COUNTER TRADE
Countertrade occurs when a firm accepts something other than money as payment for its goods or
services. Thus, countertrade is essentially a barter trade.
TYPES OF COUNTER TRADE
(1) BARTER SYSTEM
Barter is the direct exchange of goods and/or services between two parties without a cash
transaction.
(2) COUNTER PUCHASE
This is a reciprocal buying agreement. It occurs when a firm agrees to purchase a
certain amount of materials back from a country to which a sale is made.
(3) OFFSET
An example for an offset deal is that Pepsi Co sells its cola syrup to Russia for roubles and agrees
to buy Russian vodka at a certain rate for sale in the US. Going by this example, offset resembles
counterpurchase agreement. But there is difference. The difference is that Pepsi can fulfill the obligation
with any firm in Russia. From an exporter's perspective, offset is more attractive than a straight
counterpurchase deal because it gives the exporter greater flexibility to choose the goods that it wished to
purchase.
(
(4) switch trading
it refers to use of the specialized third party trading house in a countertrade agreement. When a firm enters a counterpurchase or offset deal with a countryI It often ends
up with what are called counterpurchase credits, which can be used to purchase goods I llfll till" ountry.
Switch trading occurs when a third-party trading house buys the firm's counterpurchase credltH 111\(1 Ilells
them to another firm that can better use them.
(5) BUYBACK
A buyback also called compensation occurs when a firm builds a plant in a country-or supplies
technology, equipment, training, or other services to the country-and agrees to take a certain percentage
of the plant's output as partial payment for the deal. Countertrade is of particular importance to countries that lack convertible currency and, as stated earlier is often used as means of reducing the drain on scarce foreign currency holdings.
A relatively new form of countertrade involves swaps. Swaps are generally carried out in' relation to
developing countries where the government and private sector face large debt burdens. Given that these
debtors are unable to pay their debt in the immediate future, lenders have grown amenable to exchange the
debt for something else, as for example, debt-far-equity swaps in the private sector, and debt-for-nature
swaps in the public sector.
Wednesday, April 15, 2009
- MECHANISM OF ITERNATIONAL TRADE TRANSACTIONS
MECHANISM OF ITERNATIONAL TRADE TRANSACTIONS
Means of Payments in IB
(1) Open Account
(2) Cash in Advance
(3)Letter of Credit
(4) Draft
(5) Consignment
(1) Cash in advance
Cash in advance affords the exporter the greatest protection because payment is received either before shipment or upon arrival of the goods.
(2) Letter Of Credit
Letter of credit is a letter addressed to the seller, written and signed by a bank acting on behalf of the buyer. In the letter, the bank promises that it will honour drafts drawn on itself if the seller confirms to the specific conditions set forth in the letter of credit In exchange for the bank's agreement to honour the draft
for payment that results from the transaction, the importer promises to pay the bank the amount of transaction and an agreed fee. The letter of credit obviously becomes a fmancial contract between the issuing bank and a designated beneficiary that is separate from the commercial transaction.
Advantages to the exporter.
1. The letter of credit eliminates credit risk if the bank that opens it is of undoubted standing. Obviously, the exporter needs to check only on the reputation of the bank.
2 A letter of credit also reduces the danger that payment will be delayed or with held due' to exchange control or other political risks. Countries generally permit local banks to honor their letter of credit. Failure to honor them could severely damage the country's credit standing and credibility.
3. A letter of credit reduces uncertainty. The exporter knows all the requirements for payment because they are stipulated on the letter of credit.
4. The letter of credit can also guard against preshipment risks. The exporter who manufactures, under a contract, a specialised piece of equipment runs the risk of contract cancellation before shipment. Opening a letter of credit will provide protection during the manufacturing phase.
5. Letter of credit facilitates financing because it ensures the exporter a ready buyer for its product. It also becomes easy to create a banker's acceptance-a draft accepted by a bank.
Advantages to the importer:
1. The letter of credit ensures that the exporter delivers goods and produces certain documents which are carefully examined by the bank. If the exporter fails to deliver the goods, it will be much simpler for the importer to withdraw deposit from the bank. I
2 Because a letter of credit is as good as cash, the importer can usually command better credit terms and /or prices.
3. Letter of credit financing may be cheaper than the alternatives. There is no tie-up of cash if the letter of credit substitutes for cash in advance.
The letter of credit operations are quite simple.
Illustration:
To illustrate how it operates, consider the case of USA Importers Inc, of Los Angeles. The company is buying spare auto parts worth $38,000 from Japan Exporter Inc, of Tokyo, Japan. USA Importers applies for, and receives, letter of credit for $38,000 from its bank, Wells Fargo. The actual process is shown in Fig.
(3) The Drafts
The draft, also called the bill of exchange, is written by an exporter on the importer directing the latter to pay a certain sum on a specified date for having goods shipped to the importer. The exporter submits the bill to its banker who collects the stated amount from the importer's bank and remits the proceeds to the seller or to the bearer.
PARTIES:
The draft has three parties:
(a) The exporter-is the party who draws the bill and hence called the drawer,
(b) The importer on whom the bill is drawn and hence called the drawee, and
(c) the party who is entitled to receive payment is called the payee. Normally, the drawer and the payee are the same persons in which case thereare only two parties to a draft.
FUNCTION:
The draft serves three important functions and hence is widely used in foreign trade:
1. It provides written evidence of obligations in a comprehensive form.
2 It enables both parties to potentially reduce their costs of financing.
3. It is a negotiable and unconditional instrument.
CONDITIONS
To serve the three purposes, the draft needs to fulfill the following conditions:
• It must be in writing
• Signed by the drawer (exporter)
• An unconditional order to pay
• A certain sum of money
• Payable on demand or on a specified future date
• Payable to order of bearer
(4) CONSIGNMENT
Under the consignment the exporter sends goods, on consignment, to the importer who arranges for the sale of goods and makes payment to the exporter, after deducting a specified commission.
Goods on consignment are duly shipped to the importer, but they are not sold. The exporter (consignor) retains title to the goods until the importer (consignee) has sold them to a third party. This agreement is normally made only with a related company because of the high risks involved. There is little evidence of the buyer's obligation to pay, and should the buyer default, it becomes difficult to collect.
