HRES
Human Resource Information System
(HRIS)
Human Resource Information System
(HRIS) is the composite of databases,
computer applications, hardware and
software that are used to collect, record,
store, manage, deliver, present, and
manipulate data of human resource. -
Broderick and Boudreau (1992)
HISTORY OF HRIS...
• 1950's - Virtually non-existent
• 1960's - Only a few vendors.
• 1970's - greater need in
organizations.
• 1980's - HRIS - reality in many
organizations.
• 1990's - Numerous vendors
specialties.
FUNCTIONS OF HRIS
• Create and maintain employee
records.
• Ensure legal compliance.
• Forecast and plan future HR
requirements.
• Reduces the manual work.
• Assist managers by providing the
relevant data.
HRIS - STAGES OF DEVELOPMENT
Primary level (EDP Stage)
• Focus on data storage, processing,
and information flows.
• Restricted to payroll and storing
basic details of employees.
Secondary level (MIS Stage)
• Increased report generation
flexibility.
• Intended in control of operations and
budgeting.
Tertiary level (DSS Stage)
• More interactive and capable of
developing decisions on many
strategic issues.
• Intended in competency mapping of
existing manpower, their future
utilization, training and development
initiatives, suitable compensation
packages etc.
AREAS OF HRIS
• Personal employee information.
Wages and salaries.
• Succession planning.
• Calculation of Benefits.
• Education & training. Attendance.
• Performance appraisal.
• Strategic planning.
OPERATIONAL HRIS
• Operational HRIS provides data to
support routine and repetitive human
resource decisions.
• Information is detailed, structured,
accurate, and internal.
STRATEGIC HRIS
• Strategic HRIS helps top level
managers to set goals and directions
for organisation.
• Gather and manage information from
within and outside organisation.
TACTICAL HRIS
 • Supports management decisions WORK RE-ALLOCATION
emphasizing allocation of human
• Helping the employees perform
resources.
better through effective career
• The decisions include recruitment
planning and performance
decisions, job analysis and design
management.
decisions, training and development
• Integrating the human resource
decisions, and employee
function with other business
compensation plan decisions.
functions in the enterprise, to serve
APPLICATIONS OF HRIS personnel better.

• Training & Development STEPS IN IMPLIMENTING HRIS

• Compensation Benefits
• Inception of idea.
• Performance Evaluation
• Feasibility of study.
Recruitment • Selecting a project team.
• Defining the requirements.
• Personal Self Service
• Vendor analysis.
• People Administration
• Package on tract negotiations.
• Payroll
• Training.
• Leave and Absence
STEPS CONTR...
BENEFITS OF HRIS
• Tailoring the system.
• Saving time
• Collecting the data.
• Saving costs
• Testing the system.
• Work re-allocation
• Starting the system.
SAVING TIME • Running in parallel. Maintenance.
• Evaluation.
• Saving time leads to efficiency.
• Easy data maintenance. HRIS PRODUCTS
• Administrative processes automated.
• css horizon
• Employee "self-service".
• elabour.com
• Adequate information base that leads
• Genesys
to timely decision making.
• Lawson
• Responding faster to employee
• Oracle
inquiries to enhance efficiency and
productivity. • People soft
• Proact
SAVING COSTS • Goodwood hr.com
• Less time spent on tasks = less LIMITATIONS OF HRIS
money.
• Minimum paperwork. • It can be expensive in terms of
• Timely and accurate decision making finance and manpower.
includes less cost.
 • Thorough understanding of the
system is necessary for its
functioning.
• Lack of communication.
• HRIS implemented may be on
poorly done needs analysis.

Human Resource Metrics

STMM
Week 11
PRICING STRATEGY
PRICING DECISIONS
are creating major challenges for many
companies
Threats to major airlines by discount carriers
Pressures on drug companies to reduce
prices.
Intense price competition on supermarket
chains by Wal-Mart and Costco.
Threats to strong brands by counterfeit
products.
STRATEGIC ROLE OF PRICE
requires that we put pricing at the beginning
of the process.
PRICING SITUATIONS
• NEW PRODUCT PRICING
• LIFE CYCLE PRICING
• CHANGING POSITIONING
STRATEGY
 • COUNTERING COMPETITIVE
THREAT
VARIOUS ROLE OF PRICING
• SIGNAL TO THE BUYER
• MARKETING PROGRAM
CONSIDERATIONS
• INSTRUMENT OF
COMPETITION
• IMPROVING FINANCIAL
PERFORMANCE
PRICING STRATEGY FOR NEW AND
EXISTING PRODUCTS
• SET PRICING OBJECTIVES
• ANALYZE THE PRICING
SITUATION
• SELECT PRICING STRATEGY
• DETERMINE SPECIFIC PRICES
AND POLICIES
EXAMPLES OF PRICING
OBJECTIVES
• GAIN MARKET POSITION
• PRODUCT POSITIONING
• INFLUENCE COMPETITION
• ACHIEVE FINANCIAL
PERFORMANCE
• STIMULATE DEMAND
ANALYZING THE PRICING
SITUATION
• Customer Price Sensitivity
• Product Costs
• Competitors’ Likely Responses
• Pricing Objectives
CUSTOMER PRICE SENSITIVITY
• How large is the product-market in
terms of buying potential?
• What are the market segments and
what market target strategy is to be
used?
• How sensitive is demand in the
segment(s) to changes in price?
• How important are nonprice factors,
such as features and performance?
• What are the estimated sales at
different price levels?
COST ANALYSIS FOR PRICING
DECISIONS
• Determine the components of the
cost of the product.
• Estimate how cost varies with the
volume of sales.
• Analyze the cost competitive
advantage of the product.
• Decide how experience in producing
the product affects costs.
• Estimate how much control
management has over costs.
COMPETITOR ANALYSIS
• Which firms represent the most
direct competition
• Competitor’s positioning on a
relative price basis
• Competitors’ success with their
pricing strategies
• Competitors’ probable responses to
alternative price strategies
SELECTING THE PRICING
STRATEGY
• How much flexibility exists?
• How to position price relative to
costs?
• How visible to make the price of the
product?

DETERMINING SPECIFIC PRICES
AND POLICIES
• Selecting Specific Prices
• Policies to Manage Pricing Strategy
• Special Pricing Issues
BASIS OF DETERMINING SPECIFIC
PRICES
• COST
• DEMAND
• COMPETITION
ESTABLISHING PRICING POLICY
AND STRUCTURE
POLICY
Discounts, allowances, returns, and other
operating guidelines.
STRUCTURE
Product mix and line pricing relationships.
How individual items in the line are priced
in relation to one another.
SPECIAL PRICING SITUATIONS
• Price Segmentation
• Value Chain (Distribution Channel)
Pricing
• Price Flexibility
• Product Life Cycle Pricing
WEEK 12
STRATEGIC MARKETING
Promotion Strategy
planning, implementing, and controlling an
organization’s communications to its
customers and other target audiences.
• Promotion Strategy
• The Composition of Promotion
Strategy
• Developing Promotion Strategy
• Communications Objectives
• Deciding the Role of the Promotion
Components
• Determining the Promotion Budget
• Promotion Component Strategies
• Integrating and Implementing the
Promotion Strategy
• Effectiveness of Promotion Strategy
Composition Promotion Strategy
Internet Feature
SEARCH WORKS Google and Yahoo!
Have demonstrated the power of the Web by
using customers’ search queries to connect
them with advertisers.
CUSTOMERS ARE ONLINE More than
half of American households have always-on
Net connections. And the Web reaches
millions at the office.
VIDEO ROCKS The adoption of • Situation Specific Factors
broadband, which can handle videos, lets
Determining the Promotion Budget
advertisers put TV-like ads online.
FEEDBACK IS INSTANT Marketers and
online publishers have tools to track an ad’s
performance in real time allowing them to
make quick adjustments if customers are not
clicking.
CUSTOMERS LEAVE TRAILS It was an
empty promise during the dot-com days, but
now advertisers have the technology to
Budgeting Methods
follow customers, click by click, and to hit
them with relevant ads.
Illustrative Communications Objectives
• Need Recognition
• Finding Buyers
• Brand Building
• Evaluation of Alternatives
• Decision to Purchase
• Customer Retention
Deciding the Role of the Promotion
Components

• Expected contribution for each of the Promotion Strategy Issues

promotion components
• Which communication objective(s)
will be the responsibility of each
promotion component (eg.
advertising, sales promotion,
personal selling, etc.)?
• What part of the budget will go to
each component?
Factors Guiding the Role Assigned to
Each Component
• Market Target(s)
• Desired Positioning
• Role of Promotion in Positioning
• Product Characteristics
• Stage of Life Cycle
• Expense/Response Relationships
• Allocation
• Impact on Brand Equity
• Integration of Promotion
Components
• Effectiveness of the Strategy
Advertising Strategy
• Setting Objectives and Budgeting
• Creative Strategy
• Media/Scheduling Decisions
• Role of the Advertising Agency
• Program Implementation and
Measuring Effectiveness
Advertising Objectives

Media/Scheduling Decision
Budget Determination
• Television
• Radio
• Magazines
• Online
• Website
• Outdoor
Role of the Advertising Agency

CREATIVE STRATEGY
The creative strategy is guided by the market
target and the positioning strategy.
Creative Strategy
Provide a unifying concept that binds
together the various parts of the advertising
campaign

Advertising Strategy Implementation and

Effectiveness
• Decide how to measure effectiveness
before implementing the strategy.
• Assign responsibility for tracking
performance.
• Assessing the quality of advertising
is important.
Measuring Advertising Effectiveness
• Rating Services
• Sales and Expense Analysis
• Recall Test
• Controlled Test
• Test Marketing
Sales Promotion Strategy
SALES PROMOTION
consists of various incentives, mostly short
term, intended to stimulate quicker and/or
greater purchase of goods/services by
consumers or the trade.
Sales Promotion Activities and Targets
WEEK 13
SALES FORCE, INTERNET, AND
DIRECT MARKETING STRATEGIES
SALES FORCE STRATEGY
A company's sales force strategy
determines how the organization will use the
personal selling function to maintain contact
with customers and develop the relationship
that management wants in order to achieve
marketing and promotion objectives.
Sales Force Strategy
• Determine the role of the promotion
strategy
• Define the selling process (how
selling will be accomplished
• Decide if and how alternative sales
channel will be utilized
• Design the sales organization
• Recruit, train, and manage
salespeople
• Evaluate performance and make
adjustment where necessary
Business and Marketing Strategy
Influences on Sales Strategy
SALES FORCECHALLENGES
• Escalating customers’ expectations
• Marketing productivity crisis
• Intense global competition
• Mergers and acquisitions
• Technology Advances
• Blurring of industry boundaries
Defining the Selling Process
• Finding Prospects
• Opening the Relationship
• Qualifying the Prospect
• Presenting the Sales Message
• Closing the Sale
• Servicing the Account
The Selling Process Guides
• Recruiting
• Training
• Effort Allocation
• Organizational Design
• Selling Support Activities
Selecting sales channels to end
users
• Major Account Management
• Field Sales Force
• Telemarketing
• Electronic/ Mail Contact
Sales Force Deployment
• Size of the Sales Force
• Allocation of Selling Effort
o Salesperson skills and effort
o PLUS
o Market potential
o Number and location of
customers
o Intensity of competition
o Market (brand) position of
the company
Managing the salesforce
• Finding and Selecting Salespeople
• Training/Development
• Management Control
o Monitoring
o Directing
o Evaluating
o Rewarding
Reinventing the sales organization
SALES MANAGER CHALLENGES
• Applying Technology
• Customer Relationship
• Coaching
• Performance Huddles
• Sales Structure
• Customer channels
• Internal Relationships
• Keeping Score
INTERNET STRATEGY
• Strategy Development
• Deciding Internet Objectives
• E-Commerce Strategy
• Value Opportunities and Risks
• Measuring Internet Effectiveness
• The Future of the Internet
Internet Strategy Alternatives
• Promotional Medium
• Communication Tool
• Value-Chain Channel
• Separate Business Model
Deciding Internet Objectives
• Creating Awareness and Interest
• Information Dissemination
• Obtaining Research Information
• Brand Building
• Improving Customer Service
Deciding Internet Strategy
• Customer Groups Targeted
• Value Proposition
• Communications Strategy
• Designing the Website
• Structure of the Organization
• Alliance Partners
• Shareholder Value
• Tracking Performance
Measuring Internet Effectiveness
• Challenging but capabilities are
developing
• What should be measured and how?
• Major changes are likely through
trial and error.
• Alternative measures:
o Ad impressions, clicks,
unique visitor,
o total visits, page impressions
The Future of the Internet
Revolutionary for certain industries and
incremental for others.
Direct Marketing
• Kiosk Shopping
 • Catalogs o Centralized, vertical,
• Electronic Shopping “command and control”
• Direct Mail o Organizational design shifts
• Telemarketing
• Radio/Magazines/Newspapers o Innovation

