Avoiding and Managing Avoiding and Managing Common Mistakes and Common Mistakes and

ProblemsProblems

Important TermsImportant Terms

Advising BankAdvising Bank BoycottBoycott Business-to-Business-to-

business business relationshipsrelationships

Buy forwardBuy forward ContainerizationContainerization Hard currencyHard currency

InfrastructureInfrastructure Issuing bankIssuing bank Landed costLanded cost Letter of creditLetter of credit Soft currencySoft currency TariffsTariffs

Common PitfallsCommon Pitfalls

Business is not a science.Business is not a science. Companies frequently make errors Companies frequently make errors

when it comes to international trade.when it comes to international trade.

-Cost-Cost

-Standards-Standards

-Marketing-Marketing

-Infrastructure-Infrastructure

CostingCosting

Landed costLanded cost is the full cost of a is the full cost of a product after transportation and all product after transportation and all other costs have been factored.other costs have been factored.

Companies have to determine the Companies have to determine the total costs before they can think of a total costs before they can think of a retail price.retail price.

StandardsStandards

Different countries have different Different countries have different standard of quality or production.standard of quality or production.

ISO helps with this, but sometimes ISO helps with this, but sometimes countries have special regulations.countries have special regulations.

MarketingMarketing

Sometimes, companies do not do Sometimes, companies do not do enough research and fail in enough research and fail in marketing.marketing.

Marketing campaigns could :Marketing campaigns could :-Be offensive-Be offensive-Confuse the market-Confuse the market

-What else?-What else?

InfrastructureInfrastructure

Like marketing, this step in research Like marketing, this step in research is often missed.is often missed.

Physical infrastructure might not be Physical infrastructure might not be good enough for an incoming good enough for an incoming company.company.

HR infrastructure may be poorHR infrastructure may be poor Corruption and bribery are not Corruption and bribery are not

considered.considered.

Let’s look at a ScenarioLet’s look at a Scenario

Salina goes to a Salina goes to a trade show in trade show in France and sees a France and sees a table with a display table with a display of Jams. She wants of Jams. She wants to bring it back and to bring it back and sell it in Merrickville.sell it in Merrickville.

They are €1.50 They are €1.50 each…this is what each…this is what Salina would pay for Salina would pay for them.them.

She must consider: -tariffs (1.7%)

-duties (20%)

-brokerage fees

-transportation costs

-insurance

-currency exchange

-finance arrangements

Exchange Rates/Currency Exchange Rates/Currency StrategiesStrategies

STEP 1 is converting the local cost to our STEP 1 is converting the local cost to our own currency.own currency.-€1.50 is how many Canadian dollars -€1.50 is how many Canadian dollars NOW.NOW.

Hard CurrenciesHard Currencies are those that are easily are those that are easily transferrable and stable. transferrable and stable.

Soft CurrenciesSoft Currencies fluctuate and are not fluctuate and are not widely accepted.widely accepted.

Is the currency that Salina wants to do Is the currency that Salina wants to do business in a hard or a soft currency.business in a hard or a soft currency.

Currencies are rated by international Currencies are rated by international ratings agencies to be:ratings agencies to be:

AAA, AA, A, BBB, BB, B, and C.AAA, AA, A, BBB, BB, B, and C. These represent the confidence that These represent the confidence that

the rest of the world has in doing the rest of the world has in doing business with that currency.business with that currency.

Usually, businesses only deal with Usually, businesses only deal with hard currencies. Why?hard currencies. Why?

How can we protect ourselves How can we protect ourselves from Currency Fluctuation?from Currency Fluctuation?

Any ideas?Any ideas?

Buy ForwardBuy Forward – Buying currency at – Buying currency at the same time that an order is made. the same time that an order is made.

Or…we can enter into agreements to Or…we can enter into agreements to cover differences.cover differences.

If Salina orders the case of Jam and If Salina orders the case of Jam and the euro costs 1.50 CAD, we can buy the euro costs 1.50 CAD, we can buy a whole bunch of euro at the same a whole bunch of euro at the same time. time.

