international trade ay tobe peciding to export reasons ae ike portant _ allow Yo yea TE Tg wl alo Yo To increase totake advant fersused Caps nd se of any un ‘onomies of scale Fee unit costs through €° pretin, rece unit Pep increase pits if thi 1 elying on just your se vvpaintries allows you (0 some ameter ' o spread the To diversify Re risky, Selling to other court risk at before deciding t done on the foreign market mound: economic situation, ‘lot of research to be to export there is litical stability, Backge politics Market size and likely product demand. er pce intemaet Distribution channels: agents (who act on your behalf a ua at da by gods nto Sunt ordstbutors (wh actually purchase goods sour neat 8 wise) Promotona material: sales and support material needed ie ings Cons serte fedres foregut compli Legal requirements: technical, safety and environmental santa is likely to involve an in, exporting ay exer) THEY will ave local kno isfamiliar market. If things go wy ‘ ide to establish its own pres, as setting UP a sales ofc ga® rect contact with customers ine ne cme ay ten in the foreigh market suc wore Ise ‘This allows dil and cont fe, warehouse Tre control of the local market. lelivery and MO! a te 7 vey sues for an exporter are a) the method of pay, wo Ke ~ and b) who pays for transport the table below ~ and t tion see th psu is covered in the Contract BY Specifying ‘This eoterm cinernational Commercial Term) or reena consignment (= quantity Of B08 shipped partic same time) ions Other option: exporting is one way to sell Your goods into a foreign mar fay Sa ‘are other options available to larger companies Joint venture: two companies (a foreign company ang ‘local partner) work together but keep their own legal identity. Foreign Direct Investment (FD: a business sets up operations ina foreign country, or acquires (= buys) local company. Licensing: a company sells the right to use a patented manufacturing process, or some commercial expertise, ora trademark, in exchange for a fee or a royalty. ne particular case of this is franchising. FINANCING INTERNATIONAL TRADE Letter of credit (L/C) Cash-in-advance (Pre-payment) The importer pays the invoice in ‘advance, before shipment. Where they only pay a part in advance, i's called a ‘down payment” One bank guarantees payment to another bank. The importer pays when the exporter presents certain listed documents to their bank. Typical documents needed are: transportation documents (eg bill Documentary collection ‘A cheaper variation of an LC. The two banks make no guarantees, but simply handle the exchange o! documents. of lading), insurance documents, ‘commercial documents (eg invoice). Open account The supplier ships the goods, and the importer pays later, according {0 the terms of the contract. This is ‘more risky, and is only used if the importer has establishe Credit history, 'ed a good Consignment purchase ‘The importer receives the goods and holds them in ‘stock, but only Pays for them after they have been Sold to the end users.3.1 Find a word in the text opposite that matches each definition below. The words appear in order. 1 (three words) spreading costs over a larger number of nits, and therefore producing things more cheaply 2 (three words) instead of you, or a a representative of you \itten promise that a company will repair something if it breaks; guarantee 4. big building where large amounts of goods are stored 5 special skills or knowledge 6 name or design on a product that shows its made by a particular company 7. money paid for professional services, or a one-time amount, ‘8 money paid to someone whose ideas or inventions you're using Now do the same for the words in ‘Financing international trade’ opposite. 9 document requesting payment (also called a “bil’) 10 (three words) list giving details of goods that @ ship, etc is carrying, also acts as a contract to transport those goods 3.2 Make phrases by matching an item from each column. 1 take advantage — just your domestic market 2 rely on We ‘on somebody's behalf 3 spread of any under-used capacity 4 act the risk 5 establish a presence to the terms of the contract, 6 keep your own: of documents 7 handle the exchange legal identity 8 pay according in a foreign market 3.3 Study the methods of payment shown in the box ‘opposite. Then complete the diagram by writing the five ‘methods on the horizontal a) sk J 2 2 4 3 TYPES OF FINANCING 3 INTERNATIONAL TRADE 3.4 Complete the text about Incoterms with the words in the box, Notice the glossary at the bottom. ‘dearence customs documentation freight handing loading premises terminal tvansit_truck What are Incoterms? Incoterms state the responsibilities of buyer and seller in relation to marine transportation — not just the shipping Costs, but all other associated costs such as insurance, i duties, and ground ‘The buyer pays for the sea crossing ‘A price quoted EXW is where the seller makes the goods available at their own ? and the buyer collects them there. The buyer has responsibility for all the other transport costs and risks from that point onwards. If the price is FAS, then the seller also covers the cost of inland transport (by * or ral) to the port of shipment, and of unloading the containers onto the dock. The buyer pays for * conto the ship plus all the costs from that point. FOB is almost the same, except here the seller pays for loading onto the ship, not the buyer. ‘The seller pays for the sea crossing Now the goods are on the ship. If the price has been set 0 that the seller also pays the © __ (© goods and the system of moving these goods) cost, then there are further Incoterms to be used. With CFR the seller pays the freight costs and handles the export?” __ (© paperwork), but does, ‘ot pay the insurance while the goods are in at sea. With CIF the seller pays insurance as well, But in both cases their responsibility ends at the port of destination, while the goods are still on board, The buyer has responsibility for unloading fees, local storage at a® , the import licence, duties and taxes, the custom broker's fees and onward delivery to the buyer's own premises. In the final