(5) OPEN ACCOUNT
Open account selling is shipping goods first and billing the importer later. The credit terms are arranged between the buyer and the seller but the seller has little evidence of the importer's obligation to pay a certain sum at a certain date.
Sales on open account, therefore, are made only to a foreign affiliate or to a customer with which the exporter has a long history of favorable business dealings.
Benefits
The benefits include greater flexibility (no specific payment dates are set) and involve lower costs, including fewer bank charges than with other modes of payment. As with shipping on consignment, the possibility of currency controls is an important factor because of the low priority in allocating foreign exchange normally accorded to this type of transaction.
DOCUMENTS OF IINTERNATIONAL TRADE
(b) Bill of lading,
(c) commercial invoice,
(d) insurance certificate, and
(e) consular invoice
(A) Bill of lading
The most important document used in financing of foreign trade is the bill of lading (B/L). A B/L is a shipping document issued to the exporter or its bank by a common carrier that ships the goods. It serves three important functions:
1. It is a receipt acknowledging that the goods have been received by the carrier.
2. It is a contract binding the carrier to deliver the goods to the importer.
3. The negotiable B/L, its most common form, is a document that establishes control over the goods.
(B) commercial invoice
A commercial invoice contains an authoritative description of the merchandise shipped, including full details on quality, grades, price per unit, and total value.
It also contains the names and addresses of the exporter and the importer, the number of packages, any distinguishing external marks, the payment terms, other expenses such as transportation and insurance charge, any fees collectible from the importer, the nanle of the vessel, the ports of departure and destination and any required export or import permit numbers.
(C) insurance certificate
All cargoes going abroad are insured. Most of the insurance contracts used today are under an open, or floating policy. This policy automatically covers all shipments made by the exporter, thereby elinlinating the need for arranging individual insurance for each shipment. To evidence insurance for a shipment under an open policy, the exporter makes out an insurance certificate on forms supplied by the insurance company.
This certificate contains information on the goods shipped. All entries must conform exactly with the information on the BIL, on the commercial invoice and where required, on the consular invoice.
(D) CONSUMER INVOICE
Exports to many countries require a special consular invoice. This invoice, which varies in its details and information requirements from nation to nation, is presented to the local consul in exchange for a visa. The form needs to be filled carefully, for even trivial inaccuracies can lead to substantial fines and delays in
customs clearance. The consular invoice does not convey any title to the goods being shipped and is not
negotiable.6
FINANCING TECHNIQES IN FORIGN TRADE
Besides direct bank financing, there are several other techniques available for trade financing:
• Bankers' acceptances,
• Factoring: Many firms resort to factoring in which the factoring company buys the exporter's foreign accounts receivable at a discount.
• Forfeiting: When the trade involves very large capital items like commercial aircraft and ships, forfaiting Is a technique of financing. Forfaiting is the discounting of medium-term export receivables denominared in fully convertible currencies
Means of Payments in IB
(1) Open Account
(2) Cash in Advance
(3)Letter of Credit
(4) Draft
(5) Consignment
(1) Cash in advance
Cash in advance affords the exporter the greatest protection because payment is received either before shipment or upon arrival of the goods.
(2) Letter Of Credit
Letter of credit is a letter addressed to the seller, written and signed by a bank acting on behalf of the buyer. In the letter, the bank promises that it will honour drafts drawn on itself if the seller confirms to the specific conditions set forth in the letter of credit In exchange for the bank's agreement to honour the draft
for payment that results from the transaction, the importer promises to pay the bank the amount of transaction and an agreed fee. The letter of credit obviously becomes a fmancial contract between the issuing bank and a designated beneficiary that is separate from the commercial transaction.
Advantages to the exporter.
1. The letter of credit eliminates credit risk if the bank that opens it is of undoubted standing. Obviously, the exporter needs to check only on the reputation of the bank.
2 A letter of credit also reduces the danger that payment will be delayed or with held due' to exchange control or other political risks. Countries generally permit local banks to honor their letter of credit. Failure to honor them could severely damage the country's credit standing and credibility.
3. A letter of credit reduces uncertainty. The exporter knows all the requirements for payment because they are stipulated on the letter of credit.
4. The letter of credit can also guard against preshipment risks. The exporter who manufactures, under a contract, a specialised piece of equipment runs the risk of contract cancellation before shipment. Opening a letter of credit will provide protection during the manufacturing phase.
5. Letter of credit facilitates financing because it ensures the exporter a ready buyer for its product. It also becomes easy to create a banker's acceptance-a draft accepted by a bank.
Advantages to the importer:
1. The letter of credit ensures that the exporter delivers goods and produces certain documents which are carefully examined by the bank. If the exporter fails to deliver the goods, it will be much simpler for the importer to withdraw deposit from the bank. I
2 Because a letter of credit is as good as cash, the importer can usually command better credit terms and /or prices.
3. Letter of credit financing may be cheaper than the alternatives. There is no tie-up of cash if the letter of credit substitutes for cash in advance.
The letter of credit operations are quite simple.
Illustration:
To illustrate how it operates, consider the case of USA Importers Inc, of Los Angeles. The company is buying spare auto parts worth $38,000 from Japan Exporter Inc, of Tokyo, Japan. USA Importers applies for, and receives, letter of credit for $38,000 from its bank, Wells Fargo. The actual process is shown in Fig.
(3) The Drafts
The draft, also called the bill of exchange, is written by an exporter on the importer directing the latter to pay a certain sum on a specified date for having goods shipped to the importer. The exporter submits the bill to its banker who collects the stated amount from the importer's bank and remits the proceeds to the seller or to the bearer.
PARTIES:
The draft has three parties:
(a) The exporter-is the party who draws the bill and hence called the drawer,
(b) The importer on whom the bill is drawn and hence called the drawee, and
(c) the party who is entitled to receive payment is called the payee. Normally, the drawer and the payee are the same persons in which case thereare only two parties to a draft.
