Course Title: Certificate in International Trade

Module: Fundamentals of International Business

I. Discuss the different business departments essential to

fulfilling international trade sales.

The international trade of the company can be defined as a process of

involving the company's international operations.

The motivation to begin the export can be issued by many factors like:
favorable managerial attitudes, growth and profit objectives, the competent
marketing advantages, economies of scale, owning a single product (a competent
technology), the existence of market opportunities, policies to encourage exports
etc. The example of the company that I represent is that we have a new product
that can be appreciated in EU or other countries.

The business structure of the company will always influence the quality and
the reputation of the firm, mainly in international trade. If the departments are
not responsible the firm risk to not have a credibility or the access to other
markets. Some of the departments that are involved in the internationalization
are: marketing, procurement, production, administration, finance, stock control,
customer services etc. Having the correct business structure when importing or
exporting is absolutely vital. Smaller businesses will combine many of those
functions. For example, in our company we combine sales with marketing,
customer service and procurement. There is one department that is responsible
for linking more functions. The finance, credit control are combined in one
department that is linked with the accountancy.
The following diagram represents the departments of a small or medium-sized
company, which is implemented in the company in which I activate.

CEO
CEO

Production Commerci Finance Export Logistics

al

Regio Regio Internal Export

n1 n2 market

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 Export service company collaborates with other departments in developing
and implementing an export strategy. The main objectives of the specific
functions of foreign trade transactions are:

- Marketing function: defining marketing policy (setting the marketing mix,

establishing forms of internationalization etc), studying foreign market,
establishing marketing techniques, design and implementation of promotional
policy;

-Commercial function: foreign market research, tendering, negotiation,

contracting, service assurance after- selling;

-Logistics function: the formalities for achieving international transportation,

cargo insurance, customs regulation issues etc.

-Financial function: making payments, secure financing operations, control

operations profitability;

-The juridical function: checking the validity of the contract, contract drafting,
monitoring and dispute resolution, information on national and international
regulations in the field of foreign trade;

Direct export means creating organizational structures and marketing

outsourced these include: commercial office (representation) , branch and the
subsidiary.

Sales office represents a compartment operative implanted abroad, which has

no legal personality who has a specialized intermediary between the commercial
company that has established and its trading partners. Its main functions are: to
ensure a link with the local market in order to promote sales, the first contacts
with potential customers and presenting the company's products, support in
preparation for and conduct negotiations, monitoring of the performance of
contracts concluded, coordination of technical assistance and service,
information about the market etc.

Branch is a secondary office of the company located abroad without legal

personality. It is subject to the law society ruled that its constitution, and the law
of the country where it operates (in terms of its establishment). Branch transmits
orders to the parent company , ensure clearance of goods, making local
deliveries, tracks the performance of contracts, dealing with after-sale etc.
Although it does not have judicial independence, it has a certain autonomy
operative.

Subsidiary is a company established abroad, which has legal personality. Its

legal status is governed by the law of the country where it operates, the branch
having the nationality of that country. Her duties are similar to the branch.
Forming a subsidiary production the company can delocalisate the products to
the import market. In this case the branch performs production activities and
trading activities both within the import country as well as on other markets.

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 Export indirectly involves separation of the production function of the
marketing, the last being able to be taken from several categories of companies,
namely: companies acting in the name and on their own, companies acting in his
own name and on the account of others (commissioners) and companies working
in the name and on the account of others (agents or representatives). In the first
case, the manufacturer sells a commercial firm - which in turn performs exports
in name and on their own. The manufacturer takes no risks or costs related to
marketing its wares abroad, he not having direct link with the foreign market. The
trader, in turn, seeks to recover profits from the difference between the purchase
price and the sale, he made entirely activities negotiating, contracting and
conducting foreign trade operations. Exports in this formula is practiced by small
and medium enterprises that either can not or do not find it effective to create
their own structures export or export situation is not a high share in the turnover
of the production company. The category includes companies that operate
independent trade houses, specialized foreign trade companies, trade companies
that had been read wholesale and retail trade firms.

II. Explain why internationalisation can be an appropriate

option for a business reliant solely on domestic (home)
sales.

Most managers enter foreign markets through exporting. By using an indirect

channel (e.g. an export management company), a manufacturer can begin
exporting with low start up costs; it allows him to tests the result of his product in
a low-risk experimental fashion. Yet indirect exporting leads to an inevitable lack
of control over his foreign sales. After initial exposure into the foreign market
more ambitious managers will prefer using a direct export channel.

