International Business Transactions - Assignment Example

International Law Name University Course Lecturer Date The intercompany agreement between Salazar Steel vs. Michael Matson, prepared by Salazar Steel would critically consist of: Companies: The sale agreement between Salazar Steel (SS) Brazil- Sao Paulo selling to Michael Matson in New York. Products and Services: Salazar Steel company sells 5,000 metric tons, specification #41 steel ingots. Warranty for purity and transport services will be specified. As Kanda & Deshmukh (2009), there are critical facts that SS would highly emphasize on are the rates of sales and date of payments which are favorable for the company in the transaction. Rates and payment: The agreement is complete with the payment of $10 million by MM to SS to Bank of Sao Paulo at a date no later than 8th September. Warranty: SS warrants consistent goods according to the conditions agreed (not exceeding 1.6% carbon) for assurance of Purity. In addition the warranty includes steel ingots consistent with products terms including being fit for the purpose, good quality, free and clear from all claims and security interests. The services that accompany the products shall be delivered in a professional manner. To ensure that MM position in the transaction is favorable, he has to insist for risk of goods. Any delay or transport risk that might delay the delivery of goods before the agreed dates should be incurred by the seller (SS). The purpose for the clause is to hold the seller accountable as to the delivery dates which must meet the deadlines stated so as not to interfere with government regulations and quotas controls. Issues might arise that may lead to returning of the products back to Brazil. The issue has to be included and the party that will bear the costs involved (Li, Poppo & Zhou 2010). MM should also consider waiver as an element in the contract. MM should insist SS to give a waiver in consideration of fulfillment of payment on time. A waiver would give MM an established additional right to claim a profit in the transactions where SS would cut some dollars in the sale. In the structure of a contract, both parties must consider the value of the contract and bridge the gaps that might be detrimental to the other party. Waiver allows the contract to be established after some or further negotiations taking into considerations both the needs of the seller and the buyer (Storbacka, Ryals, Davies & Nenonen 2009). Sales tax should be negotiated between the parties and be included in the contract structure. The seller (SS) should take some responsibilities upon the arrival of goods in NY harbor. MM must indicate the possibility of additional cost that might reduce the profits he intends to make as middle man. In case there will be raised duty, SS must take a share by reducing the rates specified. Similarly, MM should also show an intention to divide the profit with SS incase the duty is reduced. The clause provides a balance of uncertainty as the parties agrees to share the loss and profit equally and specify the losses that might be incurred. This condition can well be understood between the contracting parties as this is a problem of international contracting where trade regulations requires the parties to set new and workable agreements in face of international regulations (Folsom 2009). MM should consider including a condition of termination in the agreement. There are certain issues that may affect the quality, prices of goods, quantity and contract performance dates. There might also be other inconsistencies that might occur contrary to the laws and regulation of trade and contract. Termination clause is very important in this case as the contract can be rendered useless unless some of the specifications are met. Considering there are issues to do with purity of products, products quality, any changes in some aspects might detrimentally affect MM and SS may not bear responsibility if the contract does not pronounce them. The right of transfer, examination of initial specifications should be stated (Alter 2008). As Li, Poppo & Zhou (2010), replacement, compensation or both should be stated in the agreement as a clause that binds SS to adhere fully to the demands of the above facts of quality, quantity, dates, purity and waiver. There might be major problems with the goods and if the goods are not right MMM will use the right in the contract to claim for refund. This part of contract will determine the level in which MM can trust SS and avoid delivery of sub-standard products and the extent of risks that might be possible in the absence of the clause. MM will therefore recover the full sum or with some more value for the failure below the agreed terms. There are various reasons that must be foreseen in this item of the contract. Any problem that goods might exhibit that would have stopped MM from purchasing them if he knew about it, significant differences from description or failure of SS to do and fix the product issues as agreed. Purchase Contract; Bilder Bay Shipbuilders (BB) The sales agreement between Bilder Bay Shipbulders (BB), the buyer and Michael Matson (MM) the seller, a contract for goods purchase. BB structuring the contract would ensure statement of the products specification, terms of payment, and dates of delivery. Products and services: MM sell to BB 5,000 metric tons #41 steel ingots, warranty for purity (1.6% carbon). The ingots will be transported by Bigman Carriers and arrive at Halifax no later than 25th September. The products will be transferred to the buyer with confirmation of the product quality, quantity and conditions agreed in writing. Payments: BB will remit the payments to MM through the Bank of Halifax by 21st September. To ensure the contract is favorable, BB might include other elements such as warranty, waiver, and considerations for terminations. MM should ensure that further negotiations are highlighted in the contract. Negotiations would allow considerations of products prices to limit the possibilities of losses in case countervailing duty is imposed in US for ingots. The changes in prices should be stated in terms of additional price or percentage