The Management of International Trade Operations - Assignment Example

 The Management of International Trade Operations 1. The Importance of Infrastructure Infrastructural underdevelopment poses a number of difficulties to an international logistician. The first difficulty faced is that there is slow movement of goods or services leading to increased product risk as a result of intentional or unintentional damages to the goods in transit. Due to deficient infrastructure in the country of deliver, the international logistician is faced with the risk of damage to the goods in transit which results from border delays, extended transit time (product storage time), and slow clearing process. This delay in the delivery of goods and services in transit reduces supply chain velocity and consequently flexibility thereby increasing the costs associated with the transit of goods. The international logistician is also faced with the difficulty of maintaining adequate supply chain visibility(Pierre & Stewart, 2010). This is because there are insufficient facilities that help in the tracking of shipment and ultimate visibility. Application of automated machinery and/or computer software (logistic automation) is not possible because of deficiency in infrastructural development which therefore decrease the effectiveness and efficiency in logistics operations. The inability to track the goods in transit by the international logistician creates risk of loss due to theft, piracy and inside collusion. This in turn causes financial loss to the logistician (Kersten, 2011). 2. The Foreign Corrupt Practices Act Adoption of The Foreign Corrupt Practices Act which prohibits bribery in international business may not pose a trade disadvantage to the US companies because of the following reasons. The root cause of the uneven playing field is normally corruption. It occurs when a company is willing to sell goods and services at an unfair advantage and when the private companies or individuals are also willing to purchase that an unfair advantage. I think these companies may not be at a disadvantage because the public have become weary of the scandals and unethical practices that plaque the American business and are therefore demanding the easy access to these firms or companies and continued transparency in the day to day operations of the companies. These international movements aims at choking the supply side of the bribery hence seeking to prevent the corrupt and unethical transactions thereby providing competitive advantage to US firms who have already adopted the Act. There is also increase in trading hence competitive advantage because the act provides a positive global reputation to the firms. This is because integrity gets companies farther than corrupt dealings and activities. There is also increased awareness of companies that are clean and those that are corrupt; this has been made possible by Transparency International. This is an organization that publishes the top ten corrupt countries and those that are not corrupt. 3. Incoterm The International Chamber of Commerce is a world business organization that highlights a series of terms that are greatly used in the international procurement process or commercial transactions. These terms are basically predefined. This paper looks at arbitration and ADR (amicable dispute resolution) and how they can be combined. The International Chamber of Commerce ADR rules deals with the facilitation of settlement with the assistance or help of an independent third and neutral party. Arbitration on the other hand, under rules of arbitration for the international chamber of commerce, is defined as a formal procedure that leads to a binding decision mainly from a third and neutral arbitral tribunal. Parties to a conflict commences an ADR proceeding by attempting to settle their dispute either in whole or part before an arbitration proceeding commences. The parties do this by entering into an agreement to take part in the process of arbitration. They also come up with a draft highlighting the dispute resolution clause. In addition, after the commencement of the arbitration proceedings, the parties may engage in a parallel ADR to resolve the dispute or by sticking to the arbitration proceeding by waiting for the settlement. When these two approaches are combined, the parties may use the same person as a neutral third party or a different person (Kersten, 2011). 4. Letter of Credit A letter of credit is a document used to reduce or mitigate credit risk to sellers both in international and in domestic sales arrangements. A letter of credit gives security to both the buyer and the seller because it is a guarantee by the bank that a specific seller will receive a particular amount of money from a buyer within a specified time. When a buyer purchases goods from a seller in another country, the seller requests the buyer to provide a letter of credit that acts as a guarantee that the payment will be made. This ensures that the bank transfers or substitutes its credit worthiness for that of the client or customer. By writing a letter of credit, an organization therefore ensures a stable future cash flow or receipt from the buyer subject to credit risk because the bank guarantees payment irrespective of the global economic conditions. The risk can also be mitigated using irrevocable credits by ensuring that the organization obtains status reports on the supplier that is covering his financial standing and his technical capabilities before an irrevocable letter of credit is established. To give maximum protection to the organization, the irrevocable letter of credit should be arranged through the organization’s bank (Kersten, 2011). 5. Big Mac The country of choice is china and the price of a Big Mac at a local McDonald’s (in the US market) is $4.62while the price according to the Big Mac Index is $2.74 (Black, 2012). The Big Mac Index is based on the purchasing power parity (PPP) theory. PPP is a belief that the exchange rate in the long run should move in such away that the rate equalizes the price of the big mac in the two countries. There is a discrepancy between the actual price of a Big Mac and the Big Mac Index based on the exchange because of the low labor costs. Hence the cost of the burger is higher in developed and rich countries than in countries that are poor and less developed. This is because in the poor countries, the production is labor intensive due to high supply of labor while in the rich countries the production is capital intensive. Other than input costs, the variation in the prices of the Big Mac is also brought about by product differentiation and government regulation. Availability of few substitutes for Big Mac also confers market power on the McDonald's, Big Mac (Black, 2012). The condition of the market also leads to price variation for instance undervalued markets have low prices. 