franchising) (WHAT IT IS, HOW IT
WORKS, ITS ADVANTAGES/DISADVATAGES, COMPARE ITS WITH OTHER METHODS)
Direct exporting
Advantages:
- More control over the whole export process, potentially higher profits (economies of scales)
- Close relationships with overseas customers which can help with future marketing efforts.
Disadvantages:
- Requirement of more time (market research, search and negotiate with export service
providers: carrier, insurer, customs office, marketing, branding)
- More cost to employing more staff with specialist experience
- Higher risk (all risks), reduce risk --> costly
Indirect exporting
Advantage:
- Provides a route to international market with less risks due to export services of the
intermediary (legal risk, operation risk, credit risk....)
Disadvantages:
- Loss of market control
- Shared profits.
Joint venture
Advantages:
- More resources (money, skill, knowledge, patent) for business development
- Reduce entry risks to overseas market by using local partner
- The local partner will have greater understanding of the legal framework and business culture
of that country
- Reduce labour and overhead costs (transporation costs, warehouse costs, market research,
legal costs) compared to manufacturing in the domestic country and exporting to the overseas
target country
Disadvantages:
- Imbalance in the levels of investment and expertise provided by one party
- Potentially conflicting management styles, business cultures and operational styles as well as
strategic objectives (madam huong, kem danh rang da huong)
- Complex to set up. take a great deal of time and money to find the right partner
Franchising/ licensing
Advantages:
- Low cost and low risk to enter into a foreign market
- Save time for international expansion
- Raise international brand awareness
Disadvantages
- Risk of counterfeiting
- Risk of brand deterioration (when franchisee or licensee provide poor products or services or
involve in scandals)
- Little control over the franchisee's or licensee's business activities --> Little control over brand
image in the international market
(However, a franchisor has more control over its franchisees than that betwen a licensor and its
licensees because of the same type of business.
- Intermediaries in international trade which are needed when indirect export is used:
DIFFERENCES BETWEEN AGENTS & DISTRIBUTORS; DIFFERENCES AMONG EXPORT
MANAGEMENT COMPANIES, EXPORT TRADING HOUSES, CONFIRMING HOUSES AND BUYING
AGENTS)
-
Earn a profit x
.
- What are sources of law governing the contract?
Convention or agreements among/ between countries (Convention 1980)
Laws of a specific country
International practices and customs (ICC - Incoterms)
- Answer all questions about CISG & Incoterms in the slide
1. What is the CISG about?
Legal issues regrading the formation of contract, basic obligations and rights of the buyer
and the seller reagarding the sale of goods
2. Who did develop the CISG? When?
CISG was developed by the United Nations Commission on International Trade Law
(UNCITRAL). CISG was signed in Vienna in 1980 (11 countries) but come into force in 1998
3. Is the CISG signed by whom?
By contracting states/ country members
4. How many countries have ratified the CISG?
80
5. Who will use the CISG?
Contracting parties (to avoid choice of law), courts and arbitrators
6. What are benefits of the CISG?
The CISG was written in a style that use plain language and translated into six languages so
that it can be easily interpreted bu the contracting states and avoids local domestic legal
terminologies
SMEs and traders located in developing countries can often have a relatively weak
bargaining position when dealing with larger counterparties from the developed world. They
generally lack access to legal advice when negotiating a contract. By providing fair and
uniform regulations for contracts failing under its scope, the CISG can be particularly
beneficial to such businesses.
a. What are the downside of the CISG?
The multiple-language versions of the treaty are not consistent with each other Incomplete
(does not consider electronic contracts, nor the sale of services and does not govern the validity
of the contract
b. If Vietnam has joined the CISG? We do not need pass through any laws and regulations about
contract
c. What are Incoterms about?
Incoterms establish a clearly defined point of delivery of the goods to indicate where the seller's
responsibility ends and where the buyer's responsibility begins --> defines the scope of the
payment of frieght and insurance of the goods while in transit.
d. What are the benefits of using Incoterms?
Provide a set of standardized terms that mean exactly the same to both parties and interpreted
in the same way by courts in every country
e. What are “Shipping terms” and “terms of delivery” about?
- What are three means of resolving a dispute? (NAME, ADVANTAGES & DISADVANTAGES)
Reaching a mutually satisfactory compromise
• Cheap
• No third-party fees (arbitrators or lawyers)
• If successful, it will get in the way of future opportunities for doing business together
Arbitration
• There are costs involved
• close
Presenting to courts
• Usually a last resort
• Because of the uncertainty of outcome, the cost and the bad feeling
• Open
- Documents used in international trade (REMEMBER WE HAVE 4 TYPES OF DOCUMENT AND
NAMES OF MANY SPECIFIC DOCUMENTS, YOU SHOULD CATEGORIZE WHICH DOCUMENTS
BELONG TO WHAT TYPE)
- Definitions of Drafts
A bill of exchange is an unconditional order in writing, addressed by one person to another,
signed by the person giving it, requiring the person to whom it is addressed to pay on demand
or at a fixed or determinable future time a sum certain in money to or to the order of a specified
person or to bearer”
Promissory Note :An unconditional promise in writing made by one person to another signed by
the maker, engaging to pay, on demand at a fixed or determinable future date a sum certain in
money to, or to the order of, a specified person or bearer.
- Parties in a draft
Drawer: The originator of a draft ( who draw a draft)
Drawee: The buyer/ the buyer's bank (To....)
Payee: The beneficiary of the draft § Acceptor: The drawee
Endorser: The beneficiary of the draft who has their names in the draft and can sign on
the back of a draft to negotiate it
- Different types of draft
Maturity date
Clean bill
Documentary bill
Beneficiary
• Nominal bill
• Order bill