share of the products prices increase (Klass 2008). Since both companies expect the products prices to rise after countervailing duty, the negotiation is open and consistent with any other agreement. Citing such negotiations before, promote a mutual consent which will efficiently enable cost sharing and transfer of additional cost to BB. A business however does not have a right to change the terms of the contract unilaterally and this applies to the price which is a core element of a contract term. The type of a contract however determines whether the terms can change and this is a kind of a contract which is valid only until further notice and differing subject of rules that applies to fixed-duration contracts (Pariyadath & Eagleman 2008). The intention must be understood from all the parties involved and as a rule, MM can have an upper hand to change the contract unilaterally when the ground behind such changes are legitimate. The grounds should however be specified in terms and this should ensure that the content of the contract will not change substantially from parties viewpoints. As Sullivan (2009) demonstrates, looking at the issues surrounding the completion of the sales, legitimate grounds of change are seen due to possible substantial rise of duty and hence the costs of the steel ingots. The circumstances may essentially change as specified by government and change f the terms is therefore necessary as both parties cannot foresee as they conclude the contract before the date of imposition. The change in legislation and the US official ruling cannot be predicted by all the companies as they conclude the contract now. Nystén-Haarala, Lee & Lehto (2010) point out that, legitimate grounds therefore need to be specified in the terms exhaustively. The contract will however not be changed due to other grounds besides the ones prescribed and specified in the terms of the contract. The ground thus has to be transparently stated to ensure that the prerequisites for changes and procedures behind determining prices increase are clear. Large increases will however not be made unilaterally meaning that the prices changes should be set on average. MM shall then notify the other parties how the charges, prices, other contract terms changes and when those changes will be effected. MM stands a good position as a middle-man which is a profitable deal but other considerations have to be taken into account. MM capital is limited for the transaction between him and SS. In addition, there are shipping needs and insurance. The countervailing duty which if imposed will take effect on 9th September is a matter of concern as it would be set at 50% on Brazilian steel. Structuring his deal between the two parties, MM will have to include some of the following in the contract depending on how it will effectively reduce the risk of unnecessary loss: Defer taxes by change of dates: The uncertainties of government duty imposition will ultimately mean that undertaking the contract will detrimentally affect MM if at all the government imposes it. There is however a great possibility to evade the 50% more charges on ingots if the delivery is rescheduled by SS. In case the goods reach New York on 10th September, the countervailing duty will be effective and both MM and SS must consider an alternative way to avoid the duty. The contract should restate the arrival dates to be no later than 8th September. Terms of payment: The capital for transaction is quite a problem for MM. The most effective way to structure the contract to favor both transactions is to enact new dates for remitting the payment to SS and receiving the payment from BB. MM can extend the payment dates to SS from 8th September by around 5 days. Having in mind that the steel would also reach a day earlier before the imposition of duty, the same would be shipped to Halifax on an earlier date than 20th September. MM should contain BB to pay for the goods on a date no later than 12th September to be able to commit him to pay SS no later than 13th. Rights of receiver and supplier: As a receiver and a supplier, MM should have the right to constantly update SS and BB on the change of prices due to imposed duty. The item should be including in both contracts accordingly ensuring that any losses is equally shared by all the parties or possibly SS and BB. On one hand, MM is a receiver from SS and there are terms to insist on including the necessary dates of products delivery and possible increment of duty. On the other, MM has to be in charge of updating the steel prices in case the duty is imposed. Duty consequences is detrimental to the profit expected and MM can possibly ensure that in case both parties will not be at ease in signing the agreement with additional duty terms, he can avoid the duty increment by direct transportation of the steel from Sao Paulo to Halifax. This will avoid any inconveniences that might result as the goods are shipped first to New York and then from NY to Halifax. Having in mind that the Bigman Carriers company is preferred for transportation by the all the parties involved, it can deliver the steel without stoppage which is more convenient. Changes of terms and conditions: MM should insist on the limit of terms and conditions that may change. This will avoid the extent to which the parties involved may make the contract questionable by changing some of crucial elements that act as a frame to the contract. Any changes should be deliberated and only limited to some elements such as payment and delivery dates. The purpose for constraining the conditions changes would be to retain the soundness of a contract and give legitimacy to the issue which allows the contract to be open to changes such as future government imposed duty. The changes should only prevail through documentation in writing and signing by both parties. After-imposed duty, the increased costs will be included in the contract as long as the date corresponds to the imposition. The exemption can later be revoked during the contract period as long as the steel ingot reaches earlier. The transaction has to include payment of extra amount that MM may bear due to action taken after contract