FUNCTION:
The draft serves three important functions and hence is widely used in foreign trade:
1. It provides written evidence of obligations in a comprehensive form.
2 It enables both parties to potentially reduce their costs of financing.
3. It is a negotiable and unconditional instrument.
CONDITIONS
To serve the three purposes, the draft needs to fulfill the following conditions:
• It must be in writing
• Signed by the drawer (exporter)
• An unconditional order to pay
• A certain sum of money
• Payable on demand or on a specified future date
• Payable to order of bearer
(4) CONSIGNMENT
Under the consignment the exporter sends goods, on consignment, to the importer who arranges for the sale of goods and makes payment to the exporter, after deducting a specified commission.
Goods on consignment are duly shipped to the importer, but they are not sold. The exporter (consignor) retains title to the goods until the importer (consignee) has sold them to a third party. This agreement is normally made only with a related company because of the high risks involved. There is little evidence of the buyer's obligation to pay, and should the buyer default, it becomes difficult to collect.
(5) OPEN ACCOUNT
Open account selling is shipping goods first and billing the importer later. The credit terms are arranged between the buyer and the seller but the seller has little evidence of the importer's obligation to pay a certain sum at a certain date.
Sales on open account, therefore, are made only to a foreign affiliate or to a customer with which the exporter has a long history of favorable business dealings.
Benefits
The benefits include greater flexibility (no specific payment dates are set) and involve lower costs, including fewer bank charges than with other modes of payment. As with shipping on consignment, the possibility of currency controls is an important factor because of the low priority in allocating foreign exchange normally accorded to this type of transaction.
DOCUMENTS OF IINTERNATIONAL TRADE
(b) Bill of lading,
(c) commercial invoice,
(d) insurance certificate, and
(e) consular invoice
(A) Bill of lading
The most important document used in financing of foreign trade is the bill of lading (B/L). A B/L is a shipping document issued to the exporter or its bank by a common carrier that ships the goods. It serves three important functions:
1. It is a receipt acknowledging that the goods have been received by the carrier.
2. It is a contract binding the carrier to deliver the goods to the importer.
3. The negotiable B/L, its most common form, is a document that establishes control over the goods.
(B) commercial invoice
A commercial invoice contains an authoritative description of the merchandise shipped, including full details on quality, grades, price per unit, and total value.
It also contains the names and addresses of the exporter and the importer, the number of packages, any distinguishing external marks, the payment terms, other expenses such as transportation and insurance charge, any fees collectible from the importer, the nanle of the vessel, the ports of departure and destination and any required export or import permit numbers.
(C) insurance certificate
All cargoes going abroad are insured. Most of the insurance contracts used today are under an open, or floating policy. This policy automatically covers all shipments made by the exporter, thereby elinlinating the need for arranging individual insurance for each shipment. To evidence insurance for a shipment under an open policy, the exporter makes out an insurance certificate on forms supplied by the insurance company.
This certificate contains information on the goods shipped. All entries must conform exactly with the information on the BIL, on the commercial invoice and where required, on the consular invoice.
(D) CONSUMER INVOICE
Exports to many countries require a special consular invoice. This invoice, which varies in its details and information requirements from nation to nation, is presented to the local consul in exchange for a visa. The form needs to be filled carefully, for even trivial inaccuracies can lead to substantial fines and delays in
customs clearance. The consular invoice does not convey any title to the goods being shipped and is not
negotiable.6
FINANCING TECHNIQES IN FORIGN TRADE
Besides direct bank financing, there are several other techniques available for trade financing:
• Bankers' acceptances,
• Factoring: Many firms resort to factoring in which the factoring company buys the exporter's foreign accounts receivable at a discount.
• Forfeiting: When the trade involves very large capital items like commercial aircraft and ships, forfaiting Is a technique of financing. Forfaiting is the discounting of medium-term export receivables denominared in fully convertible currencies
International Staffing Decision
Human resource planning having been done, the international human resource manager must proceed with the job of hiring the right number of people of the right type.
The international human resource manager must not only select people with skills, but also employees who can jell with the organisation's culture. ;so it wants to hire employees whose styles, beliefs, and value systems are consistent with those of the firm.
Approaches of Staffing
International businesses are said to adopt three approaches to staffing:
(1) Ethnocentric,
(2) Polycentric, and
(3) Geocentric.
Ethnocentric Approach In this approach, all key management positions are held by parent-country nationals. This strategy may be appropriate during the early phases of international business, because fums at that stage are concerned with transplanting a part of the business that has worked in their home country.
This practice was widespread at one time. Firms such as P & G, Philips NY, and Matsushita originally followed the ethnocentric approach.
Reasons :
• Perceived lack of qualified host country nationals;
• Understanding that a united corporate culture can be maintained; and
• Need to maintain good communication, coordination, and control links with headquarters.
Disadvantages:
• Denial of promotional opportunities to host-country nationals, leading to reduced productivity and increased turnover.
• The adaptation of expatriate managers to host countries takes a long time during which home-country nationals make poor decisions and commit mistakes.
• For many expatriates a key international posting means new status, authority, and increased standard of living. The changes may affect expatriates' sensitivity to the needs and expectations of their host country subordinates.
Polycentric Approach
The polycentric staffing policy requires host-country nationals to be hired to
manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. Although top management positions are filled by home-country personnel, this is not always the case.
For example, many US MNCs use home-country managers to get the operations started, then hand it over to the host-country managers. Hindustan Lever Ltd, (HLL), the Indian subsidiary of Unilever, has locals as its chiefs.
The Geocentric Approach This staffing philosophy seeks the best people for key jobs throughout the organisation, regardless of nationality. Seeking the best person for the job, irrespective of nationally is most consistent with the underlying philosophy of a global corporation.
Colgate Palmolive is an example of a company that follows the geocentric approach. It has been operating internationally for more than 50 years, and its products are household names in more than 170 countries. 60 per cent of the company's expatriates are from countries other than the US. All the top executives speak atleast two languages, and important meetings routinely take place all over the globe.
The international human resource manager must not only select people with skills, but also employees who can jell with the organisation's culture. ;so it wants to hire employees whose styles, beliefs, and value systems are consistent with those of the firm.