Advantages of Direct Marketing o The knowledge-based worker

• Socio-economic Trends
o Time constrains/convenience
• Low Access Costs
o Much lower than face-to-
face contact
o Managing culture
o Collaborative working
o Informal networks
o Organizational diversity and
external relationships
• Managing organizational processes

• Data Base Management • Organizational agility and flexibility

o Zara
o Facilities direct marketing
initiatives o Toyota

• Value • Employee motivation

o “MySpace Generation”
o An attractive bundle of value

WEEK 14
Designing Market-Driven Organizations
Designing market-driven organizations
• Trends in organization design
• Organizing for market-driven
strategy
• Marketing departments
• Structuring marketing resources
• Organizing for global marketing and
global customers
Trends in organization design
• The New Organization
o Traditional structures
 Organizing for market-driven strategy
• Marketing functions versus
The Toyota way
marketing processes
• Pillar I
• Marketing as cross-functional
• Challenge process
• Kaizen - continuous • The challenge of integration
improvement
• Marketing’s links to other
• Genchi Genbutsu - go and see functions
for yourself
o Finance/accounting
• Pillar II
o Operations
• Respect
o Sales
• Teamwork
o R&D
2
• EM - Everything Matters
o Customer service
Exponentially
o Human resource management
The MySpace Generation
• Approaches to achieving
• Lives online - social networking sites
effective integration
are a way of life
• Children of the babyboomers
• Ambitious, demanding and question
everything
• Work/life balance is very important
• Expected to be the highest
maintenance workforce in history
and the most high-performing
• “You raised them, now manage
them”
Structuring marketing resources
• Structuring issues
• Functional organizational design
• Product-focused design
o Product/brand management
o Category management
o Venture teams
o New product teams
• Market-focused design
• Matrix design
Structuring marketing resources
• New marketing roles
• New marketing specializations
• Venture marketing organizations
• Partnering with other organizations
• Networked organizations
Organizing for global marketing and
global customers
• Organizing for global marketing
strategies
• Business functions
• Organizational issues
• Coordination and
communication
• Organizing for global customers
• The growth in global retailers
• Global account management
structures
WEEK 15
Marketing Strategy Implementation and
Control
Marketing strategy implementation and
control
• The strategic marketing planning
process
• Implementing the strategic marketing
plan
• Strategic marketing evaluation and
control
• Marketing performance
measurement
• Global issues for planning,
implementation, and control
The strategic marketing planning process
• The marketing plan guides
implementation
• Contents of the marketing plan
• Managing the planning process
Strategy and Planning Relationships

MARKETING PLAN OUTLINE
Strategic Situation Summary
Summarize the key points from your
situation analysis (market analysis,
segments, industry/competition) in order to
recount the major events and provide
information to better understand the
strategies outlined in the marketing plan.
Market-Targets and Objectives
The market target may be defined
demographically (key characteristics only),
geographically, or in social/economic terms.
Each market target should have needs and
wants that differ to some degree from other
targets.
The objectives should be written for each
target market. Objectives should also be
included for the following program
components: (1) product, (2) price, (3)
distribution, (4) promotion (salesforce,
advertising, sales promotion, and public
relations), and (5) technical services.
Positioning Statements
Write statements that describe how you want
each market target to perceive each product
relative to competition. State the core
concept used to position the product (brand)
in the eyes and mind of the targeted buyer.
The positioning statement should describe:
(1) What criteria or benefits the customer
considers when buying a product along with
the level of importance, (2) What we offer
that differentiates our product from
competition, and (3) The limitations of
competitive products.
Market Mix Strategy for Each Market
Target
A. Product Strategy
Identify how each product fits the market
target. Other issues that may be addressed
would be new product suggestions,
adjustments in the mix of existing products,
and product deletion candidates.
B. Price Strategy
The overall pricing strategy (I.e.,
competitive, premium-priced, etc.) should be
identified along with a cost/benefit analysis
if applicable. Identify what role you want
price to play, i.e., increase share,
maintenance, etc.
C. Distribution Strategy
Describe specific distribution strategies for
each market target. Issues to be addressed
are intensity of distribution (Market
coverage), how distribution will be
accomplished, and assistance provided to
distributors. The role of the sales force in
distribution strategy should also be
considered.
D. Promotion Strategy
Promotion strategy is used to initiate and
maintain a flow of communication between
the company and the market target. To assist
in developing the communications program,
the attributes or benefits of our product
should be identified for each market target.
How our product differs from competition
(competitive advantage) should be listed.
The sales force’s responsibilities in fulfilling
the market plan must be integrated into the
promotion strategy. Strategies should be
listed for (1) personal selling, (2) • Building implementation
advertising, (3) sales promotion, and (4) effectiveness
public relations.
o Organizational design
E. Marketing Research
o Incentives
Describe the market research problem and
o Communications
the kind of information needed. Include a
statement which addresses why this o Internal marketing
information is needed. The specific market
research strategies can be written once the • Comprehensive approach to
above two steps have been followed. improving implementation

V. Coordination with Other Business

Functions
Indicate other departments/functions that
have responsibilities for implementing the
marketing plan.
VI. Sales Forecasts and Budgets
VII. Contingency Plans
Indicate how your plans should be modified
if events should occur that are different from
those assumed in the plan.

Implementing the strategic marketing

plan

• Implementation process
o Structural issues
o Behavioural issues
 o The role of external
organization
Strategic marketing evaluation and
control

• Customer relationship management

• Overview of control and evaluation
activities
o Find new opportunities/avoid
threats
o Keep performance in line
with expectations

Internal Marketing Program: o Solve specific problems

Targeted at key groups in the company,

alliance partner companies, and other
influencers
External Marketing Program:
Targeted at key customers, segments and
niches, and other external influencers

Implementing the strategic marketing

plan

• Internal strategy-organization fit

o Organizational stretch
 • The importance of marketing
metrics
• The use of marketing metrics
• Types of marketing metrics
• Selecting relevant metrics
• Designing a management
dashboard

• Interpreting performance
measurement results
o Opportunities and
performance gaps
o Problem/opportunity
definition
o Interpreting information
o Determining normal and
abnormal variability
o Deciding what actions to take

Strategic marketing evaluation and Marketing metrics

control
• Marketing metrics focusing on
• The strategic marketing audits operations
o Results provide basis for o Competitive and customer
selecting performance criteria metrics
to assess actual performance
o Profitability metrics
Strategic Marketing Audit
o Product and portfolio metrics
• Corporate Mission and Objectives
o Customer profitability
• Business Composition and Strategies metrics

• Marketing Strategy (for each o Sales and channel metrics

planning unit) o Pricing metrics
• Marketing Program Activities o Promotion metrics
• Implementation and Management o Advertising, media, and web
Marketing performance assessment metrics
o Financial metrics
 • Brand equity metrics o Importance of relationships
between domestic and
o Familiarity international executives
o Penetration
• Performance measurement and
o What they think about the control globally
brand
o International markets may
o What they feel require different metrics

o Loyalty FRANCHISING
o Availability WEEK 8
• Innovation metrics Managing the Franchisor’s Operations
o Strategy Process