dates. MM should insist on taking a reasonable action for obtaining duties costs. Question 2 Plan 1 KitchenMaid (KM) is the largest dishwasher manufacturer in the United States; it enjoys worldwide market and makes sales of about $3billion on the dishwashers. For the past seven and a half years KM has been making its sales in Europe with the help of an Italian agent known as Gepetto & Son(GS) .The terms of engagement has been that for all the sales made by GS it is going to be paid a ten percent commission. The agency has been renewed every year because the original agreement was only for a year. KM has noted that for the seven years the sales have doubled and is expecting that this year the sales will get to $800million which makes about 10% of the European Union market. However, there are two existing competitors for KM in the European market. In the Northern market there is the DeutschlandKitchenland (DK) which makes sales of about $500million every year while the southern market is controlled by Nouvelle Cuisine de France (NCF) which is 20% owned by the government of France and enjoys sales of $300million. The competitors also benefit from 15% protection from the European Union market tariffs. This has made KM be concerned because the increase in the market for its dishwasher in Europe means a bigger increase in the commission paid to GS and increase in the European Union tariffs. All these have implications on KM since they mean an increase in the marketing cost for their products and may end up reducing its profit margin. Therefore KM is thinking of adopting a different plan in the production and selling of its products in Europe and thus not renews its agency contract with GS. This paper is focused at giving insights to the management of KM to assist them make appropriate decision on the most suitable plan to adopt. The first plan that KM is considering is licensing the production and sale of its dishwashers to DK and NCF which are already established producers and sellers of dishwasher. Through this KM is thinking of providing all the technical specifications and intellectual protection required for such production and maintaining the production of the integrated circuits for each appliance. This may cause delays in the production of the dishwasher since KM will be expected to produce the circuits to both NCF and DK and sell to them for them to be able to manufacturer the required dishware. It also means that although these companies have been licensed to produce they are not fully licensed since they are not entirely in charge of the technology to be used in the manufacturing of the dishwasher. Technology is important for efficiency in production, it is therefore important for KM to allow DK and NCF to produce their own integrated circuits to use in the manufacture of the dishwashers to boost their efficiency and this will lead to increase in the returns earned by KM from the two companies. Licensing will be at a fee to both companies and these means that KM will earn some amount from allowing full licensing for the production and sell of its products. It is therefore important for NCF and DK to get full rights to both the production specification and the intellectual property without having to get chips for the appliances from KM (KMLemley, 2007). While still competitors to KM the manufacturers were well established producers and sellers of their own dishwasher. The idea of KM to control the extent of market for DK and NCF is very risky because it may limit the number of amount of sales made and in return KM will get lesser profits. Now that NCF and DK were producing their own dishwasher they must have established market in other areas and for them to make sales in these specified areas it might lead to increase in the marketing cost. For these companies to make good sales it is necessary for KM to give these companies the freedom to access market anywhere as long as they don’t penetrate markets in the restricted areas. It is therefore good to exclude the place s to sell the products in the production and selling agreement. The freedom to sell the products where they will increases the probability of increase in sales, these means that the commission received by KM from the total sales will be high. However, it’s important for DK and NCF to consider carefully where they make their sales so that they don’t market their goods in areas that will result increased cost such custom duty. They should ensure that they specialize with those markets that have a liking for their goods. This means that as they look for the markets their focus is to maximize on the profits. This freedom of access to market will assist in helping the companies explore a wider range of market and eventually the sales will be higher leading to an increase in the percentage earned by KM and the management will have realized its objective of increased sales. Since less sales means lower share for KM, the management should be geared towards increasing the sales by every decision they implement (Bhattacharya, & Guriev, 2006). According to Demirbag, & Glaister, (2010), The price of a commodity is determined by very many aspects in the economy. It is therefore important for KM not to set the whole sale prices for the products produced by DG and NCF. KM should let the prices be determined demand, the cost of production, the cost of related product, seasons and government policies that exist in line with the price of dishwasher in France since NCF is partly owned by the government in France and thus will obviously be interested in ensuring that the producers and consumers of the washers are protected from exploitative prices. When KM dictates the prices the n DG and NCF may decide to compromise the quality so as to lower the cost of production to meet the set price. Thomson, MacInnis, & Whan Park, (2005) says that Some customers are loyal to specific brands, it is therefore important for KM not to restrict DG and KM from selling their brands of dishware because it may result to the customers shifting to other producers and thus reducing the market. It would be better for KM to adopt the production of those brands to maintain those customers