Major Trends in International Business

As the economy grows slowly at home, your business may have to look at selling internationally
to remain profitable. Before examining foreign markets, you have to be aware of the major
trends in international business so you can take advantage of those that might favor your
company. International markets are evolving rapidly, and you can take advantage of the changing
environment to create a niche for your company.

Growing Emerging Markets

Developing countries will see the highest economic growth as they come closer to the standards
of living of the developed world. If you want your business to grow rapidly, consider selling into
one of these emerging markets. Language, financial stability, economic system and local cultural
factors can influence which markets you should favor.

Demographic Shifts
The population of the industrialized world is aging while many developing countries still have
very youthful populations. Businesses catering to well-off pensioners can profit from a focus on
developed countries, while those targeting young families, mothers and children can look in
Latin America, Africa and the Far East for growth.

Innovation
The pace of innovation is increasing as many new companies develop new products and
improved versions of traditional items. Western companies no longer can expect to be
automatically at the forefront of technical development, and this trend will intensify as more
businesses in developing countries acquire the expertise to innovate successfully.

Communication
More intense and more rapid communications allow customers everywhere to purchase products
made anywhere around the globe and to access information about what to buy. As pricing and
quality information become available across all markets, businesses will lose pricing power,
especially the power to set different prices in different markets.

Increased Competition
As more businesses enter international markets, Western companies will see increased
competition. Because companies based in developing markets often have lower labor costs, the
challenge for Western firms is to keep ahead with faster and more effective innovation as well as
a high degree of automation.

Slower Growth
The motor of rapid growth has been the Western economies and the largest of the emerging
markets, such as China and Brazil. Western economies are stagnating, and emerging market
growth has slowed, so economic growth over the next several years will be slower. International
businesses must plan for profitability in the face of more slowly growing demand.

Clean Technology
Environmental factors are already a major influence in the West and will become more so
worldwide. Businesses must take into account the environmental impact of their normal
operations. They can try to market environmentally friendly technologies internationally. The
advantage of this market is that it is expected to grow more rapidly than the overall economy.

Current Trends in International Business

International Business has become global because practically all 200 countries of the world now
engage in international trade and investment to a significant degree. This trend is facilitated by
easier and cheaper communication and transportation as well as by countries opening their
borders to foreign goods, services, capital, labor, technology and firms. This development is
threatened by wars, political upheavals, economic recessions and anti-foreign feelings - as has
always happened in the history of business and is now expressed in opposition to "globalization."
International business is a complex topic, because the environment it operates in is constantly
changing. First, businesses are constantly pushing the frontiers of economic growth, technology,
culture, and politics, which also change the surrounding global society and global economic
context. Secondly, factors external to international business (e.g. developments in science and
information technology) are constantly forcing international businesses to change how they
operate.
Growth in Information and Communication Technology
Information and communication technologies, also known as ICT, are changing the landscape in
which businesses operate. ICT includes phones, the Internet, computers and other hardware and
digital services that facilitate the exchange of information across wide geographic areas. Aside
from engendering an entire new generation of businesses (e.g. the "Tech" boom of the late 1990s,
the growth of Google, Amazon, Yahoo, etc.), ICT has also reshaped how businesses operate by
providing them with fast, organized, and (mostly) quality information from a number of sources
(e.g. think about how iPhone, Microsoft Office, and email impact daily business operations). In
the words of journalist Thomas Friedman, "the world is flat," because of the impact of ICTs on
globalization.
Growth in Emerging Markets
The growth of emerging markets (e.g. India, China, Brazil, and other parts of Asia and South
America especially) has impacted international business in every way. The emerging markets