Approaches of Staffing
International businesses are said to adopt three approaches to staffing:
(1) Ethnocentric,
(2) Polycentric, and
(3) Geocentric.
Ethnocentric Approach In this approach, all key management positions are held by parent-country nationals. This strategy may be appropriate during the early phases of international business, because fums at that stage are concerned with transplanting a part of the business that has worked in their home country.
This practice was widespread at one time. Firms such as P & G, Philips NY, and Matsushita originally followed the ethnocentric approach.
Reasons :
• Perceived lack of qualified host country nationals;
• Understanding that a united corporate culture can be maintained; and
• Need to maintain good communication, coordination, and control links with headquarters.
Disadvantages:
• Denial of promotional opportunities to host-country nationals, leading to reduced productivity and increased turnover.
• The adaptation of expatriate managers to host countries takes a long time during which home-country nationals make poor decisions and commit mistakes.
• For many expatriates a key international posting means new status, authority, and increased standard of living. The changes may affect expatriates' sensitivity to the needs and expectations of their host country subordinates.
Polycentric Approach
The polycentric staffing policy requires host-country nationals to be hired to
manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. Although top management positions are filled by home-country personnel, this is not always the case.
For example, many US MNCs use home-country managers to get the operations started, then hand it over to the host-country managers. Hindustan Lever Ltd, (HLL), the Indian subsidiary of Unilever, has locals as its chiefs.
The Geocentric Approach This staffing philosophy seeks the best people for key jobs throughout the organisation, regardless of nationality. Seeking the best person for the job, irrespective of nationally is most consistent with the underlying philosophy of a global corporation.
Colgate Palmolive is an example of a company that follows the geocentric approach. It has been operating internationally for more than 50 years, and its products are household names in more than 170 countries. 60 per cent of the company's expatriates are from countries other than the US. All the top executives speak atleast two languages, and important meetings routinely take place all over the globe.
Ethical dilemmas & social responsibility issues
Business Ethics
Ethics refers to a system of moral principles- a sense of right & wrong & goodness & badness of actions, & their motives & consequences.
Business ethics refers to the application of ethics to business.
To be more specific, business ethics is the study of good & bad, right & wrong, & just & unjust actions of business.
Sources of Business Ethics
(1) Religion
(2) Cultural Experience
(3) The legal system
Why Ethic is Important?
(1) Ethics corresponds to basic human needs
(2) Values create credibility with the public
(3) Values gives management credibility with employees
(4) Values help better Decision – making
(5) Ethics & profits
(6) Law can’t protect society, Ethics can
Corporate Social Responsibilities
Corporate Social Responsibilities (CSR) is understood as the obligation of decision-makers to take actions that protect & improve the welfare of the society as a whole along with their own interests. Every decision the business person makes & every action he or she contemplates has social implications. Whether the issue is significant or not, the manager should keep his or her social obligation in mind before contemplating any action.
The CSR Debate
Their are arguments for & against business’s social responsibilities.
Arguments For CSR
(1) Changed public Expectations of business
(2) Better environment for business
(3) Balance of responsibility with power
(4) Business has the resources
(5) Prevention is better than cure
(6) Moral responsibility
(7) Globalization
(8) Better employees
Arguments Against CSR
(1) Profit maximization
(2) Society has to pay the cost
(3) Lack of social skills
(4) Business has enough power
(5) Social overhead cost
(6) Lack of accountability
(7) Lack of broad support
Corporate Social Responsibilities & Ethics in International Business
Corporate Social Responsibilities & International Business
An international business faces several challenges while undertaking social actions. These are as follows:
(1) managing the type of the government obtaining in a host country where subsidiary of an MNC is located
(2) Relationship between home & host country
(3) Host government’s attitude towards Foreign investment
(4) Social problems of host country
(5) International laws is weak in addressing social effects on business
Business Ethics & International Business
Two ethical issues are important in international business.
(1) Bribery & Corruption
(2) Work practices & worker remuneration
Areas of Corporate Social Responsibilities & Business ethics concerns for the MNC
Stakeholders Affected Ethical/ Social Responsibilty Issues
Customers Product safety, fair price, proper disclosures & information
Stockholders Fair return on Investment
Employees Fair wages, safety of working conditions, child labour, Discrimination by sex, race colour, or creed
Host- country Impact on local economies, following local laws, impact on local social institutions
Society in General Environmental protection, raw material depletion
MNC’s code of conduct
The main points which should be concerned by MNC is as follows
(1) Respect basic human rights & freedoms
(2) Minimize any negative impact on local economies policies
(3) Maintain high Standards of local political involvement
(4) Transfer technology
(5) Protect the environment
(6) Consumer protection
(7) Employment practices
Ethics refers to a system of moral principles- a sense of right & wrong & goodness & badness of actions, & their motives & consequences.
Business ethics refers to the application of ethics to business.
To be more specific, business ethics is the study of good & bad, right & wrong, & just & unjust actions of business.
Sources of Business Ethics
(1) Religion
(2) Cultural Experience
(3) The legal system
Why Ethic is Important?
(1) Ethics corresponds to basic human needs
(2) Values create credibility with the public
(3) Values gives management credibility with employees
(4) Values help better Decision – making
(5) Ethics & profits
(6) Law can’t protect society, Ethics can
Corporate Social Responsibilities
Corporate Social Responsibilities (CSR) is understood as the obligation of decision-makers to take actions that protect & improve the welfare of the society as a whole along with their own interests. Every decision the business person makes & every action he or she contemplates has social implications. Whether the issue is significant or not, the manager should keep his or her social obligation in mind before contemplating any action.
The CSR Debate
Their are arguments for & against business’s social responsibilities.
Arguments For CSR
(1) Changed public Expectations of business
(2) Better environment for business
(3) Balance of responsibility with power
(4) Business has the resources
(5) Prevention is better than cure
(6) Moral responsibility
(7) Globalization
(8) Better employees
Arguments Against CSR
(1) Profit maximization
(2) Society has to pay the cost
(3) Lack of social skills
(4) Business has enough power
(5) Social overhead cost
(6) Lack of accountability
(7) Lack of broad support
Corporate Social Responsibilities & Ethics in International Business
Corporate Social Responsibilities & International Business
An international business faces several challenges while undertaking social actions. These are as follows:
(1) managing the type of the government obtaining in a host country where subsidiary of an MNC is located
(2) Relationship between home & host country
(3) Host government’s attitude towards Foreign investment
(4) Social problems of host country
(5) International laws is weak in addressing social effects on business
Business Ethics & International Business
Two ethical issues are important in international business.
