Tag: international business

International Business in Digital Age of Technology

In this Digital age, the market has became more global than ever it has been, the use of internet has been at peak, than it has never before, the small business that were in the street has started to open a wide market through the use of Internet, the local shop has reached to other parts of the world through the use of internet, websites, social media etc., many big multinational company has been facilitating the tools and facilities for the small business owner to come on the much bigger platform than ever before through the internet. Global integration through this medium that remove the barrier of trade, investment, communication, factor flows, bringing the economics together for the development.

There is a global change in the world, in this pandemic, changes in economies, business, technology, communication, politics and many more. This changes make the require the business to adapt to this changes as quick as possible or else they will get outdated, obsolete and might even wind up the business. There are many uncertainties in the business, so the entrepreneur must adapt to this changes, think about the future of the business. There are many other factors that are forcing the business to make changes, like limited resources, limited market, huge competition, highly skilled labor to change from traditional way to alternative way for getting the business more successful and to get in global market.
Advantages of going international:
It can able to take advantage of market opportunities in abroad countries through internet, trade.
It also defends and grips the position of the business from the competitive position in varying technology, and also from domestic rivalry or government policies.
It also enhances their return from the higher revenue and also lowers their cost of production.
It also reduces it imports and try to increase their exports
It breaks the barriers of places, geographical locations through internet.
It also amplifies their relations with the International Diplomats.
It also takes benefits from the international technology, labor and many opportunities.
To get more access to the global markets and get the resources at low price without compromising its quality.
The Domestic business is a business that buys or sells the goods and services within the national boundaries. It gets its resource within the country boundaries doesn’t have any option to search for the better option and even for the markets, it has limited its boundaries in terms of place, markets, resources unlike International business where goods and services are traded across the boundaries of the country, it can be either the countries or between the multinational companies from the different countries. The Domestic business has some limitation that it operates only within the boundaries, limited to narrow markets, no new customer, no customer visibility and reach, scare resources with high price, not good quality, but whereas International business all this limitations are eradicated with the help of technologies which remove the barrier of place, market, time, and new customer with high quality product with reasonable price, and the owner get the raw material with good quality and with reasonable price. In domestic business, the business get a constant threat of competition, rival companies as they don’t have new markets and large reach for their products, it becomes difficult for the domestic business to survive in the market. Many domestic businesses are going in the way of globalization, market integration with the use of technologies and becoming the international business and removing all the hindrance of the small business problems, competition.

Letter of Credit

In the era of Globalisation, businesses all over the world rely on each other, be it for raw materials, consultation services, marketing or capital goods. This led to an increase in international payments, especially with increase in exports. Some of the most common methods of international payments include- International cheque, Wire transfer and the safest and the most convenient method preferred by most exporters- Letter of Credit.

Letter of Credit is a bank guarantee given by the buyer’s (importer) bank to seller’s (exporter) bank. It is the most secure instrument, also known as Documentary Credit. The main concern of most exporter is safety which is why they prefer Letter of Credit over other modes of payment. It is guaranteed by the bank and the verification of all necessary documents including the inspection certificate is also done by the bank.

Documents required by the bank includes Bill of Lading, Marine insurance, Custom attested Packing list and invoice, Pre-shipment Inspection certificate and Certificate of origin.

Merits of LC

  • Exporter is assured of payment as it is guaranteed by the buyer’s bank.
  • Exporter can get advance payment from bank if the LC is confirmed and irrevocable.
  • It eliminates commercial risk.
  • It enables the importer (seller) to expand their sources of supply as exporters are always willing to supply against Letter of Credit.
  • It prevents blockage of funds and bad debts.

Types of LC

There are 10 types of Letters of Credit. Different LCs have different terms of payment associated with them and hence, it is important for exporters and importers to assess and wisely decide which type suits them the most.