o Culture Promotional Packet

o Outcomes Written information that represents the types

of support a franchisor provides a franchisee
• Internal market metrics
Used to:
o Awareness of corporate goals
1) Solicit franchisee applicants
o Perceived calibre of employer
2) Provide basic information about the
o Relative employee franchise
satisfaction
3) Illustrate the follow-up forms used to
o Commitment to corporate sign franchisees
goals
Preparation
o Employee retention
1. A description of the business, its
Global issues for planning, products and/or service.
implementation, and control
2. Background information about the
• Global marketing planning franchisor and franchised company.
o Additional complexity 3. Historical information concerning
development and operation of a
o Simplifying assumptions
franchised unit.
o Limited information
4. Amount of money required for
availability
acquisition of a franchise.
o Accommodate international
5. Assistance offered by the franchisor
strategy variability
(financial, training, and services) to a
• Implementation globally franchisee.
 6. Site, equipment, and building
information.
7. Marketing factors associated with
promotion and sale of the franchise
system’s products or services.
8. Financial information about
franchisees and the franchise system.
Administrative Expenses
In order to expand profitably, a franchisor
must keep track of how much each franchise
adds to its administrative expenses.
Make sure that you include these expenses
in your growth estimates so that you do not
run into unforeseen expenses.
Recruitment Package
Potential franchisees should be offered a
recruitment package which includes:
• Recruitment Brochure
• Disclosure Document
• Information about the benefits and
opportunities of becoming a
franchisee
Operations Package
• Fairly extensive
• Often in the form of a manual
• Designed to assist the franchisee in
properly operating the franchise
Operating Manual
• The “bible” of the franchise system
• Describes each major function and
operating procedure of the business
• In-depth and comprehensive
• Should illustrate the day-to-day
activities
Training Manual
• Illustrates formal training programs
and ongoing training programs
• Formal Training Programs- provide
opportunity for the franchisor to help
new franchisees develop specific
knowledge about the franchise
system
• Ongoing Training- usually provided
by field staff after the franchisee has
entered the business
Location Selection Criteria
• Assist in determining optimal sites
• States factors to be considered
• Sets criteria of the franchisor for site
selection
• Franchisor has ultimate say-so
Marketing Manual
• Franchisor’s marketing philosophy
• Brand name is described
• Quality concept is articulated
• Includes information about labeling,
packaging, and consumer services
• Product classification, features,
pricing policies, product strategies,
etc.
Advertising Manual
• Advertising
• Promotional Strategies
• Graphics and Signage
 • Public Relations
• May include examples of advertising
material and promotions
Field Support Manual
• Identify and Outline Services
provided by the franchisor
• Services like training, inspection,
record keeping, financial planning,
and quality control standards
• Recommended forms and procedures
Quality Control Forms
• Policies and Standards for the
following:
• Credit services
• Technical services
• Maintenance services
• Customer inquiries
• Product features
• Delivery Schedules
• How to handle complaints
• Physical appearance of building
• Adherence to operating procedures
• Additional services and procedures
Pre-Opening Manual
• Not lengthy or over descriptive
• Includes checklists of activities
and steps that must be completed
before a grand opening can take
place
Important time periods:
1) Six months prior to
grand opening
2) Three to six months
prior
3) One to three months
prior
4) 30 days prior
Site Inspection Manual
• Helps franchise system achieve
consistency among the
businesses
• Physical Attributes (appearance,
décor, cleanliness)
• Appearance of Employees
• Other intangibles (Example:
Ambiance)
• Includes criteria for inspection
Record Keeping Manual
Standardized accounting and bookkeeping
forms for the franchisee
Most franchisors require the reporting of the
following on a weekly, bi-weekly, or
monthly basis.
• Total Sales
• Costs of Goods Sold
• Labor costs
WEEK 9
Location and Site Selection
Considerations for Location and Site
Selection
• The potential location and site
selection considerations are endless.
• Many franchise organizations have
established specific retail site
qualifications.
Overhead and Distribution
A potential franchisor must consider the
costs of overhead and distribution in his or
her expansion plans
• Overhead includes all the back-office
costs
• Distribution includes the costs of
delivering the required goods and
services to franchisees
Geographic Selection
Different business types require different
demographic makeups
You must first know the demographic
characteristics of your most likely potential
customers, then you can select geographic
areas with the most promising demographics
for your business
The Location Model
The Location Model is a three-step approach to
site selection. The steps are:
1) Selection of geographic areas for
franchise system development
2) Determination of the number of
franchises to be established within a
specific geographic area
3) Individual site selection based on the
franchise system’s unique criteria
Designated Marketing Areas
The DMA concept is a basic approach to
structuring advertising and promotion as well as
determining the extent of distribution systems.
• Divides U.S. into franchise market/
geographic areas
• Divides U.S. into dominant television
markets
• More suitable for multi-unit franchises
Population
For some franchise systems, population might
be a better means of distributing franchises.
Using the population method, a franchisor
simply divides the region into slices of roughly
equal population.
This is the method used by such franchisors as
Meineke and 7-11 convenience stores.
Buying Power Index (BPI)
BPI is a weighted average measure of
consumer buying power available area
BPI = 5*(% of Income) + 3*(% of retail
sales) + 2*(% population)
All %s of US/Canada total
Useful for maintaining, expending, or
possibly retrenching the number of
franchised units in an area
Targeted Trade Areas
Targeted Trade Areas are geographic areas
selected for development by franchisors.
There are two general methods for selecting
TTA’s
1) “Best Guess” approach
2) The competitive advantage
approaches
Primary Service Area
Area where goods primary service provider
can expect to attract 2/3 of its business
activity
Factors that affect size of area:
 1) Alternative Shopping Choices
2) Barriers and Pockets
3) Drive-Time Analysis
4) Intuition
Population of PSA
Population is a fundamental source of
information
Special censuses are made by counties or
cities
o Can be acquired at little or no
cost from the appropriate
governmental office.
• Other sources
o local planning departments of
a county
o local chambers of commerce
o U.S. Postal Office.
Competition within PSA
Clustering
• Locating competitive stores or
outlets within one area
• Franchised auto dealerships,
furniture stores, or fast-food outlets
along a business strip or inside a
shopping mall
• Improve potential sales for all
competitors because of the added
attraction for the consuming public
of variance in choice.
Demographic Map of PSA
Locate all competition by type or category
of competitiveness on map
The alternative shopping choices for the
proposed product/service
The barriers or pockets of the trade area
▪ natural or man-made barriers
that identify the target trade
area from alternative trade
areas
The extent to which the “convenience”
factor affects the purchase decision
▪ The amount of time and
trouble a customer must exert
to reach the location
▪ Using drive time as a basis
for measurement
The habits and traditions within a
community
▪ Suggest which trade areas
within a community would be
preferable to other trade areas
within the same community
Drive Time Analysis
Uses a proposed location and alternative or
competitive locations as points of reference.
Considerations include:
• Traffic conditions
• Parking
• Ease of entry and exit
• Business operating hours
• Mix of products and
services available
Drive times should be:
• Convenience goods: 5-
minute radius
• Shopping goods: 15-30
minutes radius
Franchise Site Selection
Professionals who aid in site selection:
The franchisee’s banker
• who will usually lend 65% to 80% of
the development costs.
An attorney who will advise on
• Tax matters
• Leases
• Contracts
• Zoning restrictions
A real estate brokers
• Gives advice concerning prime or
“hot” commercial areas
• relative costs within these areas of
the community.
An accountant
• determines the amount of cash
available to the franchisee that can
be used for development of the
property
• advising about the tax considerations
Site Profile
Demographic factors that are given
significant weight typically include:
1) Concentration of young
families with children
2) Proximity to schools, high
schools, junior colleges, or
universities
3) 24- hour institutions, such as
hospitals or industrial plants
4) Median-family-income
households within the
primary service area
Types of Business
Unique
▪ High quality, limited
competition
▪ Flexible location options
Competitive
▪ Selling convenience type
items
▪ Handy locations needed
Comparative
▪ Shopping goods
▪ Clustering
Location Selection Ratio
One way to determine a potential site’s
viability is through the location selection
ratio.
This ratio is the first year’s sales divided by
the startup costs. If the ratio equals 1 or
more, then the site is viable.
Market Share
The portion of total market volume a
business would likely have under normal
operating conditions.
Three major variables to consider:
• Population
• Average amount of money spent by
consumers
• Buying power of the community
Number of Facilities and Total
Population
Here are two straightforward ways of
estimating sales:
Area’s estimated annual sales = Avg.
individual purchase of fast-food x
Population
Estimated sales per store = (Estimated
annual sales)/
(Number of competitors)
Single Site Alternatives
If a single site is not viable, then a franchisor
should consider the following options:
▪ Kiosks
▪ Satellites
▪ Carts
Layout
Once the site is selected, considerable
attention needs to be paid to its layout,
including:
▪ Exterior and Interior Design
▪ Ready identification
▪ Customer convenience
▪ Overall atmosphere
Retail Stores
Considerations for retail stores are:
1) Adequate entrance and exit space
and doors for normal customer traffic
at near-peak times.
2) Appropriate service available to the
customer, based on the type of
decision required in making a
purchase
3) Appropriate displays, counters, or
racks that assist traffic flow and
encourage browsing where desired.
4) Sufficient aisle space.
5) Attractive décor.
6) Effective lighting for the atmosphere
sought.
7) Control of cash registers, goods, and
exits.
8) Overall attractive atmosphere or
ambience.
Customer and Employee Traffic
Do not forget that the way that people
move around in your store has a
considerable impact on revenue.
Customers should be able to reach all
retail areas without hindrance
Employees’ work flows should be
considered in the layout of the store to
ensure maximum efficiency
WEEK 10
Accounting and financial Statements
Financial Statements
Franchisors and franchisees MUST keep a
record of finances
Financial flow is the heartbeat of a
franchised business
1. Operating Statement – the income
statement
2. Statement of Financial Position – the
balance sheet
3. Cash Flow or Cash Budget
Statements – the funds flow
statement
Income Statement
Operating Statement
Record of revenues versus expenses
Shows accounting profits or losses of a
business
Annual statement illustrates financial
activities of franchise
Elements of the Income Statement
Revenue – Cost of Goods Sold
= Gross Profit
Gross Profit – Operating Expenses
= Net Income Before Interest and
Taxes (EBIT)
EBIT – Interest Payments
= Earnings Before Taxes (EBT)
EBT – Tax Payments
= Net Income After Tax
Balance Sheet
Alerts owner to financial strengths and
weaknesses
Determines success of the franchise in
meeting overall business objectives
Cash Flow – Disbursements = Net Cash
Flow
Financial Ratios
Liquidity Ratios – indicate how well a
franchise can meet its short-term
obligations, such as short-term debt and
payroll
1. Current Ratio = Current Assets /
Current Liabilities
2. Acid Test = (Current Assets –
Inventory)/ Current Liabilities

A balance sheet is a snapshot of the Profitability Ratios – measure ability of the

business’s accounting value
Illustrates the value of the assets, liabilities,
and net worth of a franchise
Assets = Liabilities + Shareholder’s Equity
Elements of a Balance Sheet
Assets
• Current
• Fixed
franchise organization to turn sales into
profits and to generate profits from assets
▪ Net Profit Margin = 100% (Net
Income after taxes / Sales)
▪ Net Return on Assets = Net Profit
After Taxes / Total Assets
Activity or efficiency ratios – measure the
franchise’s ability to use capital and assets to
maximize efficiency