that are loyal to these specific brands. Plan 2 In the second decision by KM to buy DK and maintain its products while selling them at a special price, there are a number of implications that concern this option. In this regard, there will be a change in the market audience where the clients will be in the need to prove the efficiency as well as the suitability of the new products. Secondly, replacing the products will require a re-emphasis on newly merged company. In this implication, the re-emphasis will mean a new promotion as in selling new products. Still, it will be necessary to make adjustments in the regional, economic and cultural settings of the newly formed company. Legal considerations, which will also be impacted will also, need to be looked upon such that they may not become an obstacle to the new transition. With all these plans at stake, a number of guidelines and advices will be necessary to put several adjustments in place. The new body of KM will need to develop new strategies before and after uniting the two companies so as to ensure a smooth transition with a renewed vision to maximize profits as Wolff (2008) maintains. The strategies to be streamlined before the merging of the companies to a single organ include the setting aside a reasonable amount of money that keeps that caters for the risks involved during the transition. There will be a need of a selecting a new team from the existing to put in the pace at which the company that has been bought, DK but incorporating the skill with those of the new KM (Wolff 2008). On top of that, an appropriate structure will also be necessary. The structure will, handle several things such as the type of entity, the basis of taxation and how to maximize the tax benefits, a reasonable market value of the assets drawn from DK and a good advisory team. Since the products from DK are already existent in the northern EU markets and KM will need to perpetuate the market, the move will be a wise one. What will be needed would be to adopt the existent techniques of DK Company to test their effectiveness (Berthone et al 2012). This should not last for long at this period; it is supposed to last as long as the transition. An adoption will then be advisable if the techniques endure the test. The brand equity along with the migration strategies will need to be observed during the migration. Since the brands made by DK were offering opportunities that KM will be the beneficiary, keeping the brand name will mean understanding the relationship existing between it and the customers (Wolff, 2008). As such, it would be advisable for KM to keep that understand that relationship and maintain it as much as possible for the consequent expected success will emerge out of that understanding. Their loyalty will be important because there will be an assurance of the market of the products that are produced by KM as Berthone et al (2012) advise. The relationship of the between the dishwashers produced by DK and the DK Company itself will be of great importance also. By this, the point of concern is to know the perception of the consumers and the market place on the products and services produced by DK. It is apparent that this kind of strategy has its own rewards alongside the imminent risks. It would be wise therefore that prior to the implementation of the strategy, a comprehensive understanding of the above mentioned consumer perceptions and the producing company are understood. The rationale behind this kind of understanding is to avoid attributing negative perceptions to products that are seen in a positive way and vice versa. The products may be popular in one place but less popular in others and so this knowledge will be a vital ingredient for KM adopting the brands by DK. Due to the expectation of consistency of products by the loyal users of that brand, managing their perception is a laudable undertaking. Mentioning of acquisition will raise their eyebrows especially on how much the brand will be consistent to the original as maintained by Baron et al (2000). This is a basic perception that is true of any consumer about business-to-business in a market place (Marks & Mirvis 2010). The same is actually maintained for brands when a business is transferred to another and in this case the concern is higher. For KM therefore, it will be necessary for them to be certain to know the reason for the loyalty of the customers to DK. Understanding how the customers perceive the acquisition and leveraging the positive side of it, addressing the negative side will be equally important; otherwise sidestepping such issues may prove detrimental (Wolff 2008). The visual identity of the brand will be another important thing that will be necessary to handle while the transition is in the process of being made. There are only three options in this case for KM to do; namely, retaining it, slight updating or an entire change or repositioning as Kapferer (2012) notes. This will be informed by the long-term strategy of the business and the lessons learned from the relationship with customers, with the acquired brand, and the brands existing within KM (Marks & Mirvis 2010). Whatever decision will be taken on the visual identity of the DK’s dishwashers, it will need to be implemented and managed in a good way as the company endures. The final thing that will be necessary for the KM to look over is the communication with the entire community of employees as Kapferer (2012) observes. This is because acquiring the brand is more or less like acquiring those who made it in DK. Communication in this case will be the source of strength before and after the acquisition of the brand because the acquiring company and the acquired one ought to know what is stood for in both companies. Planning well, listening well, understanding well and communicating with clarity will produce a non-bumpy transition which will be successful (Kapferer 2012). From the two options laid down by KM towards its venture to enlarge its market by merging with another company, it will be necessary to keep an eye on whatever strategy it takes to ensure that the market is maintained. 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