(1) Bribery & Corruption
(2) Work practices & worker remuneration
Areas of Corporate Social Responsibilities & Business ethics concerns for the MNC
Stakeholders Affected Ethical/ Social Responsibilty Issues
Customers Product safety, fair price, proper disclosures & information
Stockholders Fair return on Investment
Employees Fair wages, safety of working conditions, child labour, Discrimination by sex, race colour, or creed
Host- country Impact on local economies, following local laws, impact on local social institutions
Society in General Environmental protection, raw material depletion
MNC’s code of conduct
The main points which should be concerned by MNC is as follows
(1) Respect basic human rights & freedoms
(2) Minimize any negative impact on local economies policies
(3) Maintain high Standards of local political involvement
(4) Transfer technology
(5) Protect the environment
(6) Consumer protection
(7) Employment practices
COMPENSATION & PERFORMANCE APPRAISAL OF EXPATRIATE STAFF
INTRODUCTION OF PERFORMANCE APPRAISAL
One of the most challenging tasks of llHRM is managing the performance of a ftrm's various international facilities. Performance management may be understood as a process that enables an international firm to evaluate
and continuously improve individuals, subsidiary unit, and corporate performance, against clearly defined, preset goals and targets.
An expatriate's performacne needs to be assessed to effect his or her promotions, assess training and development needs, and introduce pay rises.
INTRODUCTION OF COMPENSATION
Any expatriate remuneration package needs to be designed to
achieve the following major objectives:
1. Attract employees who are qualified and interested in international assignments;
2 Facilitate the movement of expatriates from one subsidiary to another, from home to subsidiaries, and from subsidiaries back home;
3. Provide a consistent and reasonable relationship between the pay levels of employees at headquarters, domestic affiliates, and foreign subsidiaries; and
4. Be cost effective by reducing unnecessary expenses
Problems:
Generally the following problems crop up while designing an international remuneration package:
• Discrepancies in pay between parent, host, and third-country nationals.
• The need to vary expatriate compensation, depending on the 'lifecycle' of the expatriate's family (e.g., young children, children in college, etc.).
• Remuneration issues related to re-entry into the parent country organsiation.
• Using remuneration programmes that had not changed sufficiently over time to deal adequately with the new international business environment.
Factors influencing international compensation: \
COMPONENTS
1. Base Salary
2. Incentives
3. Taxes
COMPENSATION DESIGNING APPROACHES
(1) Balance Sheet Approach
In designing an expat's remuneration, fIrms generally follow a number of approaches. The most common is the balance sheet approach, which involves ensuring that the expat is "made whole" and does not lose money by taking the assignment. The basic objective is to maintain home-country living standards, plus offer some fmancial inducement.
(3) Localisation
A second approach is called localisation and involves paying the expat a salary that is comparable to those of local citizens. Also called the going rate approach, in this method, the base salary for international transfer is linked to the salary structure in the host country. The international fIrm usually obtains information from local compensation surveys and decides whether local nationals (HCNs), expatriates of the same nationality, or expatriates of all nationalities will be the reference point in terms of benchmarking.
One of the most challenging tasks of llHRM is managing the performance of a ftrm's various international facilities. Performance management may be understood as a process that enables an international firm to evaluate
and continuously improve individuals, subsidiary unit, and corporate performance, against clearly defined, preset goals and targets.
An expatriate's performacne needs to be assessed to effect his or her promotions, assess training and development needs, and introduce pay rises.
INTRODUCTION OF COMPENSATION
Any expatriate remuneration package needs to be designed to
achieve the following major objectives:
1. Attract employees who are qualified and interested in international assignments;
2 Facilitate the movement of expatriates from one subsidiary to another, from home to subsidiaries, and from subsidiaries back home;
3. Provide a consistent and reasonable relationship between the pay levels of employees at headquarters, domestic affiliates, and foreign subsidiaries; and
4. Be cost effective by reducing unnecessary expenses
Problems:
Generally the following problems crop up while designing an international remuneration package:
• Discrepancies in pay between parent, host, and third-country nationals.
• The need to vary expatriate compensation, depending on the 'lifecycle' of the expatriate's family (e.g., young children, children in college, etc.).
• Remuneration issues related to re-entry into the parent country organsiation.
• Using remuneration programmes that had not changed sufficiently over time to deal adequately with the new international business environment.
Factors influencing international compensation: \
COMPONENTS
1. Base Salary
2. Incentives
3. Taxes
COMPENSATION DESIGNING APPROACHES
(1) Balance Sheet Approach
In designing an expat's remuneration, fIrms generally follow a number of approaches. The most common is the balance sheet approach, which involves ensuring that the expat is "made whole" and does not lose money by taking the assignment. The basic objective is to maintain home-country living standards, plus offer some fmancial inducement.
(3) Localisation
A second approach is called localisation and involves paying the expat a salary that is comparable to those of local citizens. Also called the going rate approach, in this method, the base salary for international transfer is linked to the salary structure in the host country. The international fIrm usually obtains information from local compensation surveys and decides whether local nationals (HCNs), expatriates of the same nationality, or expatriates of all nationalities will be the reference point in terms of benchmarking.
Cross- cultural challenges in IB
Cross National Difference
In recent years, with the increase in globalization and diversity in the workplace, cross cultural management has become an important element of organizational. Culture can be analyzed from a country, language, religion, value, ethical and/or many other areas of study as a frame of reference.The main cross national differences are-
· Social & cultural Environment
Social structure of the society
Values and belief of people
· Political environment
· Legal system
· Education system and standard
· Quality of quantity knowledge work force
· Level of available technology
Global HR issues
Global human resource strategy is the framework built around managing a global workforce; including recruiting, hiring, setting compensation levels and benefits, and retaining workers in a global organization. Global companies must make decisions about hiring locally, recruiting expatriates, or utilizing emerging new worker groups to fill the needs of a particular region.