Liabilities ▪ Inventory Turnover = Net Sales /

Inventory
• Current
▪ Average Collection Period = 360
• Long-term
(Accounts Receivable / Net Sales
Owner’s Equity
▪ Fixed Asset Turnover = Total Sales
• Net Worth / Fixed Assets
Cash Flow Statement ▪ Asset Turnover = Total Sales / Total
Assets
Most important financial tool
Leverage Ratios – measure long term debt
and franchisor’s ability to take care of
obligations
▪ Times Interest Earned =
(Net Income Before Taxes / Interest
Expense) + 1
▪ Debt/Equity Ratio =
(Total Current Liabilities + Long Term
Debt) / Total Equity
Market Ratios – help financial statement
users’ asses the performance of the firm’s
stock
▪ Earnings per Share=
(After-tax Income – Preferred Dividends) /
Shares of Common Stock Outstanding
▪ Price Earnings Ratio =
(Current Price per Share/ After-tax
Earnings per Share)
Uses of Financial Statement Analysis
Numerous entities interested in the financial
picture of a franchise
▪ Bankers
▪ Other Creditors
▪ Investors
How Important are Financial Ratios?
They do not have much significance unless
they can be compared with other financial
ratios.
• Comparisons with previous years
provide an indication of the current
situation.
• Comparisons with like businesses
within the industry shows how well
this firm serves its customers in
contrast to the average firm.
INBT
Entry Strategies
Market entry strategy is influenced by the
firm and product characteristics and the
domestic and international market
characteristics.
Direct exporting
In direct exporting, the firm becomes
directly involved in marketing its products
in foreign markets, because the firm itself
performs the export task (rather than
delegating it to others).
Direct exporting to implement a direct
exporting strategy, the firm must have
representation in the foreign markets. This
can be achieved in several ways:
• Sending international sales
representatives into the foreign
market.
• Selecting local representatives or
agents to prospect the market.
• Using independent local distributors
who will buy the products to resell
them in the local market.
 • Creating a fully owned commercial
subsidiary to have a greater control
over foreign operations.
Indirect exporting
The market-entry technique that offers the
lowest level of risk and the least market
control is indirect export, in which products
are carried abroad by others. The firm is not
engaging in international marketing and no
special activity is carried on within the firm;
the sale is handled like domestic sales.
Indirect exporting there are several
different methods of indirect exporting:
• The simplest method is to deal with
foreign sales through the domestic
sales organization.
• A second form of indirect exporting
is the use of international trading
companies with local offices all over
the world.
• A third form of indirect exporting is
the export management company
located in the same country as the
producing firm and which plays the
role of an export department.
Licensing & Franchising
Licensing is another way to enter a foreign
market with a limited degree of risk.
Franchising is a business model in which
many different owners share a single brand
name. A parent company allows
entrepreneurs to use the company's
strategies and trademarks; in exchange, the
franchisee pays an initial fee and royalties
based on revenues.
Licensing is like franchising except that the
franchising organization tends to be more
directly involved in the development and
control of the marketing programme.
Strategic Alliance
It is an arrangement between two companies
that have decided to share resources to
undertake a specific, mutually beneficial
project. A strategic alliance is less involved
and less permanent than a joint venture, in
which two companies typically pool
resources to create a separate business entity.
In a strategic alliance, each company
maintains its autonomy while gaining a new
opportunity. A strategic alliance could help a
company develop a more effective process,
expand into a new market, or develop an
advantage over a competitor, among other
possibilities.
Contract Manufacturing
In contract manufacturing, the firm’s
product is produced in the foreign market by
local producer under contract with the firm.
Contract manufacturing obviates the need
for plant investment, transportation costs
and custom tariffs and the firm gets the
advantage of advertising its product as
locally made.
Assembly Operations Assembling
Is a compromise between exporting and
foreign manufacturing. The firm produces
domestically all or most of the components
or ingredients of its product and ships them
to foreign markets to be put together as a
finished product.
By shipping CKD (completely knocked
down), the firm is saving on transportation
costs and on custom tariffs which are
generally lower on unassembled equipment
than on finished products.
Wholly owned manufacturing facility.
Companies with long term and substantial
interest in the foreign market normally
establish wholly owned manufacturing
facilities there.
Joint Ventures
Foreign joint ventures have much in
common with licensing. The major
difference is that in joint ventures, the
international firm has an equity position and
a management voice in the foreign firm. A
partnership between host and home-country
firms is formed, usually resulting in the
creation of a third firm.
Mergers and Acquisitions From a legal
point of view, a merger is a legal
consolidation of two companies into one
entity, whereas an acquisition occurs when
one company takes over another and
completely establishes itself as the new
owner
WEEK 3
REGIONAL ECONOMIC
INTEGRATION
1. Regional Economic Integration
(REI) refers to the commercial policy
of discriminatively reducing or
eliminating trade barriers only
between the states joining together.
2. Regional economic groups eliminate
or reduce trade tariffs (and other
trade barriers) among the Partner
States while maintaining tariffs or
barriers for the rest of the world
(non- member countries).
3. Geographical proximity, cultural,
historical, and ideological
similarities, competitive or
complementary economic linkages,
and a common language among
the Partner States are
importantly required for effective
economic integration.
The aim of economic integration is to lessen
costs for both consumers and producers, in
addition to increase trade between the
countries taking part in the agreement.
REGIONAL ECONOMIC
INTEGRATION: OBJECTIVES
A primary economic objective of integration
is to raise:
a) real output and income of the
participants &
b) rate of growth
by increasing specialization and competition
by facilitating desirable structural (linkages)
changes.
1. Increase of Trade.
2. Allowing Consumers to Spend
More.
3. Movement of Capital.
4. Economic Cooperation
INCREASE OF TRADE
A simple constituent of economic integration
policies is elimination of the additional
payments or tariffs, making trade low-
priced and giving exporters a superior
incentive to do business with integrated
economies.
ALLOWING CONSUMERS TO SPEND
MORE
Economic integration reduces or eliminates
customs duties, which in turn results in
cheaper imported products for consumers.
This way, the purchasing power of
consumers grows, and with it, activity in the
market.
The public can start buying more imported
products or spend former duty expenses on
other products or services.
In addition, goods that are not produced in
sufficient quantities in one country can be
imported and distributed in the market at
low cost.
MOVEMENT OF CAPITAL
The benefit of capital movement is the
investment in new markets, leading to their
eventual development.
Economic integration removes barriers to
foreign investors, minimizing or abolishing
extra tax, while advanced integration
policies, such as a monetary union, can
even eliminate the cost of currency
exchange
ECONOMIC COOPERATION
When economies within the integrated area
the duty of other members to help, not only
as a moral obligation, but because a failing
economy can have serious effects on the
whole integration process.
For this reason, European Union countries
have offered to bail out the troubled
economies of Greece, Ireland and Portugal
SIMPLE FORMS OF REGIONAL
INTEGRATION
• Bilateral Investment Treaty (BIT)
• Trade and Investment Framework
Agreement (TIFA)
• BILATERAL INVESTMENT
TREATY (BIT)
• A bilateral investment treaty (BIT) is
an agreement establishing the terms
and conditions for private investment
(FDI) by nationals and companies of
one state in another state.
• BITs are established through trade
pacts.
TRADE & INVESTMENT
FRAMEWORK AGREEMENT (TIFA)
A trade pact between countries that seeks to
develop the necessary structures or
frameworks, such as committees and trade
councils, that will move the trading
countries closer to a free trade agreement.
It is a form of economic integration.
REGIONAL ECONOMIC
INTEGRATION : FORMS
Regional economic groupings can take
several forms raging from the
1. Preferential Trade Agreement (PTA)
2. Free Trade Area (FTA)
3. Customs Union
4. Common Market
5. Economic Union
6. Political Union.
These forms are diverse, involving different
levels ofeconomic integration.
FREE TRADE AGREEMENT (FTA)
A free-trade area is the region encompassing
a trade bloc whose member countries have
signed a free-trade agreement (FTA). Such
agreements involve cooperation between at
least two countries to abolish or reduce
trade barriers – import quotas and tariffs –
and to increase trade of goods and services
with each other.
EXAMPLE
Columbia/ USA FTA
CUSTOMS UNION
A customs union is a type of trade bloc
which is composed of a free trade area with
a common external tariff.
The tariffs are then shared among members
according to a prescribed formula.
Example - The EU (1960-1990).
COMMON MARKET
Members of a common market remove
barriers to Trade in goods and services
among themselves, establish a common
trade policy with respect to non-members
(common external tariff) and remove
restrictions on the movement of factors of
Production (labor, capital, Land &
entrepreneur) across borders.
Restrictions on immigration, emigration, and
cross-border investments are abolished.
Members cooperate closely on monetary,
fiscal, and employment policies.
ECONOMIC UNION
Members of an Economic Union:
1. remove barriers to trade in goods and
services among themselves;
2. establish a common trade policy with
respect to non- members (common
external tariff);
3. remove restrictions on the movement
of factors of production (labor,
capital, and technology) across
borders; and
Coordinate their economic policies
(monetary, fiscal, taxation, and social
welfare) so as to blend their economies into
a single entity.
POLITICAL UNION
1. Remove barriers to trade in goods
and services among themselves;
2. Establish a common trade policy
with respect to non-members
(common external tariff);
3. Remove restrictions on the
movement of factors of production
(labor, capital, and technology)
across borders; and
4. Coordinate their economic policies
(monetary, fiscal, taxation, and
social welfare) to blend their
economies into a single entity.
5. It involves the unification of
previously separate states.
ECONOMIC EFFECTS OF
REGIONAL INTEGRATION
1. Trade Creation
2. Trade Diversion
TRADE CREATION
Trade creation occurs when common
external trade policy and internal free trade
lead to a shift in production from high to the
low-cost Partner State in the community.
TRADE DIVERSION
Trade diversion on the other hand arises
when imports from the rest of the world are
replaced by more expensive imports from
the partner country.
The overall gain depends on whether trade
creation is larger than trade diversion.
POLITICAL ASPECTS/FORCES THAT
MOTIVATES REGIONAL ECONOMIC
INTEGRATION
Many regional economic communities have
been driven by political rather than
economic goals.
These political objectives include,
1.National Security
2.Structure of Governance : Macroeconomic
Policies
3.Democracy
4.Human rights.
NATIONAL SECURITY
Regional economic integration can enhance
security because it increases the level of
trade between member countries and, in so
doing, increases familiarity between the
people of the member countries and lessens
the degree of misconception.
It can also be a means through which
democracy and governance objectives can
be pursued and to lock in changes in
political institutions.
It may also worsen security and this is likely
to happen where the distribution of transfers
is asymmetric between the member states.
BENEFITS OF REGIONAL
ECONOMIC INTEGRATION
Regional Economic Integration offers many
benefits to the participating member
countries. However, these benefits are not
pre-determined and they depend among
other things on the internal design of the
integration including the degree of political
commitments by the Member States.
An important feature of the higher levels of
economic integration is free trade among
members and this free trade is expected to
lead to a rapid increase of trade which in
turn is likely to lead to rapid economic
growth.
These gains result from the dynamic effects
of integration which are cumulative in
nature and lead to growth.
The dynamic effects of integration are often
described as the long-run consequences of
economic growth of member states as a
result of increased market size exploitation
of economies of scale increased competition
learning by doing increased investment. The
larger the integration (in terms of the
size) the more likely it is to lead to
growth since the larger the integration, the
larger the market created and so on. Also,
the stronger the potential economies of
scale are, and the more rapid the
autonomous productivity advances,
the more likely the
integration will lead to growth.
NEED FOR REGIONAL ECONOMIC
INTEGRATION IN DEVELOPING
COUNTRIES
1. To promote a balanced division of
labor among a group of countries.
2. To achieve Economies of Scale.
3. Isolated tiny national economies
must give way to strategic alliances
that harness knowledge and resource
based comparative advantages
through integration.
4. One of the major problems
developing countries face is the
formulation and implementation of
good macro-economic policies.
Consequently, these countries have
experienced instability in their
macroeconomic environment and
thus regional integration can help
 them to harmonize their macro
policies, including fiscal and
monetary policy and to achieve a
stable macroeconomic environment
within the integrated economies.
MANAGEMENT OF TRANSACTION
RISK
Transaction risk refers to the variability in
the home currency value of cash flow arising
from transactions already completed and
whose foreign currency values are
contractually fixed. the variability in cash
flows on account of exchange rate
fluctuations may result in a gain or loss to
the firm ,depending on the direction of
movement of exchange rates. The variability
may be significant or insignificant
depending on the extent of movement of
exchange rates . it is possible to neutralize
the impact of exchange rate fluctuations on
cash flows and thus eliminate the variability
by adopting certain measure . this process of
eliminating variability is known as hedging
and the measure used for achieving
objectives are known as hedging techniques
Management of foreign exchange risk
involves three important function
1. Assessing the extent of variability and
identifying whether it is likely to be
favorable or adverse
2. Deciding whether to hedge or not to
hedge all or part of the exposure
3. Choosing the optimal hedging technique
to suit the situation
TECHNIQUE FOR HEDGING
TRANSACTION RISK
A company that decide to hedge its
transaction exposure may choose any of the
following techniques:
1. Foreword hedge
2. Future hedge
3. Money market hedge
4. Currency option hedge
FOREWARD HEDGE
If you are going to owe foreign currency in
the future, agree to buy the foreign currency
now by entering into long position in a
forward contract. If you are going to receive
foreign currency in the future, agree to sell
the foreign currency now by entering into
short position in a forward contract.
MONEY MARKET HEDGE
This is the same idea as covered interest
arbitrage.
To hedge a foreign currency payable, buy a
bunch of that foreign currency today and sit
on it.
 • It’s more efficient to buy the present
value of the foreign currency payable
today.
• Invest that amount at the foreign rate.
At maturity your investment will have
grown enough to cover your foreign
currency payable
OPTION MARKET HEDGE
Options provide a flexible hedge against the
downside, while preserving the upside
potential.
To hedge a foreign currency payable buy
calls on the currency.
If the currency appreciates, your call option
lets you buy the currency at the exercise
price of the call.
To hedge a foreign currency receivable buy
puts on the currency.
If the currency depreciates, your put option
lets you sell the currency for the exercise
price.
FUTURE HEDGE (1)
➢ While the use of short and long hedges
can reduce (or eliminate in some cases -
as below) both downside and upside
risk. The reduction of upside risk is
certainly a limation of using futures to
hedge.
Short Hedges (2)
➢ A short hedge is one where a short
position is taken on a futures contract. It
is typically appropriate for a hedger to
use when an asset is expected to be sold
in the future. Alternatively, it can be
used by a speculator who anticipates that
the price of a contract will decrease
Long Hedges (3)
➢ A long hedge is one where a long
position is taken on a futures contract. It
is typically appropriate for a hedger to
use when an asset is expected to be
bought in the future. Alternatively, it can
be used by a speculator who anticipates
that the price of a contract will increase
CROSS HEDGING
➢ A risk management strategy used in
limiting or offsetting probability of loss
from fluctuations in the prices of
commodities, currencies, or securities.
In effect, hedging is a transfer of risk
without buying insurance policies
➢ Hedging employs various techniques
but, basically, involves taking equal and
opposite positions in two different
 markets (such as cash and futures
markets). Hedging is used also in
protecting one's capital against effects of
inflation through investing in high-yield
financial instruments (bonds, notes,
shares), real estate, or precious metals.
INTERNAL TECHNIQUES (1)
Netting (2)
Netting implies offsetting exposures in
one currency with exposure in the same
or another currency, where exchange
rates are expected to move high in such a
way that losses or gains on the first
exposed position should be offset by
gains or losses on the second currency
exposure. It is of two types bilateral
netting & multilateral netting. In
bilateral netting, each pair of subsidiaries
nets out their own positions with each
other. Flows are reduced by the lower of
each company’s purchases from or sales
to its netting partner.
Matching (3)
The netting is typically used only for
inter company flows arising out of
groups receipts and payments. As such,
it is applicable only to the operations of
a multinational company rather than
exporters or importers. In contrast,
matching applies to both third parties as
well inter-company cash flows. It can be
used by the exporter/importer as well as
the multinational company. It refers to
the process in which a company
matches its currency inflows with its
currency outflows with respect to
amount and timing. Receipts generated
in a particular currency are used to make
payments in that currency and hence, it
reduces the need to hedge foreign
exchange risk exposure
Leading and Lagging
➢ It refers to the adjustment of
intercompany credit terms, leading
means a prepayment of a trade
obligation and lagging means a delayed
payment. It is basically intercompany
technique whereas netting and matching
are purely defensive measures.
Intercompany leading and lagging is a
part of risk- minimizing strategy or an
aggressive strategy that maximizes
expected exchange gains. Leading and
lagging requires a lot of discipline on the
part of participating subsidiaries.
Multinational companies which make
extensive use of leading and lagging
may either evaluate subsidiary
performance in a pre-interest basis or
 include interest charges and credits to
overcome evaluation problem
Pricing Policy
➢ In order to manage foreign exchange risk
exposure, there are two types of pricing
tactics: price variation and currency of
invoicing policy. One way for companies
to protect themselves against exchange
risk is to increase selling prices to offset
the adverse effects of exchange rate
fluctuations. Selling price requires the
analysis of Competitive situation,
Customer credibility, Price controls and
Internal delays.
MANAGEMENT OF OPERATING
RISK
The term Operational Risk Management
(ORM) is defined as a continual cyclic
process which includes risk assessment, risk
decision making, and implementation of
risk controls, which results in acceptance,
mitigation, or avoidance of risk. ORM is the
oversight of operational risk, including the
risk of loss resulting from inadequate or
failed internal processes and systems; human
factors; or external events
THREE LEVELS OF ORM
In Depth
In depth risk management is used before a
project is implemented, when there is plenty
of time to plan and prepare. Examples of in
depth methods include training, drafting
instructions and requirements, and
acquiring personal protective equipment
Deliberate
Deliberate risk management is used at
routine periods through the implementation
of a project or process. Examples include
quality assurance, on-the-job training, safety
briefs, performance reviews, and safety
checks.
Time Critical
Time critical risk management is used
during operational exercises or execution of
tasks. It is defined as the effective use of all
available resources by individuals, crews,
and teams to safely and effectively
accomplish the mission or task using risk
management concepts when time and
resources are limited. Examples of tools
used includes execution check-lists and
change management. This requires a high
degree of situational awareness
BENEFITS OF ORM
1. Reduction of operational loss.
2. Lower compliance/auditing costs.
3. Early detection of unlawful activities.
4. Reduced exposure to future risks
MANAGING TRANSLATION
EXPOSURE
Translation or Accounting Exposure:
Is the sensitivity of the real domestic
currency value of Assets and Liabilities,
appearing in the financial statements to
unanticipated changes in exchange rates
Managers, analysts and investors need some
idea about the importance of the foreign
business. Translated accounting data give an
approximate idea of this.
➢ Performance measurement for bonus
plans, hiring, firing, and promotion
decisions.
➢ Accounting value serves as a benchmark
to evaluate a discounted-cash flow
valuation.
➢ For income tax purposes.
➢ Legal requirement to consolidate
financial statements
World Bank
➢ The World Bank is an international
financial institution that provides loans
to developing countries for capital
programs
➢ The World Banks official goal is the
reduction of poverty
➢ According to the World Banks Articles
of Agreement (as amended effective 16
February ,1989), all of its decisions must
be guided by a commitment to promote
foreign investment, international trade,
and facilitate capital investment.
The World Bank is comprised of two
institutions:
➢ The International Bank for
Reconstruction and Development
(IBRD) lends to governments of middle
income and creditworthy low-income
countries.
➢ The International Development
Association (IDA) provides interest-free
loans—called credits— and grants to
governments of the poorest countries.
EXPORT AND IMPORT
FINANCE METHODS includes:
Factoring (Cross-Border
Factoring)
The accounts receivable
are sold to a third party
(the factor), that then
assumes all the
responsibilities and
exposure associated with
collecting from the buyer
Accounts Receivable Financing
An exporter that needs funds
immediately may obtain a
bank loan that is secured by
an assignment of the sale of goods to one
account receivable. country is linked to the
purchase or exchange of
Letters of Credit
These are issued by goods from that same
a bank on behalf of country
the importer
Medium-Term Capital Goods
promising to pay the Financing
exporter upon
The importer issues a promissory
presentation of the
note to the exporter to pay for its imported
shipping documents.
capital goods over a period that generally
Banker’s
Acceptance ranges from three to seven years.