If the euro climbs in value, and it If the euro climbs in value, and it costs 1.75 CAD for one, we already costs 1.75 CAD for one, we already have the euro saved have the euro saved

Letters of CreditLetters of Credit

So we have euros ready to go. The jam So we have euros ready to go. The jam company is not ready to commit yet.company is not ready to commit yet.

Letters of creditLetters of credit are provided to the are provided to the company that the buyer has enough company that the buyer has enough money on deposit in a French bank to money on deposit in a French bank to pay for the order.pay for the order.

The The issuing bankissuing bank is the importer’s is the importer’s bank, the bank, the advising bankadvising bank is the is the exporter’s bank.exporter’s bank.

They swap letters to make sure the funds They swap letters to make sure the funds are there.are there.

The advising bank then monitors the The advising bank then monitors the transaction to make sure everything transaction to make sure everything goes through and the arrangements goes through and the arrangements are met. are met.

When Salina gets the goods, the When Salina gets the goods, the advising bank pays the seller.advising bank pays the seller.

If the banking system is not very If the banking system is not very developed, this process is difficult.developed, this process is difficult.

What other issues are there?What other issues are there?

Tariffs and DutiesTariffs and Duties Unfortunately for Unfortunately for

Salina, there are Salina, there are good jam companies good jam companies here.here.

France is a “Most-France is a “Most-favoured-nation” so favoured-nation” so it has low tariffs.it has low tariffs.

Right now, jams have Right now, jams have a 1.7% tariff rate.a 1.7% tariff rate.

With a potential With a potential Canada-EU FTA Canada-EU FTA coming, these might coming, these might vanish.vanish.

TransportationTransportation

TransportationTransportation

Salina has to think about 5 things Salina has to think about 5 things when figuring out costs:when figuring out costs:-Which agent or shipping company to -Which agent or shipping company to useuse-How to ship it-How to ship it-The weight of the goods-The weight of the goods-The size or volume of the goods-The size or volume of the goods-The distance to their destination.-The distance to their destination.

Page 221 for chartsPage 221 for charts

Transportation is very competitive. Transportation is very competitive. Margins are very small so companies Margins are very small so companies make money on volume.make money on volume.

There are companies that specialize:There are companies that specialize:-Automotive containers-Automotive containers-Refrigeration-Refrigeration

Agents take care of Agents take care of this for companies, butthis for companies, butthey work on they work on commissions.commissions.

What is the most expensive method of What is the most expensive method of shipping?shipping?-Why would it be used?-Why would it be used?

Least expensive?Least expensive? -Why would it be used-Why would it be used Containers reduce costs, increase Containers reduce costs, increase

efficiency, reduce theft, increases efficiency, reduce theft, increases safety.safety.

What costs more to ship? Pillows or What costs more to ship? Pillows or Salina’s jam?Salina’s jam?

Hidden costsHidden costs

These are costs that are not These are costs that are not immediately obvious.immediately obvious.

Phone charges, translation, labelling, Phone charges, translation, labelling, local taxes, government charges, local taxes, government charges, even transportation.even transportation.

Let’s figure out the cost of that 1.50 Let’s figure out the cost of that 1.50 euro jar of French jam from Salina.euro jar of French jam from Salina.

Problems with StandardsProblems with Standards

Production standardsProduction standards Service standardsService standards Quality standardsQuality standards Ethical standardsEthical standards

Production StandardsProduction Standards

Ethical StandardsEthical Standards

Health and Safety for workersHealth and Safety for workers Child LabourChild Labour Animal-testingAnimal-testing Military relationshipsMilitary relationships

These usually lead to boycotts.These usually lead to boycotts.

ICE 7.1 and 7.2ICE 7.1 and 7.2

Pg. 224 #1, 3Pg. 224 #1, 3

Pg. 226 #3Pg. 226 #3