International Business Transactions - Assignment Example

International Business transactions Students Name: Instructor: Institution: Question 1 An international business does not have a precise definition according to (Weiss, 2007) but after incorporating various aspects of international business, then it can be well understood. From most people’s point of view, an international business is meant to deal with different cultures across the world. (Johnson & Bade, 2010) adds that an international business is also meant to deal with extensive experience in the business field. At every stage of a business transaction, an international business must cross national borders. Illustrating from an example, a company, muwad flowers ltd is a company that deals with exporting of flowers. This company sells these flowers to different countries across the world. It does so through export agents in its country. Because of the extensive experience of this company in the exportation of flowers for many years, it has learned to plan adaptation to strategies concerning its marketing, products as well as its sales. From this illustration, it is clear that muwad Flowers Company is dealing with an international business. This is supported by the fact that Muwad Company has international expertise in the field of exportation of flowers. However, (Daves & Brigham, 2009) adds that even though it may seem that a company that does not deal with international trade directly but deals with a third party agent to take care of its international trade, is not dealing with international business, it is heading there. These are some of the stages that a company must pass through in its development into a fully established international business. (Seyoum, 2010) however, says that while an international business can be easily differentiated from domestic business by the simple fact that international business s deals with business activities are outside the national borders of its location, a domestic business has its business activities carries within its national borders. (Seyoum, 2010) continues to say that a domestic business has its transactions based on the national currency of its geographical location, its local cultures as well as customs, the local business laws governing commerce in its country, the local taxes and finally, services as well as products which are locally produced according to the tastes of the local customers. On the other hand, according to (Johnson & Bade, 2010), an international business deals with transactions touching the business treaties of different countries, different business tariffs offered by the different countries that form its market, the rates of currency exchange in the different countries, political effects of these countries, diverse cultural differences, different taxes imposed by different countries, fees charged by different countries on international business activities in their country and finally, the penalties that these particular countries which form the market of a given international company. In another perspective, (Johnson & Bade, 2010) says that the differences cab be analyzed using the criteria of establishing what qualities of international business transactions qualify it to be called international business. Lack of these qualities in a given business means that it is a domestic business. These are things like participation in the cross border business, dealing with foreign currency, acceptance and application of the different laws governing business transaction in outside countries, the act of transfer of services as well as goods across the borders and finally, any given value flow across these govern borders. (Zamir & Greuning, 2008) gives his views in this issue by saying that for any given firm, whether an internationally oriented or a domestic business, the differences between the international and domestic business transactions can be used to optimize its service or product’s delivery to their customers. For example, a domestic business, the domestic tax will always be satisfying to these particular business companies. This means that the company is fully aware of the taxes in the country and can easily plan strategically in order to optimize its sales. The thorough knowledge of its market, which is its own country, will make the company to be able to optimize its sales (Mohammadi, 2003). The local governing laws of the company’s country concerning business can determine the size of the company. On the other hand, an international business can optimize its sales across the national borders by analyzing the different country’s laws and penalties so as to make optimum use of the most appropriate country in order to make more sales (Brigham & Besley, 2007). Question 2; Lending and Banking Practices and Services in Iran Iran and Sudan, being Islamic countries have decided to convert their banking systems in order to be in line with the Islamic law. This Islamic law has introduced banning of all the payments as well as interest charges. However, in Iran country, these conversions in the banking systems are absolute bringing out the meaning that the country doesn’t allow conventional operations in banking. In Sudan, this policy of conversion was welcomed but in the year 2006, the policy was again changed in order to allow the accommodation of the comprehensive peace agreement provisions which allowed the banking system to be dual in service. However, in this agreement, banking operations in accordance to the Islamic law is enforced and it is in operation in the northern parts of Sudan while in the southern parts of Sudan, conventional banking is practiced (Saeed, 1996). Basically, according to t (Lewis & Hassan, 2007) the banking system according to the Islamic laws incorporates concepts concerning taking risks as well as usury. This is because according to Islamic laws, money is not considered to be an asset. Because of this fact, lending of money is not allowed and in most cases, this act is considered as inu8stice since