This is a time draft that

is drawn on and METHODS OF PAYMENT IN
INTERNATIONAL TRADE
accepted by a bank (the
To succeed in today’s
importer’s bank). The
global marketplace
accepting bank is
and win sales against
obliged to pay the
International trade
holder.
presents a spectrum of
Working Capital
Financing risk, which causes
uncertainty over the
Banks may provide
timing of payments
short-term loans that
between the exporter
finance the working
(seller) and importer
capital cycle, from the
(foreign buyer).
purchase of inventory
For exporters, any sale
until the eventual
is a gift until payment
conversion to cash.
is received. Therefore,
Countertrade exporters want to
These are foreign trade receive payment as
transactions in which the soon as possible,
preferably as soon as available to
an order is placed or exporters.
before the goods are ➢ Letter of Credit
sent to the importer. An LC is a
commitment by a
For importers, any payment bank on behalf of the
is a donation until the buyer that payment
goods are received. will be made to the
Therefore, importers want exporter provided that
to receive the goods as the terms and
soon as possible but to conditions have been
delay payment as long as met, as verified
possible, preferably until through the
after the goods are resold presentation of all
to generate enough income required documents.
to pay the exporter.

METHODS OF PAYMENT IN ➢ Documentary Collection

INTERNATIONAL TRADE A transaction whereby
➢ Cash in Advance the exporter entrusts
With this payment the collection of a
method, the exporter payment to the
can avoid credit risk, remitting bank
since payment is (exporter’s bank),
received prior to the which sends
transfer of ownership documents to a
of the goods. Wire collecting bank
transfers and credit (importer’s bank),
cards are the most along with instructions
commonly used cash for payment.
in-advance options ➢ Open Account
An open account
transaction means that required in any transaction in which there is
the goods are shipped a
and delivered before delay between the sales agreement and the
payment is due, usually sales delivery.
in 30 to 90 days. This is
Understanding Cash in
the most advantageous Advance
option to the importer in Cash in advance payment methods are used
cash flow and cost to eliminate credit risk or the risk of non
terms, but it is payment, for the seller. In general, the
consequently the highest structure of cash in advance transaction fully
risk option for an benefits the seller and poses risks for the
exporter. buyer.

Cash in advance payments are not

necessarily uncommon trade terms, but
the
risks for a buyer increase if the seller or
network they are dealing with not highly
credible

in a transaction with cash in advance

What is Cash in
Advance?
Cash in advance is a payment term used in
some trade agreements. It requires that a
buyer pay the seller in cash before a
shipment is received and oftentimes before a
shipment is even made.
Cash in advance is a provision that can be
terms,
the seller requires the buyer to make the
entire payment upfront in order to initiate
the
process of shipping the expected goods. This
protects the seller from lost money for goods
shipped without payment and also alleviates
any need for collections recourse.
Cash in Advance method
1. WIRE TRANSFER
2. ESCROW SERVICE
3. CREDIT CARD
4. PAYMENT BY CHECK
When to Use Cash in Advance
Terms
1. The importer is a new customer
and/or has a less established
operating history
2. The importer’s creditworthiness is
doubtful, unsatisfactory, or
unverifiable
. Online marketplaces and
3. The political and commercial risks of
the importer’s home country are very
high.
4. The exporter’s product is unique, not
available elsewhere, or in heavy
demand.
5. The exporter operates an Internet-
based business where the acceptance
of credit card payments is a must to
remain competitive
Characteristics of Cash in Advance
Applicability
➢ Recommended for use in high-risk trade
relationships or export markets, and
ideal for Internet-based businesses.
Risk
➢ Exporter is exposed to virtually no risk
as the burden of risk is placed nearly
completely on the importer.
Pros
➢ Payment before shipment
➢ Eliminates risk of non-payment
Cons
➢ May lose customers to competitors over
payment terms
➢ No additional earnings through financing
operations
CASH IN ADVANCE MARKETS
international business
trade are two areas where
cash in advance payments
can be the most common.
Most consumers and
businesses are comfortable
with making e-commerce
purchases through well
established businesses like
Walmart, Target, and Home
Depot.
Contingent Guarantees
Generally, a business’s
decision to institute cash in
advance payments will
depend on its risks. Larger
businesses may have greater
latitude to offer better
payment terms for buyers
because their accounts knowing each party personally, the use of
receivable and collections letters of credit has become a very
processes are more important aspect of international trade.
advanced. Smaller companies
may not have the advantages A document issued by a financial institution
of full-service accounts on behalf
receivable and collections of a buyer stating the amount of credit the
support. At small companies, buyer has
write-offs for uncollected available, and that the institution will honor
payments may also lead to drafts up
unmanageable losses. to that amount written by the buyer. It gives
LETTER OF the
CREDIT
buyer the prestige and financial backing of
A letter of credit, or "credit letter" is a letter
the
from
issuing institution and satisfies the
a bank guaranteeing that a buyer's payment
requirements
to a
of the seller in completing the transaction.
seller will be received on time and for the
correct The accepting institution has a prior
amount. In the event that the buyer is unable agreement
to as to how the buyer will pay for the drafts as
make a payment on the purchase, the bank they are presented.
will
be required to cover the full or remaining A commitment, usually by a bank on behalf
amount of
of the purchase. It may be offered as a a client, to pay a beneficiary a stated amount
facility. of money under specified conditions

Due to the nature of international dealings, Parties Involved in LC (letter of credit )

including factors such as distance, differing Transaction
laws in each country, and difficulty in • Applicant
 • Beneficiary beneficiary, after determining that
• Issuing or Opening Bank documents conform, and upon receipt of
• Advising Bank funds from the issuing bank or another

• Paying Bank intermediary bank nominated by the issuing

• Confirming Bank bank.

The Applicant is the party that arranges for The Confirming Bank is the bank, which,

the letter of credit to be issued. under instruction from the

issuing bank, substitutes its creditworthiness

The Beneficiary is the party named in the for that of the issuing

letter of bank. It ultimately assumes the issuing

credit in whose favor the letter of credit is bank’s commitment to pay.

issued.
How a Letter of Credit Works

The Issuing or Opening Bank is the Because a letter of credit is typically a

applicant’s negotiable instrument, the issuing

bank that issues or opens the letter of credit bank pays the beneficiary or any bank

in nominated by the beneficiary. If a letter of

favor of the beneficiary and substitutes its credit is transferable, the beneficiary may

creditworthiness for that of the applicant. assign another

entity, such as a corporate parent or a third

An Advising Bank may be named in the party, the right to draw.

letter of credit to advise the

beneficiary that the letter of credit was Banks also collect a fee for service, typically

issued. The role of the a percentage of the size of the letter of

Advising Bank is limited to establish credit. The International Chamber of

apparent authenticity of the Commerce Uniform Customs and Practice

credit, which it advises. for Documentary Credits oversees letters of

credit used in international transactions.

The Paying Bank is the bank nominated in There are several types of letters of credit

the letter of credit that makes payment to the available.