6. Exporting vs. Importing In this question United Kingdom is used as the country of reference. In the Great Britain the price of the Big Mac is $2.72. This price is lower than the actual price of the Big Mac in the US market. This price difference creates a business opportunity. Since the price is higher in the US market compared to the United Kingdom market, the Big Mac should therefore be imported from the UK to the US. The main reason of importing the Big Macs is to take advantage of the price difference and hence realize higher profit margin (Black, 2012). The difference in price is sufficiently enough to produce net income after all the necessary operating expenses are met. The High price of the Big Macs in the country makes it an unaffordable to the consumers and customers because it is very expensive. To ensure affordability, the cheap ones should be imported. This ensures that more money is saved by the consumers. The saved money can be directed to other expenses. Since the Big Macs is being produced and manufactured efficiently and inexpensively in the UK it can be imported and sold at lower prices. Importation enables consumers to have high quality goods or services at a low cost (Black, 2012). 7. Green Dot & Packaging Waste Directive Increasing quantity of packaging material waste poses environmental problem in the US. This causes environmental pollution which thereby making the environment unsafe to human. The country should ensure that equal standards are adapted in recycling packaging materials because recycling of waste materials can reduce these environmental threats. It also has a number of benefits. Recycling assist in conserving the valuable natural resources such as water, oil and water that may be wasted. It leads to sustainable use of the natural resources thereby making them available for future use by prolonging their life span. For example Polyester fibers can be recycled for use in car mats. The recycling of packaging materials reduces the quantity of natural resources that are needed to manufacture new materials. This ensures that the natural resources are protected and preserved for future use. Carefully set recycling targets ensures an overall positive environmental benefit. This is because the set recycling target protects the environment by reducing the emission of greenhouse gases. The pollution free environment is therefore safe for the human life. The main objective of this policy is to ensure that there is sustainable development irrespective of the continuing growth in the population in the US. Because most resources are non-renewable, they should therefore be recycled in order to reduce resource depletion (McKenzie-Mohr, 2012). 8. Port of Entry Wilmington, Delaware being a port that deals with highly perishable and delicate goods, a number of security options are available to be used when the goods are in storage. These options can be applied after inspection or when goods have treated because of fruit fly area freedom. One of the security measures that have been applied by the port is physical barrier. These are solid structures or walls that are used to isolate products that are fresh from those of unknown status or those that are not treated. The primary concern is that the barrier be sound to prevent or hinder the movement of pests between the two sides, pest infested side to pest free side. The options used by physical barriers to prevent the commodities from being re-infested include the use of a cool shipping container or a cold room. The second security measure is the distance. The two sides should be physically isolated to ensure that there is no cross contamination. This can be achieved by either using inside cool room or outside cool rom. The Inside cool rooms are held at or below 5 degrees centigrade while outside cool rooms are held above 5 degrees centigrade(Kersten, 2011). 9. Non-Tariff Barriers These are blocks to trade and they include quotas, licenses, local content requirement, and other restrictions on imports that depend on quantity and not price. Countries should be allowed to enact non-tariff barriers to entry because of the following reasons. These trade barriers protect the local infant industries from imperfect competition from well-established industries their limited resources. This may lead to the collapse of the emerging local infant industries. Therefore the non-tariff trade barriers should be enacted to eliminate the risk of these industries being closed down. This therefore increases the competitiveness of the domestic industries and producers in the long run. This in turn translates to the economic growth of the domestic countries due to the conducive environment that favors growth of the domestic industries. The other reason why non-trade barriers should be enacted is because it leads to infrastructural development because it raises money for the government. The revenue got is then channeled to the improvement of the country’s infrastructure. It also benefits the government because the protected industries provide jobs to people thereby ensuring that the government gets more revenue because the employed people are able to pay the income, property and sales taxes. It also leads to environmental benefits because it prevents pollution that results from over-exploitation of natural resources in the domestic country Organization for Economic Co-operation and Development. (2005). 10. Communication Challenges Communication is the basic method through which humans interact. This sentence when translated to French it becomes “La Communication est la méthode de base par lequel les êtres humains interagissent entre eux”. And when back-translated it does not change. Again when we translate the sentence “a true friend never leaves you”, to French, and then back-translate, it does not change. It is therefore evident that when an original sentence is translated to another language and then back-translated, it does mean the same as the original sentence. This technique makes communication easier by bridging the language barrier gap that exists among people of different language group. Cultural sensitivity plays a vital role in the international trade. As the operations go global, companies employ foreign workers, advertise in foreign language, and deal with foreign customers. In order to take advantage of these new markets and opportunities, the business needs to be culturally sensitive. Failure to appreciate these cultural differences such as traditions and language alienates foreign workers and employees. Inability to translate the materials into their language basically prevents them from carrying out their duties and responsibilities and performing their jobs. Global companies or businesses should therefore ensure that they develop culturally sensitive practices. References Black, K. (2012). Business statistics: For contemporary decision making. Hoboken, NJ: Wiley. Kersten, W. (2011). International supply chain management and collaboration practices. Lohmar [u.a.: Eul. Thomas, A. R. (2010). Supply chain security: International practices and innovations in moving goods safely and efficiently. Santa Barbara, Calif: Praeger. Pierre, D., & Stewart, R., (2010). International logistics: The management of international trade operations (3rd ed.). Mason, OH: Cengage Learning. McKenzie-Mohr, D. (2012). Social marketing to protect the environment: What works. Thousand Oaks, Calif: SAGE Publications. Organization for Economic Co-operation and Development. (2005). Looking beyond tariffs: The role of non-tariff barriers in world trade. Paris: OECD Read More