it is taken as if the lender is being favored. Therefore, money is taken as a tool used to measure value according to Islamic finance. In Iran, as is considered by (Behdad & Rahnema, 1996), this conventional banking system allows a company or a business to take a loan under one condition that it is expected to give a share of the profit it makes with the agency or the bank that offered the lending of the loan. Again, purchasing as well as selling of these items is not allowed and their existence is not valued. Considering sale and buy-back agreement in accordance to (Mirakhor & Iqbal, 2008), that is popularly known as Bai’ al ‘inah in Islam language, is a facility offered to lend finances whereby the transactions governing selling and buying activities are conducted between the customer and the financier. Using the spot basis, the financier is allowed to purchase a specific asset belonging to the customer. The financier pays a certain price for that asset and this amount constitutes disbursement of the asset. Again, the basis of deferred payment is used to sell the asset to the customer whereby the customer is allowed to pay in installments. In the second part of the transaction, is used to give the customer who owns the asset a responsibility so as to pay the amount the financier lends him. Again, the concept of deferred payment sale popularly known as Bai’ bithaman ajil in Islam language still according to the ideas of (Mirakhor & Iqbal, 2008), is one of the most widely used financial transaction in Islamic countries especially in Iran. Its operation is based on the fact that goods are sold using the basis of deferred payment. These particular goods are sold at a given price with inclusive of profit margin which is usually agreed upon by the involved parties which in most cases they are usually two. In this transaction, avoidance of paying interest is possible since the customer is only paying the price of selling the asset which can never match with an interest that can be charged on the same value of a loan. However, the limitation with this type of financial transaction is that it involves double transaction to be carried out at the same time and this is not allowed in Islam. The credit sale financial transaction in Islam that is popularly known as Bai’ muajjal is widely used in Iran. This is usually a contract between the buyer and the lending facility such as the bank whereby the particular bank earns a certain amount of profit from the price of the purchase of the particular asset from the buyer then giving allowance for future payment from the buyer, whether in installments or in a lump sum. In the contract, the price of the asset must be mentioned and the profit margin must also be agreed upon by the parties. In some cases, the assets fixed price is equivalent to the spot price. In other times, it can be low or higher (Mirakhor & Iqbal, 1987). Another important financial transaction is the joint venture type. This is popularly known as the Musharakah and it is usually an agreement made between either two or at other times more parties whereby an agreement is made that each partner in the venture should provide a certain amount of funds in this specific venture. With accordance to the invested capital that each partner contributes, a proportional measure of profits is given to him. However if a loss occurs in the business venture, each partner will get a share of it according to the invested capital ratio. Again, in the case of a bank giving out the needed capital, the same shares of profits as well as losses apply. According to Islamic law which is known as shariah, it is the risk of making losses that allows the bank in this case to claim a share of the profits made. The partners in the venture usually agree on who is willing to participate and who is not. However, the actively participating partner gets a greater share of profits in comparison to those who are not actively participating in the running of the business venture (Mirakhor & Iqbal, 1987). In mudarabah financial transaction among the Islam, a partnership is usually formed whereby one of the partners offers to issue money to the other partner in order to invest this money in a given commercial business. The parent who gives out the money is popularly known as rabb-ul-mal in Islam while the other partner is responsible for the management of the money and making sure that it is profitable. This partner is popularly known as mudarib in Islam. This transaction is based on contract basis whereby an agreement is made between two partners with one providing all the needed capital while the other providing the skills to run the venture, providing al, the management services required and the specialist knowledge required in the business. However, according to the agreement in the contract, profits from the business are shared. The disadvantage falls upon the investor in that in case of losses occurring in the business, he shares with no one (Lewis & Hassan, 2007). Another very important transaction which is worth of mention is the Bai Salam. This transaction is based ion making a contract whereby payment of goods is made early in advance before delivery of the same. This means that the party selling the goods in the contract commits to deliver these particular goods to the premises of the buyer at a particular set date and agreed upon by the two parties in the future. The buyer however provides full payment for the goods at the time the contract is made. In order to avoid any disputes from arising, the goods to be delivered are well specified in terms of the needed quality and the amount needed. This transaction is specific for goods apart from silver, gold any currencies that are formed from these particular metals. In this business transaction, there are some conditions that govern its existence (Lewis & Hassan, 2007). These include; 1. The contract is considered valid after the buyer of the specific goods gives the full payment to the seller at the time the contract ids being made. This is because shariah does not allow a business man to enter into double debts and this action justifies the buyer. The main idea of this financial transaction is tom give surety to the seller that the expected liquidity before entering the contract is achieved. 