1. Direct export channels

Agents
Definition: An individual or legal entity authorized to act on behalf of another
individual or legal entity (the principal). An agents authorized actions will bind
the principal. A sales representative, for example, is an agent of the seller.

A foreign agent is an independent middleman representing the manufacturer in

the foreign market. He sells the product on a commission basis. The
manufacturer will receive orders from his agent and ship directly to his foreign
buyer.
Agent channels have lower start up costs and are commonly used for early export
entry.

Distributors
Definition: An agent who sells directly for a supplier and maintains an inventory
of the suppliers products.
A foreign distributor buys the manufacturers product for resale to middlemen or

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final buyers. He has more functions than an agent (maintaining inventories
providing after-sales services) and assumes the ownership risk. He obtains a
profit margin on resale of the product.

An agent or a distributor?
Determine their profit contribution by estimating their respective sales and
costs
Also consider control, risk and other channel specifications
Monitor channel performance to know if you need to change your channel
arrangements

2. Joint Ventures

Definition:
1. A combination of two or more individuals or legal entities who undertake
together a transaction for mutual gain or to engage in a commercial enterprise
together with mutual sharing of profits and losses.
2. A form of business partnership involving joint management and the sharing of
risks and profits as between enterprises based in different countries. If joint
ownership of capital is involved, the partnership is known as an equity joint
venture.

Advantages:
Combined resources can exploit a target market more effectively
May be the only investment opportunity if host governments prohibit sole
ventures (commonly developing or communist countries)
The local partner reduces the foreign partners investment to risk exposure
Attractive to foreign companies with little experience in foreign ventures
The local partner contributes his knowledge of local customs, business
environment and important contacts e.g. with customers and suppliers

Disadvantages:
Can lead to a loss of control over foreign operations
The interests of local partners must be accommodated
Can be obstacles to the creation of global marketing and production systems

3. Contractual entry modes

Licensing
Definition: The transfer of industrial property rights, patents, trademarks or
proprietary know-how from a licensor in one country to a licensee in a second
country.
For manufacturers wanting an aggressive foreign-market entry strategy licensing
is not the best option. Only when export or investment entry is not feasible do
they consider it. Small manufacturers are more prone to using licensing as an
entry mode since it offers a low-commitment entry mode. Licensing can be

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combined with other entry modes and its most popular form is licensing/ equity
mixes allowing the manufacturer to benefit from the growth of the licensee firm.

Advantages:
The circumvention of import restrictions and transportation costs, since only
intangible property rights and technology are transferred
It requires no fixed investments by the manufacturer
Licensing arrangements are exposed to less political risks than foreign
investments

Disadvantages:
No quality control is maintained over the licensed product
No control over the licensees volume of production or marketing strategy
The licensed products market performance depends on the licensee
A lower size of returns is obtained compared to export or investment e.g.
royalty rates rarely exceed 5 per cent of the licensees net sales

Opportunity costs:
The creation of a competitor in third markets or a manufacturers home market
The exclusivity of a licensing agreement prevents the licensor from marketing
the product in the licensee country even if he is failing to exploit market
opportunity

Franchising
Definition: to authorize others to use a companys name and sell its goods.
Franchising is different than conventional licensing since: the franchisor licenses
a business system to an independent franchisee in a foreign country. He carries
on the business under its trade name and in accordance with the franchise
agreement, reproducing the products or services of the franchisor in the foreign
country.

Choosing the right entry mode

Managers must decide on the correct entry mode for a particular product/
country, this is done by following on of three rules:
1. The Naive rule - whereby managers use the same entry mode for exporting to
all their target countries, by far the riskiest option since managers can end up
using an inappropriate entry mode for a particular foreign country or forsake
promising foreign markets
2. The Pragmatic rule - whereby managers start by assessing export entry and
change their entry strategy accordingly, this saves time and effort yet ultimately
fails to bring managers to the appropriate mode
3. The Strategy rule - whereby managers use right entry mode as a key to the
success of their foreign entry strategy, making systematic comparisons of all
entry modes. It is the most complicated method yet results in better entry
decisions.

References:

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 http://www.startupoverseas.co.uk/news/benefits-of-exporting-for-a-small-
business.html ( open 19 february 2017)

http://www.internationaltrade.co.uk (19 february 2017)

Bibliography:

Postgraduate specialization

INTERNATIONAL MANAGEMENT TRANSACTIONS

Conf. univ. dr. DANA BLIDEANU

Bucharest 2002