have simultaneously increased the potential size and worth of current major international
businesses (e.g. General Electric, Wal-Mart, and Microsoft), while also facilitating the
emergence of a whole new generation of innovative companies. According to "A special report
on innovation in emerging markets" by The Economist magazine, "The emerging world, long a
source of cheap labour, now rivals the rich countries for business innovation."
Increasing Influence of States on International Business
International business is increasingly influenced by politics and government. For example, the
global recession from 2008 to 2010 led to the U.S. nationalizing (even if temporarily) major U.S.
companies like General Motors, and major states like China and the United Kingdom passed
economic stimulus packages that were each valued at least 5 percent of their respective GDPs
(Gross Domestic Product). Ian Bremmer, the President of the leading political risk firm The
Eurasia Group, argues that the recent era has heralded in a new era of "State Capitalism," which
will drastically change how businesses conceive of the global economy and the ability for
businesses to remain truly independent.
It is observed that, while foreign direct investment continues to dominate international business,
international contracting as outsourcing is growing rapidly in significance as one of the
key cost-reducing elements in the strategic options of multinational enterprises.
The systemic nature of MNEs networks leads to the emergence of asymmetric properties of, and
synergistic relations between, the constituent elements (HQs, regional HQs, subsidiaries and
outsource partner firms, etc.). In concert, the various network nodes responsible for
manufacturing value added transformations, and the inter-relationships accountable for economic
transactions, comprise what has been referred to as the global factory
From an FDI or international contracting perspective, OO are nothing new with one
exception. The increasing complexity of techno-economic activity, which enabled the
componentization of production, that is, the slicing up of industry stages of production and firm
value chains into different sub-stages, and their subsequent global distribution over geo-

economic space but within the organizational boundaries of MNEs, is now having the same
impact on services [through digitization of data, information, statistics and knowledge and
information and communications technologies (ICTs)]. The relocation of international
production beginning circa 1975 is being added to by the international relocation of services
provision. This latter trend began in earnest circa 1990 and is continuing apace.
(i)since the 1960s, the rate of world trade growth has outpaced that of world output growth;
(ii)between 1980 and 2000, the rate of FDI growth outpaced that of world trade growth;
(iii)approximately three-quarters of world trade are held internally within the
international operations of MNEs. This is manifest as geo-spatially
distributed and operationally integrated, and managed as cross-border collaborative intra- and
inter-firm relations;
(iv)the growth of vertically integrated intra-industry trade, which accounts for about 30 per cent
of world trade, at about 40 per cent since 1975, has outpaced that of FDI growth;
(v)the growth of financial capitalism which has outpaced world output growth (at least until the
great recession of 2008 arguably). That is, the ratio of global financial assets to annual world
output has soared from 109 per cent in 1980 to 316 per cent in 2005. In 2005, the global stock of
core financial assets
reached $140,000 billion.
MNEs, FDI, export-import trade in intermediate products and SOO, as well as the finance capital
that enables global trade, have therefore become the preponderant integrating factors in the world
economy. Furthermore, trade in intermediate products and SOO resulting from FDI have become
significant in improving the efficiency of resource allocation, specialization, value-chain
disaggregation and productivity in higher-cost locations (HCLs) as well as LCLs

The current crisis looks set to accelerate the shifting of the anchor of the world economy from
the
US to Asia with the future focus being on the faster growing economies of China, India, Vietnam
and Indonesia.
The next decade is likely to see these Asian economies playing a leading role in driving global
growth and a shifting inexorably eastwards of the centre of economic power. As an integral part
of
the global economic system, all of the countries in the region are going to see a slowdown and
many companies are already feeling knock on effects.
However, an equal certainty is that these economies will emerge stronger and faster than their
western counterparts and are undoubtedly going to be key drivers of global demand over the next
decade.
This shift in economic power has far-reaching implications for global corporations who until
now
were focusing on the developed western markets and used Asian markets as a sourcing or export

Methods of Payment in International Trade

This guide explains the different methods of getting paid and the different levels of risks
involved. You should note that none of the methods outlined below will completely eliminate the
payment risks associated with international trade, so you should consider your preferred payment
option with care and hedge the risks along with appropriate credit insurance and credit checks on
your
customers. You should read it if you trade internationally and want to know what your options
are in making and receiving international payments. You may wish to pass on the information in
this Briefing to your colleagues in the Sales & Marketing team and your Finance Director so that
they are aware of these issues.
Introduction
Getting paid for providing goods or services is critical for any business. However, getting paid
for an international transaction (also commonly known as "export receivables") can be a very
different experience from securing payment on business with other UK entities, due to the
number of extra factors that can influence the process. The main factor in considering how an
exporter expects to be paid for a transaction is the potential risk that they and their customer are
willing to face between them - don't forget, there are always two sides to any situation. There are
different types of risk that you will face as an exporter, this briefing will consider the payment
risk.
Payment Risk Ladder
It is often a good idea, during, or even before contract negotiations, to consider where, on the
diagram below, you and your customer will be comfortable in placing yourselves.
Exporter

