Since the Second World War, international business appeared as the main economic factor responding to postwar needs. Nowadays, globalisation has increased the facility of international exchange and has risen the multicultural needs.The increase in demand for international products has resulted in large possibilities to do business abroad. However, it is really complicate to import or export without knowledge in this area. Global business is all of the commercial exchanges which involve more than one country. Understanding and applying the major factors of overseas business is crucial. In fact, it is clear that the most important factors involved in international exchange include foreign culture, transport and payment transaction. This essay will demonstrate these essential factors. In the first part, this essay will advance the importance of foreign culture which include the country’s background, usual practice and protocol. In the second part it will show important aspects of transport methods and incoterms. Finally, this essay will present the international payment methods of the bank transfer and letter of credit.
An important part of international exchange is to understand the foreign culture of a country in terms of background, practice and business protocol of the country. In their book Morrison and Conway (2006, p. viii) demonstrate how a simple mistake could have irreversible consequences in international trade. As they explain , every country has a different background which influences businesses behaviour. For example, Belarus proclaimed its independence in 1991. Morrison and Conway (2006, pp. 29, 31) state that even though Russia still influences its education and media interest, it is important to consider its own identity. In fact, Belarusians could be intransigeant for some minor mistakes made about their culture. Then, all businesses need to know the overseas companies practice which are indispensable to create and maintain a good relationship with their partner. To illustrate this, Germany is one of the most stringent countries to do trade with. (Morrison and Conway, 2006, p.184).
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... international buisnesse activity are: 1. Domestic business 2. International business 3. Multinational business 4. Global business. Domestic Business: ... EU): The first ans most important international market system. Pacific Asia: A ... copyright, or other assets in exchange for a royalty based ... distribution systems of a country. Nationalized: Taken over by ... which members of a culture adopt a long-term ...
Actually, Lankiest (2013, p. 2) explains that arriving late to a business meeting could mean insult towards German businessmen. He also reports that they usually arrive at their office around two hours before the opening time; therefore, they do not tolerate any delays from foreign businessmen. Finally, some countries have a strong business protocol processes, which is an important factor of a foreign culture. Theses protocols could also impact considerably the business cooperator selection. According to Kermeliotis (2011, para 5), offering a gift to a Chinese trader is crucial to show your respect. They are many rules which need to be respected. For instance, refusal of a present in public could means frailness (Kermeliotis, 2011, para 4).
Unfortunately, if foreign protocols are not respected, business collaboration for few years could be suspend. Those three important aspects of foreign culture demonstrate the importance of understanding background, business practice and protocol when companies do international trade.
The second essential factor of doing business abroad for sellers and buyers is to consider every method of transport and incoterms. All import or export companies need to know exactly when their contractor’s responsibilities begin. The choice of transport methods involves many factors such as time of delivery, budget, volume of goods and the final destination. There are different ways to send your goods; according to Weiss (2008, pp.141-3), mails or light products are mostly sent by Airmail or Courier Services.She states that although the latter is more expensive than the former, the number of possibilities of global delivery is higher and along with extra free services, track of items for example. Then, Weiss (2008 pp.143-7) argues that every heavy or large product should be distributed by surface shipping such as road and rail, air freight or ocean freight. All of these methods have advantages and disadvantages. Dr. Nelson (2009, pp.121-2) agrees that air shipment is the fastest way of delivery; however, it is the most expensive transportation. Freight by sea is more cost efficient and more convenient for bulk and heavy products but it takes longer to transfer. (Nelson, 2009, pp.121-2 and Weiss, 2008, pp.143-p7).
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Finally, after finding the most suitable transport to distribute the merchandise, organisations need to establish the incoterms to do international business. Radke (2012) describes that incoterms intended to regulate, define the cost, reduce transfer of risk and also avoid misinterpretation of freighting selling goods contract. He explains that there are 11 incoterms with different insurances, including various covers for the risk of goods damage or loss. Hence, incoterms are crucial if an incident happen when the goods are in transit and to determine who is responsible for the cargo among of the seller and the buyer. For instance, The International Chamber of Commerce(2010, pp. 60-7) explains that the incoterm Delivered Duty Paid (DDP) is all seller’s obligations, from “door to door”. In other terms, the seller is responsible/for packaging, insurance, taxes, duties and any potential hazards (ICC, 2010, pp. 60-7).
Those factors show the importance for an importer or an exporter to send their product with the best transport method and anticipate the contractor’s responsibilities. Moreover, these points are essential part of doing overseas business.
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The final aspect of international business is to heed financial transaction in order to determine monetary obligation between sellers and buyers. This financial step involves numerous factors of risk which can be avoided by using appropriate methods of payment. Bank transfer or letter of credit are currently the most globally used and known transaction. According to Grath (2008, p. 34), bank transfer is mostly treated by internet which allows rapidity, flexibility and security for both buyer and seller. Then, he explains that the importer’s bank will transfer the money by an internal bank network named Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Schenkar and Luo (2008, p. 257) agree that the SWIFT system transit secures financial messages transactions between financial institutions. In 2008 more than 8 000 banks from all over the world used this form of payment; therefore, this is a secure and a reliable way of payment (Garth, 2008, p. 34).
Another method for international financial transaction is the letter of credit. Garth (2005, p.47) defined the letter of credit as “ a combination of a bank guarantee issued by a bank upon the request of the buyer in favour of the seller”. Garth argues that the letter of credit has the same bank’s interaction in payment as bank transfers; moreover, it includes the UCP 600 (the Uniform Customs and Practice for Documentary Credits).
Smith and Butler (2008, pp. 3-4 ) explain that the UCP 600 are several rules which need to be respected by banks to guarantee a maximum security. In fact, they also state that all of transport documents, which prove the merchandise expedition, are
incorporated in the process. In other terms, the buyer is assured that the seller will not be pay unless the presentation of documents, are conform by UCP 600 rules. Payment security is a crucial point for all businessmen and women when doing business abroad. These two methods of payment guarantee the payment for both importer and exporter and secure the delivery of goods.
To conclude, this essay shows that the evidence of understanding and applying foreign culture, methods of transport and payment transaction are crucial factors when a company do business abroad. In fact, knowing organisation’s background, practice and protocol permit to avoid cultural mistakes which could have impacts businessmen relationship. Then, it is clear that decrease misinterpretation of businesses’s responsibilities by using a good transport methods and incoterms are a second essential aspect. The last important part of international business reports the evidence of reduce the risk of non payment by using an appropriate payment transaction such as bank transfer or letter of credit. In order to help companies to expand their business abroad, governments, organisations, associations could provide these informations in details.
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Reference List
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Schenkar, O, Luo, Y 2008, International Business, 2nd edition, Sage Publications, Inc. United States of America.
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