  1. Sight LC: In a sight LC, the exporter immediately receives payment after goods are received.
  2. Usance LC: With a Usance LC, the exporter grants a credit period for payment which is jointly accepted by both banks.
  3. Confirmed LC: Confirmed LC does not allow the Issuer bank (importer’s bank) to modify the terms of LC. Ideally, LC should be confirmed as it is safer.
  4. Unconfirmed LC: Unconfirmed LC allows Issuer bank to modify the terms of LC.
  5. Red clause LC: In a Red clause LC, the importer must make partial or full advance payment.
  6. Green clause LC: Green clause LC allows the importer to make the payment after dispatch of the shipment.
  7. Negotiable LC: Issuing bank (importer’s bank) authorises any bank to be the Nominated bank (exporter’s bank) to negotiate the terms of the LC and receive the payment on behalf of the exporter.
  8. Revolving LC: For regular transactions between the same two parties, one can get a Revolving LC. It allows the parties to set a limit and use the same LC for multiple payments till the limit is reached.
  9. Transferable LC: This type of LC allows the exporter to endorse the LC in favour of a third-party which simply implies that the amount owed to the exporter by the importer is paid to the third-party directly, on behalf of the exporter.
  10. Back-to-back LC: This LC involves 3 parties and two payments under one LC. For example, payment to vendor by manufacturer for raw material and payment to the manufacturer by the retailer under the same LC. It eliminates the need for applying for two LCs.

A guide to take your business international

As Globalisation takes over the world, more and more businesses are expanding and opening their manufacturing units, branches, outlets, offices all over the globe. While some grow exponentially and expand their market, sales and customer base, some fail to get any response and incur huge promotional, travel, administration and financial costs.

This is why it is extremely crucial to form an entry strategy that suits the organisation. It is also important to assess the financial position and capacity of the organisation and to understand that International business gives delayed returns as spreading awareness, competing with the competitor’s product and building an International customer base takes time and incurs promotional costs.

Once the business is ready to enter the international market, there are several factors to be considered.

  1. Firstly, the organisation needs to conduct market research and choose the country and the specific locations where there is demand for their product/service.
  2. Secondly, assessing the culture, language of the country and city is also very important. The organisation can make the necessary changes (if any) to its product/service and its packaging and labelling accordingly.
  3. The last step is to form an entry strategy that suits the organisation and the market and implement the stategy.

Ways of entering an International Market

There are several ways to enter a market depending on the product/service reach preferred by the organisation and the financial capacity of the organisation.

  • Direct Exporting- In this method, the organisation directly sends its products, transfers its employees and workers to the location chosen. It involves huge setup, transportation and transfer costs. Therefore, this method is only used when the product that is being exported has a lot of demand in the new market and will definitely get a response from the target audience. For example, exporting machines to developing countries where there’s no manufacturing of such machines but a huge demand for the same.
  • Through a distributor- In this method, products are sold to distributors who are wholesale buyers. The distributor uses his own selling and pricing strategies to sell the product in the market.
  • Licensing- Through licensing, the organisation can share its technology, method and basic know how with local companies. However, through this method, the product is sold under the local companies’ name and brand so there is no scope of building an international brand and consumer base.
  • Contract Manufacturing– Through this method, the company pays a local manufacturing unit to manufacture their products by sharing their technology and design. It saves the cost of exporting or setting up a manufacturing unit abroad and is ideal for products that require large scale production.
  • Strategic Alliance- This method includes Mergers, Acquisitions and Joint Ventures. In Joint Ventures, two companies form another company to work as partners. For example, Hero Honda. In Mergers and Acquisitions, one company merges with or acquires another company. There is no formation of third company or new identity in this case. For example, Walmart acquired Flipkart.
  • Through an Overseas agent- Using this method, the company hires a local agent to make business relationships on behalf of the company. The agent acts as a sales representative who sells the products on behalf of the company and has no direct relationship with the customers. The agent gets commission on his sales. This is an effective method to save costs in case the organisation wants to test out the response of the foreign potential consumers or distribute their products on small scale without incurring huge costs.