Additionally, global HR strategy must consider the complexities of regional government interaction with the business, as well as social programs that may compensate for benefits offered by the employer in other regions. Other global HR issues that impact the development of a cohesive strategy include cost of living, local pay scales, retention issues, pension issues, organized labor, and regional leave policies.
A)-Standardization and adaptation of HR practices
1 .Host country culture and work place environment
2. Firm’s size, maturity and level of international experience
3. Mode of operation
B).Retaining, developing and retaining local Staff
C). HR implication of Language Standardization
D). Monitoring HR practices of host Country
Managing Multiculturalism Cultural diversity
Cultural diversity is the variety of human societies or cultures in a specific region, or in the world as a whole. Human have spread throughout the world, successfully adapting to widely differing conditions and to periodic cataclysmic changes in local and global climate. The many separate societies that emerged around the globe differed markedly from each other.
Cultural differences that exist between people, such as language, dress and traditions, there are also significant variations in the way societies organize themselves, in their shared conception of morality, and in the ways they interact with their environment.
Most people would agree that cultural diversity in the workplace utilizes country’s skills to its fullest, and contributes to overall growth and prosperity.
Diversity at its core is about people and the behavioral characteristics that guide how we interact, i.e. “culture.” To better understand this notion, let’s examine the impact of culture within our workplace organizations. Several aspects of culture shape today’s workplace. For example, employees’ communication style, time consciousness, and work practices all stem from their cultural programming. The dominant cultural norm here in the United States dictates that business communication be specific and explicit. Meaning is found in the actual content of words with very little left to interpretation. However, in many ethnic and international cultures, communication is more implicit and indirect: meaning is found in and around the words themselves.
By better understanding the cultural norms and values within their organization, leaders and their units benefit. When this enhanced comprehension becomes a way to guide efforts, hiring practices, and employee relations strategies, diversity initiatives move away from lip service and become actualized. An honest cultural audit of an organization not only helps drive diverse policies and procedures, but goes far in the creation of welcoming workplace communities in which genuine cross-cultural interaction and respect for diversity are naturally occurring. And as an organization’s culture is identified and shared, diverse employees are more likely to express their cultural uniqueness within the context of stated organizational norms and values. When organizational culture and individual human values work together, there can be synergy: the interaction or cooperation of two or more entities to produce a combined effect greater than the sum of their separate effects. That is a definition of diversity in which we can all find meaning.
Reasons for Expatriate Failure
• Inability of spouse to adjust
• Manager's inability to adjust
• Other family reasons
• Inability to cope with larger international responsibility
• Difficulties with new environment
• Personal or emotional problems
• Lack of technical competence
Factors of Expatriate Selection
(a)Technical ability
(b)Cross- cultural Suitability
(c)Family Requirements
(d)language
(e)Cross- cultural Requirements
Training for Expatriates:
An expatriate needs following trainings to cope with cross cultural challenges:
(1) cultural training,
(2) language training, and
(3) practical training.
Cultural Adjustment of expatriate
An expatriate's cultural adjustment typically comprises three stages .
1st Stage : Tourist Stage
the expatriate enjoys a great deal of excitement as he or she discovers the new culture. This stage is called the tourist stage.
2nd Stage Disillusionment:
In this stage, the curve hits the bottom and is characterised by what is called culture shock.
3rd Stage : adapting or adjustment phase.
If culture shock is handled successfully, the expatriate enters the third stage, which may be called the adapting or adjustment phase.
In recent years, with the increase in globalization and diversity in the workplace, cross cultural management has become an important element of organizational. Culture can be analyzed from a country, language, religion, value, ethical and/or many other areas of study as a frame of reference.The main cross national differences are-
· Social & cultural Environment
Social structure of the society
Values and belief of people
· Political environment
· Legal system
· Education system and standard
· Quality of quantity knowledge work force
· Level of available technology
Global HR issues
Global human resource strategy is the framework built around managing a global workforce; including recruiting, hiring, setting compensation levels and benefits, and retaining workers in a global organization. Global companies must make decisions about hiring locally, recruiting expatriates, or utilizing emerging new worker groups to fill the needs of a particular region.
Additionally, global HR strategy must consider the complexities of regional government interaction with the business, as well as social programs that may compensate for benefits offered by the employer in other regions. Other global HR issues that impact the development of a cohesive strategy include cost of living, local pay scales, retention issues, pension issues, organized labor, and regional leave policies.
A)-Standardization and adaptation of HR practices
1 .Host country culture and work place environment
2. Firm’s size, maturity and level of international experience
3. Mode of operation
B).Retaining, developing and retaining local Staff
C). HR implication of Language Standardization
D). Monitoring HR practices of host Country
Managing Multiculturalism Cultural diversity
Cultural diversity is the variety of human societies or cultures in a specific region, or in the world as a whole. Human have spread throughout the world, successfully adapting to widely differing conditions and to periodic cataclysmic changes in local and global climate. The many separate societies that emerged around the globe differed markedly from each other.
Cultural differences that exist between people, such as language, dress and traditions, there are also significant variations in the way societies organize themselves, in their shared conception of morality, and in the ways they interact with their environment.
Most people would agree that cultural diversity in the workplace utilizes country’s skills to its fullest, and contributes to overall growth and prosperity.
Diversity at its core is about people and the behavioral characteristics that guide how we interact, i.e. “culture.” To better understand this notion, let’s examine the impact of culture within our workplace organizations. Several aspects of culture shape today’s workplace. For example, employees’ communication style, time consciousness, and work practices all stem from their cultural programming. The dominant cultural norm here in the United States dictates that business communication be specific and explicit. Meaning is found in the actual content of words with very little left to interpretation. However, in many ethnic and international cultures, communication is more implicit and indirect: meaning is found in and around the words themselves.