Letter of Credit Transaction
1. The importer arranges for the issuing
bank to open an LC in favor of the
exporter.
2. The issuing bank transmits the LC to
the advising bank, which forwards it
to the exporter.
3. The exporter forwards the goods and
documents to a freight forwarder.
4. The freight forwarder dispatches the
goods and submits documents to the
advising bank.
5. The advising bank checks documents
for compliance with the LC and pays
the exporter.
6. The importer’s account at the issuing
bank is debited.
7. The issuing bank releases documents
to the importer to claim the goods
from the carrier.
How a letter credit works
1. Sales contract
2. Letter of credit application
3. Issuing letter of credit
4. Advising letter of credit
5. Shipment
6. Presentation of documents
7. Presentation of documents
8. Document control, payment release
9. Document release
TYPES OF LETTER OF CREDIT
Commercial Letter of Credit
This is a direct payment method in which
the issuing bank makes
the payments to the beneficiary.
Irrevocable Letter of Credit
This LC cannot be cancelled or modified
without consent of the
beneficiary (Seller). This LC reflects
absolute liability of the Bank (issuer)
to the other party
Revocable Letter of Credit
This LC type can be cancelled or modified
by the Bank (issuer)
at the customer's instructions without prior
agreement of the
beneficiary (Seller).
Stand-by Letter of Credit
This LC is closer to the bank guarantee and
gives more flexible collaboration
opportunity to
Seller and Buyer. The Bank will honor the
LC when the Buyer fails to fulfill payment
liabilities to Seller.
Confirmed Letter of Credit
In addition to the Bank guarantee of the LC
issuer, this LC type is confirmed by the
Seller's bank or any other bank. Irrespective
to the payment by the Bank issuing the
LC (issuer), the Bank confirming the LC is
liable for performance of obligations.
Unconfirmed Letter of Credit
Only the Bank issuing the LC will be liable
for
payment of this LC
Transferable Letter of Credit
This LC enables the Seller to assign part of
the letter of credit to other party(ies). This
LC is especially
beneficial in those cases when the Seller is
not a sole manufacturer of the goods and
purchases some
parts from other parties, as it eliminates the
necessity of opening several LC's for other
parties.
Back-to-Back Letter of Credit
This LC type considers issuing the second
LC on the basis of the first letter of credit.
LC is
opened in favor of intermediary as per the
Buyer's instructions and on the basis of this
LC
and instructions of the intermediary a new
LC is opened in favor of Seller of the goods.
Payment at Sight Letter of Credit
According to this LC, payment is made to
the seller immediately
(maximum within 7 days) after the required
documents have been
submitted.
Deferred Payment Letter of Credit
According to this LC the payment to the
seller is not made when the documents are
submitted,
but instead at a later period defined in the
letter of credit. In most cases the payment in
favor of
Seller under this LC is made upon receipt of
goods by the Buyer.
Red Clause Letter of Credit
The seller can request an advance for an
agreed amount of the LC before shipment of
goods and submittal of required documents.
This red clause is so termed because it is
usually
printed in red on the document to draw
attention to "advance payment" term of the
credit.
Green Clause Letter of Credit
An LC that pays advance to the seller just country and Foreign Exchange Risk in
not against the written case of issuance of Letter of Credits.
undertaking and a receipt, but also a proof of • The Beneficiary’s documents must
warehousing the goods. comply with the terms and conditions of
the Letter of Credit for Issuing Bank to
Advantages of LC for the make the payment.
Buyer:
• Since all the parties involved in Letter of
• Elimination of risk of losing money for
Credit deal with the documents and not
the Buyer.
with the goods, the risk of Beneficiary
• Payments are made after fulfilment of
not shipping goods as mentioned in the
the Seller's contractual obligations
LC is still persists.
• Transfer of ownership over shipped
• The Letter of Credit as a payment
goods to the Buyer within the period
method is costlier than other methods of
indicated in the LC and according to
payment such as Open Account or
other terms.
Collection
Tips for Exporters
Advantages of LC for the • Consult with your bank before the
Seller:
importer applies for an LC.
• Possibility of payment before handing
• Consider whether a confirmed LC is
the goods over to the Buyer
needed.
• Possibility of execution of complex
• Negotiate with the importer and
commercial
agree upon detailed terms to be
Contracts.
incorporated into the LC.
• Guarantee of payment independent of
• Determine if all LC terms can be
the \Buyer (subject to the fulfillment of
compiled within the prescribed time
contractual obligations)
limits.
• Ensure that all the documents are
Risks involved
consistent with the terms and
• The Beneficiary is exposed to the
conditions of the LC.
Commercial risk on Issuing Bank,
Political risk on the Issuing Bank’s
 • Beware of many discrepancy
opportunities that may cause
nonpayment or delayed payment
Documentary Collection
A documentary collection is a process by
which an exporter's
bank collects funds from the importer's bank
in exchange for
documents detailing shipped merchandise.
A documentary collection is a trade
transaction in which
exporters allow their bank to act as a
collection agent for
payment of shipped goods to the buyer
Understanding a
Documentary Collection
✓A documentary collection (D/C) is so-
called because
the exporter receives payment from the
importer in
exchange for the shipping documents, with
the funds
and documents channeled through their
respective
banks.
✓ Shipping documents are documents
required for the
buyer to clear customs and take delivery of
the goods.
Shipping documents include a commercial
invoice, certificate of origin, insurance
certificate, and
packing list. A key document in
documentary collections
is the bill of exchange or draft, which is a
formal demand
for payment from the exporter to importer.
Parties to Documentary Collection
Principal - is the party entrusting the
handling of a
collection to a bank (Exporter, Seller,
Remitter,
Drawer of the Draft)
Remitting Bank - is the bank to which the
principal
has entrusted the handling of a collection
(Exporter’s
Bank handling the collection)
Collecting Bank - is any bank, other than
the
remitting bank, involved in processing the
collection
(Usually Buyer’s Bank)
Presenting Bank - is the collecting bank
making
presentation to the drawee.
Drawee - is the one to whom presentation is
to be
made in accordance with the collection
instruction
(Importer, Buyer, Payee)
Documents against Payment
(D/P) "Sight Draft”
With a D/P collection, the exporter ships the
goods and then gives the documents
to his bank, which will forward the
documents to the importer’s collecting bank,
along with instructions on how to
collect the money from the importer. In this
arrangement, the collecting bank
releases the documents to the importer
only on payment for the goods. Once
payment is received, the collecting bank
transmits the funds to the remitting bank
for payment to the exporter.
Documents against Acceptance
(D/A) “Time Draft”
With a D/A collection, the exporter extends
credit to the importer by using a time draft.
The documents are
released to the importer to claim the goods
upon his signed acceptance of the
time draft. By accepting the draft, the
importer becomes legally obligated to
pay at a specific date. At maturity, the
collecting bank contacts the importer
for payment. Upon receipt of payment,
the collecting bank transmits the funds
to the remitting bank for payment to the
exporter.
Typical Simplified D/C Transaction Flow
1. The exporter ships the goods to the
importer and receives in exchange the
documents.
2. The exporter presents the documents
with instructions for obtaining payment
to its bank.
3. The exporter’s remitting bank sends the
documents to the importer’s collecting
bank.
4. The collecting bank releases the
documents to the importer upon receipt
of payment.
5. Or the collecting bank releases the
documents on acceptance of draft from
the importer.
6. The importer then presents the
documents to the carrier in exchange
for the goods
7. Having received payment, the collecting
bank forwards proceeds to the
remitting bank.
8. Once payment is received, the remitting
 bank credits the exporter’s account. limited if the buyer didn't pay. With a sight
When to Use Documentary draft, the
Collections
buyer would not have access to the goods
With D/Cs, the exporter has little recourse
because the
against the
buyer's bank would not release the
importer in case of non-payment. Thus,
documents without
D/Cs should
payment. The seller would have to find
be used only under the following conditions
another buyer
• The exporter and importer have a well- or pay to have the goods shipped back home.
established relationship.
• The exporter is confident that the Unfortunately, D/Cs can be exploited by
importing country is politically and fraudsters
economically stable. posing as either the exporter or importer. As
• An open account sale is considered too a result,
risky, and an LC is unacceptable to the D/Cs are not recommended for exports to
importer. nations that
The Risks of Documentary are politically or economically unstable.
Collections D/Cs are best
The exporter's risk is higher with a time suited for established trade relationships in
draft versus a sound
sight draft. The exporter might not get paid export markets, and for transactions
in the case involving ocean
of a time draft. Also, the buyer's bank would shipments rather than air or land shipments,
have which
released the documents with the buyer's are more difficult to control.
acceptance of Documentary
the time draft meaning the buyer would have Collections
the (Pros)
merchandise. ✓ Market Competitiveness
✓ Relatively low risk for overseas
If the transaction is a sight draft, the seller's buyer and help their cash flow
risk is ✓ A simpler, faster and cheaper
method of payment than a
documentary credit Exporter
retain title to the goods until your
buyer accepts the bill of
exchange.
✓ If buyer fails to honor the bill of
exchange, you can take legal
action against them in accordance
with laws governing the bill of
exchange.
✓ Bank’s assistance in obtaining
payments.
Cons of documentary collection
✓ Risk of non-payment may be greater. If
bill of exchange specifies payment at a
date after delivery, exporter hands over
control of the goods but run the risk of
non-payment on the due date.
✓ Bank’s role is limited and do not
guarantees payment. The banks don’t verify
the shipping documents or
guarantee payment by your buyer.
✓ May strain exporters cash flow, especially
if the bill of exchange provides for extended
credit terms.
✓ Exposed to FX risk from the date of the
sale contract to the time of payment.
Foreign Buyer Financing
International sales of high-value capital
goods or services and exports to large-scale
projects, which require medium- or long-
term financing, often pose special challenges
to exporters as commercial lenders may be
reluctant to lend large sums to foreign
buyers, especially those in developing
countries, for extended periods
One viable solution to these challenges is
foreign buyer financing offered by the U.S.
Export-Import Bank (Ex-Im Bank). As the
official U.S. export credit agency, Ex-Im
Bank supports the purchases of U.S. goods
and services by creditworthy foreign buyers
who are unable to obtain the financing they
need through traditional commercial
sources.
Key Points of Foreign Buyer Financing
1. Government-assisted foreign buyer
financing helps turn export
opportunities, especially in high-risk
emerging markets, into real transactions
for large U.S. corporations and
established medium-sized companies, as
well as their small business suppliers.
2. Creditworthy foreign buyers can obtain
loans needed for purchases of U.S.
goods and services, especially high-
value capital goods or services and
exports to large-scale projects.
3. This type of financing provides direct
loans to foreign buyers at a fixed interest
rate or provides guarantees for term
financing offered by commercial lenders.
4. Financing is available for medium-term
(up to 5 years) and long-term (generally
up to 10 years) transactions.
Key Common Features of Ex-Im Bank’s
Loan Guarantees and Direct Loans
Ex-Im Bank assists U.S. exporters by
providing direct loans or guaranteeing
commercial loans to creditworthy foreign
buyers for purchases of U.S. goods and
services. They are generally used to finance
the purchase of high-value capital equipment
or services or exports to large-scale projects
that require medium- or long-term financing.
Ex-Im Bank’s foreign buyer financing is
also used to finance the purchase of
refurbished equipment, software, and certain
banking and legal fees, as well as some local
costs and expenses.
Open Account
An open account transaction means that the
goods are shipped and delivered before
payment is due, usually in 30 to 90 days.
This is the most advantageous option to the
importer in cash flow and cost terms, but it
is consequently the highest risk option for an
exporter. Because of the intense competition
for export markets, foreign buyers often
press exporters for open account terms.
Goods are shipped to the foreign branch or
subsidiary of a multinational company
High degree of trust between the persons
The seller has significant faith in the buyer’s
ability and willingness to pay.
Export Working Capital Financing
To extend open account terms in the global
market, the exporter who lacks sufficient
liquidity needs export working capital
financing that covers the entire cash cycle
from purchase of raw materials through the
ultimate collection of the sales proceeds.
Export working capital facilities can be
provided to support export sales in the form
of a loan or revolving line of credit.
Government-Guaranteed Export
Working Capital Programs
The Export-Import Bank of the United
States and the U.S. Small Business
Administration offer programs that
guarantee export working capital facilities to
U.S. exporters. With these programs, U.S.
exporters can obtain needed facilities from
commercial lenders when financing is
otherwise not available or when their
borrowing capacity needs to be increased
Export Credit Insurance.
Export credit insurance provides protection
against commercial losses—default,
insolvency, bankruptcy, and political
losses—war, nationalization, currency
inconvertibility, etc. It allows exporters to
increase sales by offering liberal open
account terms to new and existing
customers. Insurance also provides security
for banks providing working capital and
financing exports.
Export Factoring
Factoring in international trade is the
discounting of a short-term receivable (up to
180 days). The exporter transfers title to its
short-term foreign accounts receivable to a
factoring house for cash at a discount from
the face value. It allows an exporter to ship
on open account as the factor assumes the
financial ability of the importer to pay and
handles collections on the receivables. The
factoring house usually works with
consumer goods.
Forfaiting
Forfaiting is a method of trade financing that
allows the exporter to sell its medium-term
receivables (180 days to 7 years) to the
forfaiter at a discount, in exchange for cash.
With this method, the forfaiter assumes all
the risks, enabling the exporter to extend
open account terms and incorporate the
discount into the selling price. Forfaiters
usually work with capital goods,
commodities, and large projects.
Export Working Capital Financing
Export working capital (EWC) financing
allows exporters to purchase the goods and
services they need to support their export
sales.
EWC facilities extended by commercial
lenders provide a means for small and
medium-sized enterprises (SMEs) that
lack sufficient internal liquidity to process
and acquire goods and services to fulfill
export orders and extend open account terms
to their foreign buyers.
EWC financing also helps exporters of
consigned goods have access to financing
and credit while waiting for payment from
the foreign distributor.
EWC financing, which is generally secured
by personal guarantees, assets, or high-value
accounts receivable, helps to ease and
stabilize the cash flow problems of exporters
while they fulfill export sales and grow
competitively in the global market.
Short-term Loans
Short-term loans, which are appropriate for
large and periodic export orders, are
typically used if the outflows and inflows of
funds are predictable over time. Short-term
loans can be arranged for 3, 6, 9, or 12
months, and the interest rates are usually
fixed over the requested tenors.
Revolving Lines of Credit
Revolving lines of credit, however, are
appropriate for a series of small export
orders because they are designed to cover
temporary funding needs that cannot always
be anticipated. Revolving lines of credit
have a very flexible structure so that
exporters can draw funds against their
current account at any time and up to a
specified limit.
Export Credit Insurance
Export credit insurance protects a seller
from the risk of nonpayment by a foreign
buyer. The insurance usually covers
commercial risks such as buyer insolvency,
bankruptcy, or default. It usually covers
some political risks as well, including war,
terrorism, riots, revolution, currency
inconvertibility, expropriation, and changes
in import or export regulations. Sellers are
thus protected from things both within and
outside the buyer's control.
short-term export credit insurance might
offer 90–95% coverage against a buyer's
payment default and would generally cover
sales of such items as consumer goods,
materials, and services up to 180 days and
small capital goods, consumer durables, and
bulk commodities up to 360 days.
medium-term export credit insurance
would typically provide somewhat less
protection but for a longer period – for
instance, 85% coverage of the net contract
value on sales of large capital equipment, for
up to 5 years
Inability or unwillingness of a foreign
buyer to pay due to commercial reasons:
a. Economic deterioration in the buyer's
market
b. Fluctuations in demand
c. Unanticipated competition
d. Technological changes
e. Buyer’s insolvency, bankruptcy, default
f. Natural disasters: floods, fires, and
earthquakes.
Inability or unwillingness of a foreign
buyer to pay due to political reasons:
a. War
b. Revolution and insurrection
c. Boycotts d. Expropriation of buyer's
business
e. Revocation of import or export
licenses after shipping
f. foreign exchange control: Currency
inconvertibility
g. Shifts in tariffs
Export Credit Insurance Programs
• Export-Import Bank of the United
States (Ex-Im Bank)
• FCIA Management 02Company, Inc.
(FCIA)
• Euler Hermes American Credit
Indemnity (AIC)
• Coface North America
• Lloyd’s London
Advantage:
• Reduce Financial Risk
• Access to Working Capital
Disadvantage:
• Default and Bad Faith
• Exclusions and Limitations
Export Factoring
Factoring is a financial transaction whereby
a business sells its accounts receivable(i.e.,
invoices) to a third party (called a factor) at
a discount in exchange for immediate money
with which to finance continued business.
Export factoring means purchase, funding,
management, and collection of short-term
accounts receivable based on goods and
services provided to foreign buyers.
Factoring is used by a firm when the
available cash balance held by the firm is
insufficient to meet current obligations and
accommodate its other cash needs, such as
new orders or contracts.
• Supplier or Seller (Client)
• Buyer or Debtor (Customer)
• Financial Intermediary (Factor)
• Discount Factoring: the factor
issues an advance of funds against
the receivable up to the point that the
funds are provided from the
importer. Cost is based on the
amount and time the facility is used.
• Collection Factoring: the factor
pays the exporter (minus a charge)
when receivables are at maturity; it
does not make a difference if the
importer is able to pay. The cost is
fixed (1- 4%) and will depend on the
 country destination, volume of sales
and paperwork involved. It is usually
double the cost of export credit
insurance.
Costs associated with Export
Factoring
Factoring fee: Includes costs charged by
Import Factor or by Insurance Company for
risk protection up to 100% or 85% of the
account receivable plus costs connected with
management and collection of assigned
accounts receivable. It usually amounts to
0.6–1.1% of the account receivable value.
Interest: Interest is charged on advances
provided for assigned accounts receivable
based on short term bank credit rates level.
Factors Chain International (FCI) is the
largest of these global networks and can be
useful in locating factors willing to finance
your exports.
International Factoring Association (IFA)
an association of financial firms that offer
factoring services.
The forfaiter is the individual or entity that
purchases the receivables, and the importer
then pays the receivables amount to the
forfaiter. A forfaiter is typically a bank or a
financial firm that specializes in export
financing.
A forfaiter's purchase of the receivables
expedites payment and cash flow for the
exporter. The importer's bank typically
guarantees the amount.
The purchase also eliminates the credit risk
involved in a credit sale to an
importer.Forfaiting facilitates the transaction
for an importer that cannot afford to pay in
full for goods upon delivery. It is most used
in cases of large, international sales of
commodities or capital goods where the
price exceeds $100,000.
Major Advantages of Forfaiting
Volume: Can work on a one-shot deal,
without requiring an ongoing volume of
business.
Speed: Commitments can be issued within
hours/ days depending on details and
country.
Simplicity: Documentation is usually
simple, concise, and straightforward.
Forfaiting Industry Profile
While the number of forfaiting transactions
is growing worldwide, industry sources
estimate that only 2 percent of world trade is
financed through forfaiting and that U.S.
forfaiting transactions account for only 3
percent of that volume. Forfaiting firms have
opened around the world, but the Europeans
maintain a hold on the market, including in
North America. While these firms remain
few in the United States, the innovative
financing they provide should not be
overlooked as a viable means of export
finance for U.S. exporters.
The Association of Trade & Forfaiting in
the Americas, Inc. (ATFA) and the
International Forfaiting Association (IFA)
may be useful in locating forfeiters willing
to finance your exports. They are both
associations of financial institutions
dedicated to promoting international trade
finance through forfaiting.
SMBD
WEEK 13
What is Motivation?
• Drive to initiate an action.
 • The intensity of effort in an action
• The persistence of effort over time.
Reasons for Motivating Salespeople
• Frequent rejection
• Physical separation from company
support
• Direct influence on quality of sales
presentation
• Indirect influence on performance
Career Stages
• Does everyone go through these
stages?
• What can be done to address the
concerns of salespeople at each
stage?
Exploration Stage
• Motivational Needs
o Learning the skills required
to do the job well.
• Manager Role?
o Reinforce accomplishments
o Spend time with salesperson
o Discuss long-term benefits of
working for the organization
Establishment Stage
• Motivational Needs
o Use skills to produce results,
increase job autonomy
• Manager Role?
o Provide high rewards for high
achievers
o Have salespeople recognize
success has something
other than promotion
Maintenance Stage
• Motivational Needs
o Develop a broader view of
work and organization,
maintain a high level of
performance
• Manager Role?
o Challenge salespeople to use
their knowledge in new ways
o Introduce significant rewards
for mastering new challenges
Disengagement Stage
• Motivational Needs
o Establish a stronger self-
identity outside of work,
maintain performance level
 • Manager Role? 2. Direct where to put effort.
o Maintain focus on personal 3. Provide standards for evaluation.
goals and importance of
Various Types of Quotas
organizational citizenship
behaviors (e.g., being a 1. Sales volume in dollar or point system
role model, assist in other
aspects of the organization) • Points allow for
different weights for
Giving Status to Salespeople different important
products independent
1. Compensation
of price.
- exceed first-line managers
• Points not affected by
2. Job Title
inflation.
- no cost but considerable payback
3. Company Car Upgrade • Sales quota may be
- salespeople spend much time in car developed for:
reminds them of their value. – Total territory
4. Car Phone – sales, and/or
- justified on a purely business basis – Individual
5. Field Sales Council product or
- meet president for 1/2-day open- product group.
ended discussion on field marketing 2. Profit-based quotas are rarely based on
conditions - report back to field bottom line profits
meetings the results
• Difficult to account
6. Outside Secretarial Support for indirect expenses
- or more exclusive central.
• Profits are usually
7. Published Success Stories configured as gross
- high form of recognition margins minus some
8. Task Force Assignments load factor
- e.g., review of all paperwork. 3. Activity-based quotas are based on
A Model of Motivation: activities directly related to sales volume