2. This form of contract is not applicable to all types of goods. It is specific to those goods that can be specified in terms of quantity as well as quality. Giving an example of precious stones, it is not possible for them to be sold using this method because each piece of the stone has a different value from the other in quality, size and also weight. In this case, the specifications can not be established. 3. This financial transaction can not be applied on a given specific commodity from a given field or a specified farm. Taking an example of a farm commodity such as fruits from a farm, this transaction can not be effected because these fruits might spoil before the exact date of delivery. In the Murabahah type of transaction, goods are sold at a given price inclusive of profit margin which is normally agreed upon by the two parties involved in the agreement. However, these aspects which include the selling as well as the buying price, profit margin and any other cost that is involved in the transactions is usually stated and agreed upon by the parties at the time of commencement of the contract. The time value of the bank is mainly compensated through the profit margins. This can also be taken as fixed-income loan in order to purchase a vehicle giving a profit rate which is fixed and which depends on the margin of the profit incurred. In thus case, however, this particular property remains in the custody of the bank as mortgage till its value is fully settled (Amuzegar, 1997). Question 3; International Laws in India International laws based on international transactions are not specific. However, these laws are specific according to specific countries. Each country has its own laws governing the international trade. Considering laws that govern international trade in India, the foreign trade institute in India is responsible in making sure that the laws are made and implemented. Foe example, in the year 1990, India and United States of America made a treaty of international business transaction according to Indian laws in that Japan should avoid double taxation. This means that the Japanese can trade in India and be able to avoid being taxed on their income both in India and in Japan thus avoiding double taxation. For international trade, a convention was established to govern contracts specifically made for international selling f services as well as goods, the responsibilities of the seller as well as the buyer in such a contract, consequences if one of the parties break any part of the contract and finally, any other aspect concerning the contract. Again, a convention was established which meant to govern the time period in which any proceedings based on the contracts of sales in the international market must be started. In the year 1992, uncitral legal guide was adopted in order to govern the parties that are involved in the negotiation of international counter-trade transactions. It also gives any possible solutions to any question that arises from these discussions (Brigham & Besley, 2008). In United States of America, there are international laws that govern international business transactions just like any other country. Starting with analyzing the functions of the centre for trade policy and law, adopted in the year 1989, it specializes in building capacity specifically in trading and offers support to institutions or organizations that are involved in international trade. This body is non profit making as well as non governmental. The initial purpose for its establishment was to give promotion to understanding of international trade values, policy issues and the professionals involved in international trade. The European Union for external trade is based on the commercial policy. Basically, it depends on rules which are uniformly set under the tariff of the common customs as well as customs union and these are made to govern the relationships in trade between the member states and the non member countries. Its main purpose is to offer protection from international trade obstacles (Brigham & Besley, 2007). Question 4 (a) The choice law issues concerning international trade in both India and Singapore differ. Singapore has been involved in several free trade agreements with parties that are involved in trade with Singapore. This has made the laws governing international trade more flexible to investors as well as trade partners. In India, however the laws governing the external trade is not as flexible as it is in Singapore (Ehrhardt & Brigham, 2009) Question 4 (b) Arbitration proceedings can be done either voluntary or compulsory from the involved parties. Mandatory arbitrations in most cases arise from contracts whereby the parties entered into the contract willingly and had agreed to hold every dispute to arbitration not knowing, however the kind of disputes that may occur in their agreement. However, the advantages of mandatory arbitration include the fact that they are fast compared to voluntary, the proceedings can also be made confidential and not public, highly qualified arbitrators can be used in complicated cases and finally, the convenient choice of language to be used in the process is allowed (Ehrhardt & Brigham, 2009). Question 4 (c) Because of the lack of common laws that are made to govern international trade, in the case of disputes arising from two parties that have been in trade from different countries, arbitration is the best way to solve the issues. In India, arbitration is easily done and at a low cost because it has the needed resources as well as accommodative venue to hold such proceedings. The country is also dedicated to advance as well as support arbitration since it is well known that it is the only way good enough to solve international disputes concerning