By better understanding the cultural norms and values within their organization, leaders and their units benefit. When this enhanced comprehension becomes a way to guide efforts, hiring practices, and employee relations strategies, diversity initiatives move away from lip service and become actualized. An honest cultural audit of an organization not only helps drive diverse policies and procedures, but goes far in the creation of welcoming workplace communities in which genuine cross-cultural interaction and respect for diversity are naturally occurring. And as an organization’s culture is identified and shared, diverse employees are more likely to express their cultural uniqueness within the context of stated organizational norms and values. When organizational culture and individual human values work together, there can be synergy: the interaction or cooperation of two or more entities to produce a combined effect greater than the sum of their separate effects. That is a definition of diversity in which we can all find meaning.
Reasons for Expatriate Failure
• Inability of spouse to adjust
• Manager's inability to adjust
• Other family reasons
• Inability to cope with larger international responsibility
• Difficulties with new environment
• Personal or emotional problems
• Lack of technical competence
Factors of Expatriate Selection
(a)Technical ability
(b)Cross- cultural Suitability
(c)Family Requirements
(d)language
(e)Cross- cultural Requirements
Training for Expatriates:
An expatriate needs following trainings to cope with cross cultural challenges:
(1) cultural training,
(2) language training, and
(3) practical training.
Cultural Adjustment of expatriate
An expatriate's cultural adjustment typically comprises three stages .
1st Stage : Tourist Stage
the expatriate enjoys a great deal of excitement as he or she discovers the new culture. This stage is called the tourist stage.
2nd Stage Disillusionment:
In this stage, the curve hits the bottom and is characterised by what is called culture shock.
3rd Stage : adapting or adjustment phase.
If culture shock is handled successfully, the expatriate enters the third stage, which may be called the adapting or adjustment phase.
Tuesday, March 24, 2009
- international promotion mix & pricing decision
PROMOTION
Promotion plays a vital role in providing information of the product to the foreign customers. It also creates the desirability of the product among foreign potential buyers. Foreign companies desire to communicate with their marketing intermediaries and potential buyers to ensure favourable sentiment toward themselves and their products. Promotion is more culture bound than other Ps.
Hence, the foreign companies must take special care in promoting the product in the host country.
The promotion mix include:
1. Advertising
3. Sales Promotion, and
2. Personal Selling
4. Public Relations
1. ADVERTISING
Though advertising is not given due importance in developing countries, it plays crucial role in international marketing and particularly for consumer goods and consumer durables. The international firm while formulating advertising strategy should consider -
(a) Message
(b) Medium
© Extent of global advertising efforts.
SALES PROMOTION
Sales promotion includes specialised marketing efforts like coupons, in-store promotions, sampling, direct mail campaigns, co-operative advertising and trade fair attendance. International companies attend trade shows like Paris Air Show, Tokyo Auto Mart etc. Most of the Airlines companies use sales promotion to lure customers.
PUBLIC RELATIONS
Public relations include efforts aimed at enhancing a firm's reputation and image with the general public. The consequence of public relations is that the firm is a 'good corporate citizen.' This image in its turn enhances company sales.
Pricing Decision
PRICING DECISIONS
Though the pricing is significant among the 4 Ps, it receives the least attention in the international marketing. Pricing decisions can be studied from the following approaches:
•• Supply and Demand
•• Cost
•• Elasticity or Cross Elasticity of Demand
•• Exchange Rates
•• Market Share
•• Tariffs and Distribution Costs
•• Culture
•• Purchasing Power
PRICING POLICIES
The pricing policies of international companies include:
•• Standard price policy
•• Two-tiered pricing
•• Market pricing.
Standard price policy: Under the standard price policy, the international company sells the product at the same price for the customers of any country or nationality. Crude oil producers like Kuwait Oil, Aramco and Pemex sell their products to all customers at price determined by supply of and demand for crude oil in the world crude oil market. .
Two-tiered pricing policy: International company under this policy sells its product at two prices, viz., one price for domestic sales and another price for the foreign sales. This policy is adopted due to the involvment of shipping costs, tariffs and foreign distribution costs.
Marketing pricing policy: International companies following this policy customise their pricing on a market-by-market basis in order to maximise their profits in each market. Japanese automobiles follow this policy in pricing their cars.
Alternative pricing strategies: There are a number of alternative pricing strategies in addition to the above-mentioned strategies. These include:
Discounts (cash, quantity, functional etc.)
Financing or credit terms
Bundle or unbundle.
Factors affecting international pricing
Pricing factors of international business vary from those domestic business. A number of factors affect the international pricing. The important among them are:
(a) Cost
(b) Competition
(c) Product Differentiation
(d) Exchange Rate
(e) Economic Conditions of the Importing Country:
(f) Government Factors:
(g) Other incentives like supply of finance, inputs etc. at lower prices in order to encourage the domestic exports.
The normal ex-price structure is as follows:
(i) Cost of production
(ii) Producer's profit
(i) + (ii) = Ex-factory gate price
(iii) Packing and Marking
(iv) Loading charges at the factory
(v) Transportation charges to docks, railway station or airport
(vi) Handling charges and fee at port, railway station, airport
(vii) Cost of documents (like cost of lading and airway bill)
(viii) Consular invoice, certificate of origin
(ix) Export duty (if any)
(x) (i) to (ix) = C and F Price
(xi) Cost of insurance
(xii) Sea or air freight charges
(i) to (xii) = CIF Price
(xiii) Unloading charges at destination
(xiv} Import duties and taxes
(xv) Fee paid to the Clearing Agent
(i) to (xv) = Landed Price
(xvi) Transportation charges to Importer's Warehouse
(xvii) Importer's Margin/Mark-up
(xviii) Mark-up/Margin of all other market intermediaries in the importing country
(i) to (xviii) = Price to the consumer
DUMPING
Dumping is a form of price discrimination. Under dumping the international company charges different prices for the same product in different markets. Dumping means selling the products at below the cost of production or at below the on going price in the market. Consequently, the imported goods are sold at prices so low as to be detrimental to local producers of the same kind of merchandise. I I For example, China dumped its steel, USA and Malaysia dumped cooking oil in India. Consequently, Indian Government imposed
antidumping measures to protect domestic industry.