• Effort-Performance Relationship. • More directly under

control of the
• Performance-Reward Relationship. salesperson
• Importance of Rewards. • Biggest problem is
Why Use Quotas falsification of call
reports
1. Help motivate salespeople.
 • Issue of quantity vs.
quality of activity?
Incentive Program Decisions
▪ What is Incentive Program?
▪ What is difference from regular
compensation such as commission?
▪ Key decisions
− Goals and Timing.
− Prizes.
− Administration Issues.
▪ What is difference between
Incentive and Recognition programs
Recognition Programs:
• What is Recognition Program.
• Pace-Maker Conference.
• Top Honors Conference.
• Walter Wheeler Award.
WEEK 14
COMPENSATING SALESPEOPLE
THE SALES FORCE REWARD
SYSTEM
• Financial compensation
• Non-financial compensation
IMPORTANCE OF SALES FORCE
REWARDS
• Sales force
• Company
• Customer relations and goodwill
• Strategic planning
DESIGN CONSIDERATIONS
• Inherent conflicts
• No plan fits all situations
• Internal equity
• External equity
COMPENSATION PLAN OBJECTIVES
• Correlate efforts, results, and
rewards
• Control activities
• Ensure proper treatment of
customers
• Attract and keep good salespeople
BASIC REQUIREMENTS
• Provision for two types of income
• Flexibility and stability
• Simplicity
• Economy and competitiveness
• Fairness
STEPS IN DESIGNING A PLAN
1. Review job analysis/description
2. Determine objectives
3. Determine job elements
4. Establish level of compensation
5. Pretest
6. Administer/Evaluate
METHODS OF COMPENSATION
• Straight salary
• Straight commission
• Combination
• Team Selling
• Optimum Pay Plans
OTHER COMPENSATION ISSUES
• Bonuses
• Drawing Accounts
• Expense Accounts
CHARACTERISTICS OF A GOOD
EXPENSE PLAN
• No net gain/loss
• Equitable treatment
• No curtailment of beneficial
activities
• Simple and economical
• Avoidance of disputes
• Company control/elimination of
padding
CONTROLLING EXPENSES
• Type of plan
o salary versus commission
o unlimited versus per diem
• Automobiles
• Training
• Travel planning
WEEK 15
Recruitment and Selection
The importance of selection
• Salesperson selection is a key to
ultimate selling success. A good
salesperson can have a substantial
effect on sales turnover.
• Employing a salesperson is very
costly, e.g., travel expense, mobile,
transportation, training. No company
will want to incur all these costs in
order to employ a poor performer.
• Other important determinants of
success, such as training motivation
are heavily dependent on intrinsic
qualities of the recruit. E.g.,
motivation from the company and
the motivation inborn from
salesperson are equally important to
achieve higher sales
Preparation of the job description
Generally, a job description will cover the
following factors:
• The title of the job
• Duties and responsibilities
• To whom the recruit will
report
• Technical and academic
requirements, e.g., degree of
understanding on technical
knowledge, certificates
• Year of experience
• Location
Once the job description is generated, it will
be passed to personnel for specification
Preparation of the personnel specification
Generally, a personnel specification will
cover the following factors:
 1. Physical requirements, e.g.,
speech, appearance
2. Attainments: standard of
education, qualification,
experience
3. Aptitudes and qualities, e.g.,
ability to communicate, self-
motivation
4. Disposition, e.g., maturity,
sense of responsibility
5. Interests, e.g., active, or
inactive, sociable
6. Personal circumstances:
married, location of living,
disability
Sources of recruitment
1. Company’s own staff:
• The candidate will know
about the company and its
product
2. Recruitment agencies
• Provide lists of potential
recruits for a fee. They screen
applicants for suitability for
sales positions.
3. Educational establishment
• Recruiting directly from
universities. The candidate is
likely to be intelligent. They
may see the position of sales
representative as a
preliminary step to marketing
management.
4. Competitors
• The candidate may know the
market and customers, higher
ability
5. Advertisements on press
• unemployed, or other
unrelated field of people
Advertising
There are several principles which can
improve the effectiveness of advertising:
• Choose a suitable newspaper or
magazine for the advertisement.
• If financially available, put the ad at
a bigger size and at a good position.
• An attractive headline
• Employ recruitment advertising
specialist who will produce the ad
and advice on media
Designing an effective application form
and a short-list
• The application form is a quick and
inexpensive method of screening out
applicants in order to produce a
short-list of candidate for interview
• The application form can reveal
much about the applicant. Four
categories of information are usual
on application forms:
1. Personal: name,
address, contact no,
sex, marital status,
age, date of birth
2. Education: schools,
qualification, special
training, membership
of professional bodies
 3. Employment history:
previous company,
date / period of
employment, position,
and duties
4. Other interests
The interview
A suitable interview setting can create right
atmosphere:
• The room for interview
should not be disturbed by
other visitors or phone calls
• Too large room / desk deters
free and natural discussion
Most interviewees are anxious before/
during the interview, because:
- they may feel embarrassed or
worried about exposing
weaknesses, or about
rejection
They may feel inadequate and lack
confidence
The supplementary selection aids
• The psychological tests
criticism: easy to cheat, the
individual personality may not necessarily
relate to sales success.
argument: not easy to cheat because
of the multiple personal inventory system.
Personality such as ego drive and empathy
are proved to be essential in the sales ability
• Role play
criticism: it only measures the
ability at that moment, could not reflect the
potential selling ability. Also, could not
assess the ability to establish and handle
long term relationships with buyers.
argument: It is valuable in
identifying the “hopeless case’ whose
personal characteristics. E.g., inability to
communicate or keep temper under stress
WEEK 16
Sales Promotion and Personal Selling.
Sales promotion
Marketing activities, other than advertising,
personal selling, and public relations, that
stimulate consumer buying and dealer
effectiveness.
A sales promotion is a marketing strategy
where a business will use tactical campaigns
to spark interest and create demand for a
product, service, or other offers.
Tools for Consumer Sales Promotion
• Coupons and rebates
• Premiums
• Loyalty marketing programs
• contest and sweepstakes
• sampling
• point of purchase promotion
loyalty marketing
Loyalty Marketing Program - A
promotional program designed to build long-
term, mutually beneficial relationships
between a company and key customers.
Frequent Buyer Program - A loyalty
program in which loyal customers are
rewarded for making multiple purchasers.
Contests and Sweepstakes
Contests - Promotions that require skill or
ability to compete for prizes.
Sweepstakes - Promotions that depend on
chance or luck, with free participation.
Sampling
A promotional program that allows the
consumer the opportunity to try a product or
service for free.
Point-of-Purchase Promotion
Relationship (Consultative) Selling - A
sales practice that involves building,
maintaining, and enhancing interactions with
customers in order to develop long-term
satisfaction through mutually beneficial
partnership.
steps in the selling process