Impoter
Most secure

Least Secure

Open Account
Bills Of Collection
Letter Of Credit
Most secure

Advance Payment

least secure

Common Payment Methods

Once acceptable risks have been determined then the most appropriate payment method can be
selected. While this document is a useful starting point, the advice of a qualified financier or
banker should be sought at least for the first transactions.
Cash in advance
Letter of credit
Documentary collection
Open account or credit
Countertrade or Barter
Bills for Collection
Here is a list, beginning with those that present the least risk for the seller, of the most common
payment methods. They are further described below
Cash in Advance
Cash in advance clearly is risk-free except for consequences associated with the potential
nondelivery of the goods by the seller. Cash in advance is usually a wire transfer or a check.
Although an international wire transfer is more costly (from U.S. $15 to more than U.S. $100), it
is often preferred because it is speedy and does not bear the danger of the check not being
honored. The check can be at a disadvantage if the
exchange rate has changed significantly by the time it arrives, clears and is credited. On the other
hand, the check can make it easier to shop for a better exchange rate between different financial
institutions.
For wire transfers the seller must provide clear routing instructions in writing to the buyer or the
buyer's agent. These include:
The full name, address, telephone, and telex of the seller's bank
The bank's SWIFT and/or ABA numbers2
The seller's full name, address, telephone, type of bank account , and account number.

No further information or security codes should be offered.

Letter of Credit
Basic Understanding
The letter of credit (LC) allows the buyer and Seller to contract a trusted intermediary (a bank)
that will guarantee full payment to the seller provided that he has shipped the goods and
complied with the terms of the agreed-upon Letter. This instrument, although inherently simple,
can have many variations. The LC serves to evenly distribute risk between buyer and seller since
the seller is assured of payment when the conditions of the LC are met and the buyer is
reasonably assured of receiving the goods ordered3.
This is a common form of payment, especially when the contracting parties or unfamiliar with
each other. Although this instrument provides excellent assurances to both parties, it can be
confusing and restrictive. It can also be somewhat expensive, ranging from several hundred U.S.
dollars up to 5 percent of the total value.
LCs are typically irrevocable, which means that once the LC is established it cannot be changed
without the consent of both parties. Therefore the seller, especially when inexperienced, ought to
present the agreement for an LC to an experienced bank, a trusted broker, and its freight
forwarder so that they can help to determine if the LC is legitimate and if all the terms can be
reasonably met. A trusted bank, other than the issuing or buyers bank can guarantee the
authenticity of the document for a fee.
Disadvantages
The LC has certain disadvantages.
If even the smallest discrepancies exist in the timing, documents or other requirements of the
LC the buyer can reject the shipment.
A rejected shipment means that the seller must quickly find a new buyer, usually at a lower
price, or pay for the shipment to be returned or disposed.
Besides being one of the most costly forms of payment guarantee LCs also take time to draw up
and usually tie up the buyer's working capital or credit line from the date it is accepted until final
payment, rejection for noncompliance, expiration or cancellation (requiring the approval of both
parties).
The terms of an LC are very specific and binding. Many traders, even experienced ones,
encounter significant difficulties because of their failure to understand or comply with the terms.
Some statistics show that approximately 50 percent of submissions for LC payment are rejected
for failure to comply with terms!