Types of Dumping
(1) Sporadic dumping : Sporadic dumping occurs when an international company sells its unsold inventories in a foreign country to get rid of them.
(2) Predatory dumping: Predatory dumping is selling the product in a foreign market at a loss as a strategy of entering the market. Zenith uses this strategy for selling televisions and computers.
(3) Persistent dumping: Persistent dumping involves consistently selling the product at lower prices in one market than in other markets. Japan sells its electronic products at high prices in Japan and sells the same products consistently at lower prices in USA and India.
(4) Reverse Dumping: Under reverse dumping the product is sold at high price in international markets and at a low price in the domestic market.
Antidumping Terms
Dumping adversely affects the domestic manufacturers, suppliers of raw materials, components, labour and other stakeholders of the domestic companies. Further, it affects the economic activity in the domestic country and also the government revenue. Hence, the domestic governments 'importing' impose antidumping terms/measures.
Promotion plays a vital role in providing information of the product to the foreign customers. It also creates the desirability of the product among foreign potential buyers. Foreign companies desire to communicate with their marketing intermediaries and potential buyers to ensure favourable sentiment toward themselves and their products. Promotion is more culture bound than other Ps.
Hence, the foreign companies must take special care in promoting the product in the host country.
The promotion mix include:
1. Advertising
3. Sales Promotion, and
2. Personal Selling
4. Public Relations
1. ADVERTISING
Though advertising is not given due importance in developing countries, it plays crucial role in international marketing and particularly for consumer goods and consumer durables. The international firm while formulating advertising strategy should consider -
(a) Message
(b) Medium
© Extent of global advertising efforts.
SALES PROMOTION
Sales promotion includes specialised marketing efforts like coupons, in-store promotions, sampling, direct mail campaigns, co-operative advertising and trade fair attendance. International companies attend trade shows like Paris Air Show, Tokyo Auto Mart etc. Most of the Airlines companies use sales promotion to lure customers.
PUBLIC RELATIONS
Public relations include efforts aimed at enhancing a firm's reputation and image with the general public. The consequence of public relations is that the firm is a 'good corporate citizen.' This image in its turn enhances company sales.
Pricing Decision
PRICING DECISIONS
Though the pricing is significant among the 4 Ps, it receives the least attention in the international marketing. Pricing decisions can be studied from the following approaches:
•• Supply and Demand
•• Cost
•• Elasticity or Cross Elasticity of Demand
•• Exchange Rates
•• Market Share
•• Tariffs and Distribution Costs
•• Culture
•• Purchasing Power
PRICING POLICIES
The pricing policies of international companies include:
•• Standard price policy
•• Two-tiered pricing
•• Market pricing.
Standard price policy: Under the standard price policy, the international company sells the product at the same price for the customers of any country or nationality. Crude oil producers like Kuwait Oil, Aramco and Pemex sell their products to all customers at price determined by supply of and demand for crude oil in the world crude oil market. .
Two-tiered pricing policy: International company under this policy sells its product at two prices, viz., one price for domestic sales and another price for the foreign sales. This policy is adopted due to the involvment of shipping costs, tariffs and foreign distribution costs.
Marketing pricing policy: International companies following this policy customise their pricing on a market-by-market basis in order to maximise their profits in each market. Japanese automobiles follow this policy in pricing their cars.
Alternative pricing strategies: There are a number of alternative pricing strategies in addition to the above-mentioned strategies. These include:
Discounts (cash, quantity, functional etc.)
Financing or credit terms
Bundle or unbundle.
Factors affecting international pricing
Pricing factors of international business vary from those domestic business. A number of factors affect the international pricing. The important among them are:
(a) Cost
(b) Competition
(c) Product Differentiation
(d) Exchange Rate
(e) Economic Conditions of the Importing Country:
(f) Government Factors:
(g) Other incentives like supply of finance, inputs etc. at lower prices in order to encourage the domestic exports.
The normal ex-price structure is as follows:
(i) Cost of production
(ii) Producer's profit
(i) + (ii) = Ex-factory gate price
(iii) Packing and Marking
(iv) Loading charges at the factory
(v) Transportation charges to docks, railway station or airport
(vi) Handling charges and fee at port, railway station, airport
(vii) Cost of documents (like cost of lading and airway bill)
(viii) Consular invoice, certificate of origin
(ix) Export duty (if any)
(x) (i) to (ix) = C and F Price
(xi) Cost of insurance
(xii) Sea or air freight charges
(i) to (xii) = CIF Price
(xiii) Unloading charges at destination
(xiv} Import duties and taxes
(xv) Fee paid to the Clearing Agent
(i) to (xv) = Landed Price
(xvi) Transportation charges to Importer's Warehouse
(xvii) Importer's Margin/Mark-up
(xviii) Mark-up/Margin of all other market intermediaries in the importing country
(i) to (xviii) = Price to the consumer
DUMPING
Dumping is a form of price discrimination. Under dumping the international company charges different prices for the same product in different markets. Dumping means selling the products at below the cost of production or at below the on going price in the market. Consequently, the imported goods are sold at prices so low as to be detrimental to local producers of the same kind of merchandise. I I For example, China dumped its steel, USA and Malaysia dumped cooking oil in India. Consequently, Indian Government imposed
antidumping measures to protect domestic industry.
Types of Dumping
(1) Sporadic dumping : Sporadic dumping occurs when an international company sells its unsold inventories in a foreign country to get rid of them.
(2) Predatory dumping: Predatory dumping is selling the product in a foreign market at a loss as a strategy of entering the market. Zenith uses this strategy for selling televisions and computers.
(3) Persistent dumping: Persistent dumping involves consistently selling the product at lower prices in one market than in other markets. Japan sells its electronic products at high prices in Japan and sells the same products consistently at lower prices in USA and India.
(4) Reverse Dumping: Under reverse dumping the product is sold at high price in international markets and at a low price in the domestic market.
Antidumping Terms
Dumping adversely affects the domestic manufacturers, suppliers of raw materials, components, labour and other stakeholders of the domestic companies. Further, it affects the economic activity in the domestic country and also the government revenue. Hence, the domestic governments 'importing' impose antidumping terms/measures.
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