• Build traffic
• Advertise the product
• Induce impulse buying

online sales promotion

• free merchandise
• sweepstakes
• free shipping with purchase
• coupons

trade sales promotion

• trade allowance
• push money
• training
• free merchandise
• store demonstration sales management responsibility
• convention/ tradeshows
• define sales goals and sales process
Personal Selling • determine sales force structure
• recruit and train sales force
• compensate and motivate sales force
• evaluate sales force

defining sales goals

• clear
• precise
• measurable
• time specific

Quota

Relationship Selling A statement of the individual salesperson’s

sales objectives, usually based on sales
volume alone but sometimes including key
accounts, new accounts, repeat sales, and
specific products.
training the sales force
evaluating the sales force
• sales volume
• contribution to profit
• calls per order
• profit per call
• call percentage achieving goal
SRGG
WEEK#14
CORPORATE CITIZENSHIP
CORPORATE CITIZENSHIP
Corporate citizenship involves the social
responsibility of businesses and the extent to
which they meet legal, ethical, and
economic responsibilities, as established by
shareholders.
Corporate citizenship is growing
increasingly important as both individual
and institutional investors begin to seek out
companies that have socially responsible
orientations such as their environmental,
social, and governance (ESG) practices.
The stage of the development of a
corporate citizenship
1. Elementary In this base stage, citizenship
activity is episodic, and its programs are
undeveloped. The reasons are usually
straightforward: scant awareness of what
corporate citizenship is all about,
uninterested or indifferent top management,
and limited or one-way interactions with
external stakeholders, particularly in the
social and environmental sectors.
2. Engaged At this second stage, top
management often wakes up to society’s
increasing expectations and begins to adopt
a new outlook on the company’s role and
responsibilities. Companies will often
develop policies that promote the
involvement of employees and managers in
activities that exceed rudimentary
compliance to basic laws. Citizenship
policies become more comprehensive in the
innovative stage, with increased meetings
and consultations with shareholders and
through participation in forums and other
outlets that promote innovative corporate
citizenship policies.
3. Innovative During this stage of
development, a company moves forward in
two ways: 1) broadening its agenda by
embracing a more comprehensive concept of
citizenship and 2) deepening its involvement
as a top leader and assuming more of a
stewardship role. High levels of innovation
and learning mark this stage. One spark is
usually increased consultation with a
diversity of stakeholders that involve more
open, two-way communication and mutual
influence. Another feature is contact with
leading-edge companies and experts through
forums, conferences, and professional
meetings.
4. Integrated One of the developmental
challenges for companies at the Integrated
Stage is to progress from coordination to
collaboration in driving citizenship efforts.
Select firms are making moves in this
direction. Boards of directors are
increasingly setting standards and
monitoring corporate performance in these
arenas. An analysis of the Dow Jones
Sustainability Index reveals that roughly one
in five of its member companies have board-
level citizenship committees. These include
risk management systems, stakeholder
consultation schemes, sustainability training
for managers and employees, issues
management frameworks, and the like.
5. Transforming At this stage, companies
rarely operate solo in the social and
environmental fields. They work closely
with other businesses, community groups
and NGOs to tackle problems, reach new
markets and develop local economies.
Corporate social responsibility (CSR)
The concepts of corporate social
responsibility (CSR) and corporate
citizenship are often used interchangeably.
However, corporate social responsibility is a
concept of corporate citizenship that can
take different forms depending on the
company and sector. Companies can benefit
from philanthropy, CSR programs and
volunteer efforts while strengthening their
own brands.
WEEK 15
Social Responsibility
Towards the Community and the
Environment
Different Dimensions of ecological
problem
Population Explosion
• The last few centuries saw the rapid
increase of the world’s population
1650’s– the world’s population was only .5
billion.
1900’s – it increased to 1.7 billion
1960’s – the world’s population grew to 3
billion.
2000 and beyond the estimated world
population will be more than 6 billion.
• The main reason for the dramatic
growth of the world’s population is largely
due to improved medical care which
lessened the rate of infant mortality and
increased the life span of human beings.
• The population explosion is a
problem that humanity must deal with
squarely because the earth and its resources
are limited.
• Moga explains that if human
population on earth continues to grow, the
whole human race will soon come to a point
where the earth’s space and resources will be
used up.
• The result will be famine, poverty,
and more pollution.
Depletion of Natural Resources
• The second dimension of the
problem related to ecology is depletion of
the earth’s natural resources.
• The growth of this problem
worldwide is largely due to activities of
business.
• The main reason for this
technological regression is the depletion of
our natural resources. Once the resources are
gone, there is no way they can be
replenished.
Aluminum , for instance was depleted in
2003
Zinc in 1990
Copper in 1993
Nickel, Iron and oil reserves are projected
to be depleted in 2025.
Pollution of the Environment
• The third dimension of our
ecological problem is the increased pollution
of the environment.
• The wastes of our increased
population and from our modern industrial
lifestyle are destroying the land, air, and
water.
• According to DENR, 60% of air
population in Metro Manila comes from
motor vehicles.
o 400 major rivers in the Philippines,
50 are heavily polluted and 10 are virtually
dead.
• Garbage is also a big problem in our
country.
o Metro Manila alone produces 3,000
tons of garbage daily.
• According to Moga, the air, the sea,
and the land that used to bring health, joy
and vitality to humanity no longer do so.
The Destruction of the Earth
• The fourth dimension of our
ecological problem is found in the
destruction of the earth.
• In the Philippines, only 20% of our
forest remain intact.
• Out of 500,000 hectares of
mangrove in 1920s, only 130, 000 hectares
remain today in our archipelago.
• 90,000 sq kms. Of our land are in
such distressing condition because of soil
erosion that they can ni longer support
cultivation, farming, and gardening.
Environment Ethics
It is the study of man’s moral obligation to
preserve the environment and the natural
order of things.
The preservation and protection of the
environment, man has three important
things to imbibe:
1. Man has a moral obligation to
preserve the environment. The idea of moral
obligation in this context is the perceived
duty to perform an act as good and to avoid
an act as evil.
2. Man has a primary duty to take care
of the environment. This duty is based on
the assumed truth that man’s survival is
interrelated with that of his environment.
Man is a part of a complex web of
interrelationship and interdependence of al
entities in the environment that we call
ecosystem. A destruction of one part of this
ecosystem affects the relationships of these
entities and eventually, creates an imbalance
in the ecosystem.
3. Man must submit to the demands of
natural law and must not intervene
carelessly with the work of nature. Thus,
man must “fit” his technology with ecology.
The duty of preserve the environment has
also been reiterated by the Catholic
Church in the encyclical “Ecclesia in
Asia” (1999) by the late Pope John Paul II
The moral and social obligations of
business to the environment
• Business depends on the natural
environment for its operations, specifically,
for its energy, raw materials, and waste
disposal.
• The natural environment in turn is
affected by the industrial and agricultural
activities of business.
• Since business is dependent on the
natural environment for its operations and
obviously, for profit, business must take the
lead in the effort to protect and preserve the
environment to which it is totally dependent.
WEEK 16
Elements of Corporate Governance
Corporate governance
Corporate Governance
may be defined “as a set of systems,
processes and principles which ensure that a
company is governed in the best interest of
all stakeholders.” It is the system by which
companies are directed and controlled. It is
about promoting corporate fairness,
transparency, and accountability.
4 pillars of Corporate Governance
 Transparency - The corporate
governance framework should ensure
that timely and accurate disclosure is
made on all matters regarding the
company, including its financial
situation, performance, ownership,
and governance structure.
 Accountability - The corporate
governance framework should
provide for the strategic guidance of
the company, the effective
monitoring of management by the
board, and the board’s accountability
to the company and shareholders.
 Fairness - The corporate governance
framework should protect
shareholder rights and ensure the
equitable treatment of all
stakeholders, including minority and
foreign shareholders.
 Responsibility - An effective system
of corporate governance must strive
to channel the self-interests of
managers, directors, and the advisers
upon whom they rely, into alignment
with corporate shareholder and
public interests.
 1. Rule of Law - Good governance
requires fair legal frameworks that
are enforced by an impartial
regulatory body, for the full
protection of stakeholders.
 2. Independent of Directors - If the
directors of a company are also the
owners and/or their family members,
entrepreneurs appointed by friends,
or individuals who are involved in
the daily management of the
company, the board is unlikely to be
impartial. Having most non-
executive independent directors will
help avoid prejudice and conflicts of
interest between the board and the
management.
 3. Responsiveness - Good
governance requires that
organizations and their processes are
designed to serve the best interests of
stakeholders within a reasonable
timeframe.
  4. Direction - Providing overall
direction for the business, its leaders
and employees is a major part of
corporate governance. Making
strategic decisions and discussing
current and future concerns of the
company are tactics of this element.
 5. Equity and Inclusiveness - The
organization that provides the
opportunity for its stakeholders to
maintain, enhance, or generally
improve their well-being provides
the most compelling message
regarding its reason for existence and
value to society.
 6. Effectiveness and Efficiency -
Good governance means that the
processes implemented by the
organization to produce favorable
results meet the needs of its
stakeholders, while making the best
use of resources – human,
technological, financial, natural, and
environmental – at its disposal.
 7. Self-Evaluation - Mistakes will
be made, no matter how well you
manage your company. The key is to
perform regular self-evaluations to
identify and mitigate brewing
problems.
 8. Participation - Participation by
both men and women, either directly
or through legitimate representatives,
is a key cornerstone of good
governance.
Good Practices in Corporate Governance
 Build a strong, qualified board of
directors and evaluate
performance - Boards should be
comprised of directors who are
knowledgeable and have expertise
relevant to the business and are
qualified and competent, and have
strong ethics and integrity, diverse
backgrounds and skill sets, and
sufficient time to commit to their
duties.
 Define roles and responsibilities -
Establish clear lines of accountability
among the Board, Chair, CEO,
Executive Officers, and management
 Emphasize integrity and ethical
dealing - Not only must directors
declare conflicts of interest and
refrain from voting on matters in
which they have an interest, but a
general culture of integrity in
business dealing and of respect and
compliance with laws and policies
without fear of recrimination is
critical.
 Having a High Level of Ethics and
Integrity - Board directors stand as
the voice of the corporation. As such,
they are often called on to make
public presentations. Board directors
must consider their fiduciary duties
whenever they speak for the
corporation. The best nominees are
people with a high level of ethics,
honesty, and integrity in their speech,
their works, and their relationships
with people.
 Engage in effective risk
management - Companies should
regularly identify and assess the risks
they face, including financial,
operational, reputational,
environmental, industry-related, and
legal risks.