For example: if the terms require the delivery of four specific documents and one of them is
incomplete or merely delivered late then payment will be withheld regardless of whether every
other condition was fulfilled and the shipment received in perfect order.
The banks whose job it is to ensure a safe payment transaction will insist that the terms be a
fulfilled exactly as written. The buyer can sometimes approve the release of payment if a
condition is not fulfilled but changing terms after the fact is costly, time consuming and
sometimes impossible.
Four Parties Are Involved In Any Transaction Using An LC:
Buyer or Applicant: The buyer applies to his bank for the issuance of an LC. If the applicant
does not have a credit arrangement with this issuing bank then he must pay in cash or other
negotiable security.
Issuing bank: The issuing or applicant's bank, issues the LC in favor of the beneficiary and
routes the document to the beneficiary's bank. The applicant's bank later also verifies that all of
the terms, conditions, and documents comply with the LC, and pays the seller through his bank.
Beneficiary's bank: The sellers or beneficiary's bank verifies that the LC is authentic and
notifies the beneficiary. It, or another trusted bank, can act as an advising bank. The advising
bank is used as a trusted bridge between the applicant's bank and the beneficiarys bank when
these do not have an active relationship and to verify the authenticity of a document. It also
forwards the beneficiary's proof of performance and documentation back to the issuing bank.
However, the advising bank has no liability for payment of the LC. The beneficiary, or his bank,
can ask an advising bank to confirm the LC. This means that the confirming
bank also promises to ensure that the beneficiary is paid when he is in compliance with the terms
and conditions of the LC. The confirming bank charges a fee for this service. This is most useful
when the issuing bank and its credibility is not familiar to either the beneficiary or his bank, or if
the issuing bank (even a well- established one) is in a high-risk country.
Beneficiary or Seller: The beneficiary must ensure that the order is prepared according to
specifications and shipped on time. He must also gather and present the full set of accurate
documents, as required by the LC, to the bank.
Drafts
A draft (sometimes called a bill of exchange) is a written order by one party directing a second
party to pay a third party. Drafts are negotiable instruments that facilitate international payments
through respected intermediaries such as banks but do not involve the intermediaries in
guaranteeing performance. Such drafts offer more flexibility than LCs and are transferable from
one party to another.

There are two basic types of drafts: sight drafts and time drafts.
Sight Drafts: Sight drafts are the most familiar kind of draft, as a sight draft would be a check.
The characteristics of a sight draft include those of all drafts, with the distinguishing trait that
sight drafts are always payable when presented, in a manner somewhat akin to bearer
instruments. This means that upon the presentation of such sight draft, the drawee would be
required to immediately pay the presenter without any substantial delay. Sight drafts are most
often used for those interpersonal payments or in shipping transactions, for example, when the
seller does not want the buyer to gain control of the shipment until payment has been made. In
such an instance, a sight draft would ensure that the seller would have an immediately payable
draft before transferring title of the goods to the buyer.
Time Draft: A time draft is differentiated from a sight draft by the fact that it has a set payment
date some time in the future, as opposed to immediately upon presentation of the draft. A time
draft does not have to be set for a specific date. It can instead be set so that it is only payable
upon the fulfillment of certain conditions. The point of a time draft is to delay any form of
payment until certain actions will likely have occurred. Time drafts are the only type of draft
used with acceptances. Acceptances are used, as in the above example, when the drawee of a
draft negotiable
instrument "accepts" the draft, essentially promising the payee that it will provide payment to the
payee upon satisfaction of the terms in the draft. A sight draft would never require such an
acceptance, however, as a sight draft would always require the drawee to pay the payee
presenting the sight draft.
Hybrid Methods
In practice, international payment methods tend to be quite flexible and varied. Frequently,
trading partners will use a combination of payment methods. For example: the seller may require
that 50% payment be made in advance using a wire transfer and that the remaining 50% be made
by documentary collection and a sight draft.
Open Account
Open account means that payment is left open to an agreed-upon future date. It is one of the most
common methods of payment in international trade and many large companies will only buy on
open account. Payment is usually made by wire transfer or check. This can be a very risky
method for the seller unless he has a long and favorable relationship with the buyer or the buyer
has excellent credit. Still, there are no guarantees and collecting delinquent payments is difficult
and costly in foreign countries especially considering that this method utilizes few official and
legally binding documents. Contracts, invoices, and shipping documents

ill only be useful in securing payment from a recalcitrant buyer when his countrys legal system
recognizes them and allows for reasonable (in terms of time and expense) settlement of such
disputes.
Bills for Collection
More secure for an exporter than Open Account trading, as the exporter's documentation is sent
from a UK bank to the buyer's bank. This invariably occurs after shipment and contains specific
instructions that must be obeyed. Should the buyer fail to comply, the exporter does, in certain
circumstances, retain title to the goods, which may be recoverable. The buyer's bank will act on
instructions provided by the exporter, via their own bank, and often provides a useful
communication route through which disputes are resolved. The Bills for Collection process is
governed by a set of rules, published by the International Chamber of Commerce (ICC) called
"Uniform Rules for Collections" document number 522 (URC522). Over 90% of the world's
banks adhere to this document - pick up a copy from the ICC (See contact details below) or your
bank and familiarise yourself with the contents.
There are two types of Bill for Collection, which are usually determined by the payment terms
agreed within a commercial contract. Different benefits are afforded to exporters by each and
they are covered separately below.