Methods of Transacting International Business

A United States business that wants to engage in international trade is presented with an almost limited array of possibilities. Choosing a method of doing business in foreign countries requires understanding not only the factors normally involved in selecting an organization trade domestically, but also demands an appreciation of the international trade perspective. The business enterprise form used in the movement of goods, technology and services across national borders may be either direct foreign sales, licensing agreements, or direct foreign investment depending upon the country, type of export, and amount of export involved in the particular transaction.

The simplest, least risky approach for a manufacturer to use when trying to penetrate foreign markets is to sell goods directly to buyers located in other countries. However, with foreign sales, increased uncertainty over the ability to enforce the buyer’s promise to pay for goods often requires that more complex arrangements for payment be made than with the usual domestic sale.

Commonly, an irrevocable letter of credit is used to ensure payment. Transactions using such a letter involve, in addition to a seller and a buyer, an issuing bank in the buyer’s country. The buyer obtains a commitment from the bank to pay the price of the goods upon receipt from the carrier, of a bill of lading, stating that the goods have been shipped. The issuing bank’s commitment to pay is given, not to the seller directly, but to a confirming bank located in the United States from which the seller obtains payment.

The confirming bank forwards the bill of lading to the issuing bank in order to obtain reimbursement of the funds that have been paid to the seller. The issuing bank releases the bill of lading to the buyer after it has been paid, and with the bill of lading the buyer is able to obtain the goods from the carrier. Use of a letter of credit in the transaction thus reduces the uncertainties involved. The buyer need not pay the seller for goods prior to shipment, and the seller can obtain payment for the goods immediately upon shipment.

Globalisation shakes the world
By Steve Schifferes, Economics reporter, Bangalore

Globalisation is a word that is on everyone's lips these days, from politicians to businessmen. Globalisation is blamed for many of the ills of the modern world, but it is also praised for bringing unprecedented prosperity.

But what is globalisation, and what are the forces that are shaping it?

Globalisation – good or bad? The accelerating pace of globalisation is having a profound effect on life in rich and poor countries alike, transforming regions such as Detroit or Bangalore from boom to bust – or vice versa – in a generation.

Many economists believe globalisation may be the explanation for key trends in the world economy such as:

6. Lower wages for workers, and higher profits, in Western economies

7. The flood of migrants to cities in poor countries

8.Low inflation and low interest rates despite strong growth

Defining globalisationIn economic terms, globalisation refers to the growing economic integration of the world, as trade, investment and money increasingly cross international borders (which may or may not have political or cultural implications).

Globalisation is not new, but is a product of the industrial revolution. Britain grew rich in the 19th century as the first global economic superpower, because of its superior manufacturing technology and improved global communications such as steamships and railroads. But the pace, scope and scale of globalisation have accelerated dramatically since World War II, and especially in the last 25 years.

The rapid spread of information technology (IT) and the internet is changing the way companies organise production, and increasingly allowing services as well as manufacturing to be globalised. Globalisation is also being driven by the decision by India and China to open their economies to the world, thus doubling the global labour force overnight.

The role of trade Trade has been the engine of globalisation, with world trade in manufactured goods increasing more than 100 times (from $95bn to $12 trillion) in the 50 years since 1955, much faster than the overall growth of the world economy. Since 1960, increased trade has been made easier by international agreements to lower tariff and non-tariff barriers on the export of manufactured goods, especially to rich countries. Those countries which have managed to increase their role in the world

trading system by targeting exports to rich countries – such as Japan, Korea and now China – have seen dramatic increases in their standard of living.

In the post-war years more and more of the global production has been carried out by big multinational companies who operate across borders. Multinationals have become increasingly global, locating manufacturing plants overseas in order to capitalise on cheaper labour costs or to be closer to their markets.

And globalisation is even harder to track now that one-third of all trade is within companies, for example Toyota shipping car parts from Japan to the US for final assembly. More recently, some multinationals like Apple have become «virtual firms» outsourcing most of their production to other companies, mainly in Asia.