case, DDE, its the seller who pays for everything, and who also has to handle any customs ° problems. The buyer has no additional costs or risks at all - but of course the price Quoted in the contract will reflect this! Glossary BAW: Ex works FAS: Free Alongside Ship FOB: Free On Board CFR: Cost & Freight, CC: Cost, Insurance & Freight DOP: Delivered Duty Paid See page 146 for some discussion topics.8 The business cycle purse the details vary although of co and again, 0 s cycle that repeats a that there isa business ¢ History show iagram below, The outer ci sch time. Look atthe d ticular ti ened to-do well at par that tend 6 ‘of the econom nside shows some sectors ca tend The next circle i 1 rates and inflation, The circle inside that shows interest r ind contraction, nic expansion a Urn this cyely Je shows the stock market cycle Stock market toP Tha’ S8"S of growth, What has caused there green shoots? The clues interest rates, which bottomed out around eleven o'clock. Low interest rates mean cheap borrowing for individuals and companies, Amongst the quickest sectors to trang tte consumer discretionary (eg restaur. travel) and technology. Once there are rants, leisure, iy BRS of growth, transportation picks up {more goods are being shipped), and industry spends more sane 08 8 machinery) During we Period, inflation ra bonds suffer: Bonds pay a ined na "and the value of this interest ig lation goes up. The peak of the cycle All good things must ‘cor the diagram. By now i, Central Banks h: ‘means that cred flation has become a Problem, and ita sed interest rates to des) with it. That NS ight, and borrowing ie expensive. The Jas atk feCoRnizes that the ends coming and pals seit Ore the final peak inthe economy. Invegors rom food, oor defensive stocks like conoumer staple food, household products) and utiitns Contraction Now its seven o'clock and we've entered the pede se action: Stock markets are falling, But Central ai See the danger and are lowering interest rates, ea weting and avoid a recession. Bonds respond eee 10 the drop in rates and they also benefit rom a wa “afety’ effect as investors become cautious about! The bottom of the cycle cigate anti Eventually, financials start to Tecover as they’ 4 finds aoe borrowing, and then the general stock nat oe Sout Six to nine months in advance of an oP t snOmY. Just like at the top of the cycle, ‘ming $m to know that a turn in the real economy ngth an te cconomy is starting to show signs of stren Yele repeats again,Exercises 2.1 Put the words in italics in order 1-4, 4 The economy, starting at twelve o'clock on the diagram, shows contraction [| a downturn ‘expansion an upturn bb The stock market, starting at eleven o'clock on the diagram, bottoms peaks recovers tums down 2.2 Match each sector of the economy 1-10 with an industry group a-j. 1 Basic materials 2 Capital goods 3 Commercial services 4 Consumer discretionary Consumer staples) 1 Energy | Financas Technology) “ransporation | vilies | 2 hotels, restaurants b steel, chemicals «employment agencies, auditing 4 machinery equipment household goods, food retailing f anking, insurance software, communications equipment oil production, gas production electiity, water aiins, logistics 2.3 Underline the correct words in italics. Check any unknown words in a dictionary. Some ideas below are also covered in unit 1. 1 The consumer discretionary sector of the economy starts to recover when interest rates are high / low, and just before the general economy picks up / turns down. 2 Investors favour the consumer staples sector at the beginning / end of the growth cycle, just as the markets are picking up 1 turning down. 3 Ifa government or company wants to borrow money, it Can issue a bond / an obligation. Investors receive a fixed / Variable rate of interest over a fixed period of time, and then {et their original investment back at the end. 4 Arise in interest rates makes borrowing cheaper / more pensive, This cools / stimulates the economy. 5 Central Banks lower interest rates if they think the economy istkely to grow / contract, and will at aggressively if they think there is a danger of a boom / recession © Stock markets tend to anticipate / move in line with / react ‘0 changes in the real economy. Interest rates tend to bottom out before / after both the ‘tock markets and the real economy. Arising market is called a bear / bull market. People who think that a particular market is going to rise in the future ae described as being bullish / bull-ike on that market. 2. THE BUSINESS CYCLE 2.4 Complete the text about dealing with the business | oyde with the phrases in the box. labour market side-effects new borrowing | | government debt | ‘ar cs l policy makers What can central bankers and government ‘do? Can they prevent 2 contraction from turning into a recession? What tools are available to them? The following three are the most important Interest rate adjustments The strongest and fastest tool in a weakening economy is the Central Banks’ ability to cut interest rates. For companies and individuals with existing bank loans, repayments are reduce for other, _— becomes less expensive, Most Central Banks drop rates by quarter-points cr, at crucial times, half-points. Lowering rates stil takes two or thee quarters to benefit an economy, and it does ao have unfortunate ? ‘The negative consequences are that it weakens a nation’s currency, and that any growth it causes may be inflationary Economic stimulus ‘A national government can choose to spend money ~ usually money it must borrow ~ on al srts of projects in order to stimulate the economy. This puts money back into peoples pockets so that they can buy goods and services to boost the economy. * are another way of achieving the same effect. The problem arses when these measures lead to high levels of 5 as Eventually that debt wil have to be repaid Regulatory reforms {A country can implement reforms to the law in order to stimulate growth. These include measures to enhance competition, to liberalize the ‘ . to make it easier to start a new business, etc. See page 146 for some discussion topics. The business world 9