trade. In India, UNCITRAL Model Law and the UNCITRAL Rules of arbitration has been adopted in order to enhance arbitration services in India. Because of its well established legal system, and being a member of the New York convention, which has permitted enforcement of arbitral awards by courts worldwide, India is much advanced in holding arbitration services (Behdad & Rahnema, 1996). In Singapore, arbitration has been embraced as the best method of solving disputes relating to international trade. Singapore, as a country as adopted the UNCITRAL Model Law in order to assist in solving these disputes. Again, Singapore has enough facilities to support and assist in running arbitrations in an efficient manner. In addition, Singapore has build its reputation on a wide range of countries that make trade in Singapore in its services in arbitration and it gives considerations to geographical convenience as well as the neutral convenience of the involved parties (Mohammadi, 2003). Question 4 (d) It has been very difficult to involve a foreign court or arbitration award to solve any case between the two countries. This is because in India, there are rules that govern their international trade and the arbitration process is based taking into consideration their rules of external business conduct. The same applies to Singapore. However, on the other hand, each of these two countries is working on establishing the best arbitration services so there is competition between the two (Daves & Brigham, 2009). Question 5 (a) The ITC company secretary Mr. Bishwa Behari Chatterjee gives an account of what happened. He says that in the year 2009, on December 14th, a delivery man came to ICT office in the department of mails. This particular person was willing to give some binders and so it was necessary to direct him to the appropriate place to do that. So, he was led to the company’s department of corporate secretarial. He however explained that he got the binders from Calcutta high court and that he would leave the one that belonged to ITC because he was required to drop others to other premises as well. After further questioning, this man said that he came from the city civil court in Calcutta but could not give any evidence. In every binder that was taken by ITC company had service request, the writ and the ex parte orders from the high court of Singapore giving extension of the writ validity. Later on, these binders were found to be invalid. This was because the writ had already expired and it had no supporting evidence that it had come from the India’s judicial authority. Again, the procedures according to the Indian law, through small cases courts were not followed as required. Finally, the writ was not directed to be served on director, secretary or the principle officer as it was supposed to done according to the requirements of ITC. This brought the disagreements that led to the court issues. Question 5 (b) In order for the court to be able to identify the best forum that could hear these disputes, Mr. Tong suggested that India is the best place for this purpose since more witness for the case were here than those of Singapore. However, in this case the judge considered such things as Global being a company that needed liquidation in Singapore and the liquidator being in Singapore. Question 5 (c) Both Singapore’s laws and Indian laws were used to give governance of the issues related with irregularities of the writ issue in this case. This is because some of the witnesses were found to be in India while the concerned company is located in Singapore. Finally, the strength of Singapore rules outweighed the strength of Indian laws and the judge favored Singapore. Question 5 (d) The judge thought that service irregularities couldn’t be cured since discretion to cure any irregularities should be within the authorities of the India country. Again, the claims from the Global Company were serious and needed trial and there was no closure of any documents to support the facts at hand therefore the judge saw that Singapore court was the best to hear the case. Also the writ was not served validly on the 2nd defendant as well as the 3rd defendant. The India’s judicial authority usually gives a supporting evidence of any document that it legal in order to eliminate unlawful documents issues. Also according to the law of India, there are laid procedures that should be followed in the small cases courts in order to acquire such permission of issuing the legal documents. In this case, such procedures were not followed and there was no evidence of the validity of the writ. References Amuzegar, J 1997, Iran's economy under the Islamic Republic. I.B.Tauris, Iran Bade, L. D Johnson, E. T 2010, Building an import/export business; AMACOM Div American Mgmt Assn, America. Brigham, E. F Besley; S 2007, Essentials of managerial finance; Cengage Learning, London Brigham, E. F Besley, S 2008, Principles of Finance; Cengage Learning, London Behdad, S. Rahnema, S 1996, Iran after the revolution: crisis of an Islamic state. I.B.Tauris, Iran. Daves, P. R Brigham, E. F 2009, Intermediate Financial Management; Cengage Learning, London Ehrhardt, M. C Brigham, E. F 2009; Corporate Finance: A Focused Approach. Cengage Learning, London. Lewis, M. Hassan, K 2007, Handbook of Islamic banking; Edward Elgar Publishing, London Mohammadi, A 2003, Iran encountering globalization: problems and prospects; Routledge Curzon, New York. Mirakhor, A Iqbal, Z 1987, Islamic banking; International Monetary Fund, Iran Mirakhor, A Iqbal, Z 2008; an introduction to Islamic finance: theory and practice. John Wiley and Sons, Asia. Saeed, A 1996, Islamic banking and interest: a study of the prohibition of riba and its contemporary interpretation. BRILL, Iran. Seyoum, B 2010, Export-Import Theory, Practices, and Procedures; Taylor and Francis, UK Weiss, D. K 2007, Building an import/export business; John Wiley and Sons, Asia Zamir, I Greuning, H. V 2008, International business in Iran World Bank publications, London Read More