Global Trade Operations: China and UK - Case Study Example

?Global Trade Operations Over the recent past, the international trade has increased significantly. This has been triggered by the process of globalisation that is taking place at a high speed. The international trade plays a significant role in determining the performance of an organisation. International trade opens new market for many companies across the world that could not have been accessed in domestic market. Therefore, international trade has helped many companies to increase their sales significantly. In many countries, value of goods transacted through the international trade has significantly increased. International trade has also played a pivotal role in offering economic growth in the countries involved. International trade has also helped countries to reduce their manufacturing costs. For instance, a country can concentrate on what it produces efficiently and effectively. The countries specialize on the field where their absolute advantage lies. This case involves international trade between two countries that are located in different parts of the world. Both countries are different but they are linked together by trade. Background; Trade between CHINA and UK China and UK have enjoyed productive trade relations for a long time. Statistics reveal that trade between the two countries is increasing significantly. In 2009, UK – China bilateral trade in goods was more than $ 201.16 billion. The value is expected to increase significantly in the future. More than 56 Chinese companies have also been listed in the London Stock Exchange. In 2009, UK, imports from China was $ 15.97 billion. Desired Incoterms In 2000, International Chamber of Commercial Terms issued International Commercial Terms (Incoterms) that are now adopted in international trade throughout the world. The Incoterms that are basically used by these traders is the Free on Board (FOB). In this case, the seller is required to deliver the goods to a carrier identified by the buyer. For FOB, the seller delivers the goods after which they are cleared for export (Grath 2008). Importing from China While importing from China, an importer is supposed to create a relationship with the supplier. After establishing a relationship, an individual or organization is required to confirm the terms of trade between the two countries. After confirmation of the trade terms, the parties then agree on the terms of payments. This is followed by approval of samples. Finally, an order is placed in writing after which the freight forwarder is appointed (Grath 2008). In 2008, China exports to UK were $36.07 million. These statistics reveal that there is a strong trade relationship between China and United Kingdom. Exporting to China Exporting from China is almost similar to the importing process. The first step is for the exporter to develop a relationship with the buyer. Then, the two confirm the terms of trade which applies for the two countries. The two parties are then required to agree on the conditions of payment. This involves the deposit balances well as receipts of goods. It is also, important to have samples approved before receiving an order with the new buyer. This should be in writing. The order should indicate the exact order and the terms of trade. Regulations guiding trade in EU and non- EU countries Although the international trade has opened new markets for many companies, it has some complications. For example, trading between EU and non EU member is crucial bearing in mind that the two regions may have different regulations. In this case, the trading companies are required to adhere to the jurisdiction within the region where the trade is taking place. Some restrictions are unhealthy since they undermine the ability of companies to export freely. The regulations within the EU regions favour the trade between the member states. It promotes free movement of goods and services between the members. The member states are required to withdraw all restrictions to the member states. Therefore, all businesses in the member states can easily trade within the area. The main goal of these regulations is to promote free trade between the member states. In order to distinguish the goods from non member states and the member states, EU has come up with different terms for each. Goods and services from EU and to non EU member states is referred to as imports and exports respectively. On the other hand, the goods and services acquired from a business within the member states is referred to as acquisitions while the goods and services sent to another member state is referred to as dispatches. Goods from non member states are usually exposed to restrictions that goods from member states doesn’t. For instance, goods from non member states are subject to tariffs and other forms of restrictions. The cost of taking such goods in the EU market is, therefore, higher compared with goods from non member states. Due to these regulations, businesses engaged in importing and exporting goods and services between EU member states and non member states must carefully consider the trade regulations guiding operations between these two organizations. In the United Kingdom, imports are critically screened. The representatives are expected to be authorized to conduct the monitoring of the imports entering the region from non member states. These individuals are expected to have economic operator registration number for identification purposes (Grath 2008). Overview of Bondwin Furniture ltd Bondwin Furniture is a Chinese company that deals with the manufacture and export of a wide range of furniture. It is one of the leading furniture exporters in China. The company has a strong customer base due to its continued value for its customers. The company is led by the principle of supplying the global buyers with high quality products. The company is led by the international approved ISO’S in its operations. The company has strong markets in Europe and other parts of the world including America. Bondwin enjoys low production costs in China after which the finished goods are sent to Martagon who finally distributes the goods in UK. Overview of Martagon Martagon is a furniture importing company which is located in the United Kingdom. The company deals with a wide range of furniture including bedroom furniture, dining furniture, and office furniture. The company is widely known for its quality products. Once receiving goods from Bondwin, the company distributes the same to its buyers who are located in different parts of the country. Shipping Transportation between China and UK is basically through either the sea or air. Although air transport is faster than the sea, it is more expensive. The transport of furniture between China and UK is usually through the sea. In this case, Bondwin Furniture ltd covers all the costs included in transporting the goods from China to country UK. This follows the Incoterms Delivery Duty Paid regulations. This implies that the seller incurs all the costs of delivering the products. The seller will also be required to bear all the risks involved in the process. Once the goods are manufactured in China, they are taken to the packaging department. From here, the furniture is loaded to a container and then sealed. This is usually done in the presence of the inspection officer. Payment In the international trade, the terms of payment are an important part of contract. In most cases, payment is related to the point where the risk of the goods in question is transferred from the seller to the buyer. In connection to this, payment can be made at this particular time or some time later. In EU trade, three days has been established where a maximum of three days has been set between when the buyer gives directions and when the payment is made available to the receiving bank (Grath 2008). Documentary collection and control of goods Documentary collection is very important in the trade between Bondwin and Martagon. In this case, the buyer’s and seller’s banks facilitate transactions by forwarding documents to the buyer against payment. In other words, the major role of the bank in documentary collection is to ensure that the documents are delivered to the buyer. However, it does not matter whether the documents are honoured or not. Several steps are involved in the collection control process. The first step takes place soon after the shipment. The seller, who is Bondwin in this case, prepares the documents which are then sent to the bank along with the instructions. After receiving these documents, the bank then checks the instructions as given by the seller and verify whether they conform with the documents given after which the bank sends the same to the bank that the buyer has chosen. Once the documents are at the chosen bank, the buyer is advised about the collection (Grath 2008). However, the buyer has a chance to inspect the received documents to verify whether they have met the agreed terms and conditions. If the buyer is satisfied, they are supposed to sign the draft while receiving the documents. Finally, the payments are transferred to the seller’s bank and then to the seller accordingly. Financial arrangement There is adequate time for the two parties to decide on the best mode of payment. However, there are limited options for Martagon to meet the required payment. Insurance policy, however, makes it easy for Martagon to borrow from the bank in order to make payments easily. The bank in this case will not be hesitant in giving loans because the insurance guarantees to cover all the risks involved. The bank then offers Martagon short term loans in a certain interest rate. Therefore, Martagon is able to meet the payments terms on time. Interests and reasons of parties As already noted, the international trade involves a number of risks. Therefore, it is necessary to conduct transactions in a logical manner in order to mitigate such risks. Bondwin prefer the documentary collection process in delivering their goods. Although the company had an alternative to deliver goods on an open account, they prefer the documentary collection. The economic and political stabilities between these two countries is however stable, a fact that minimizes the risks. Martagon is not required to make payments before receiving the required documents. The company is only required to make payments once receiving the documents and after verification of whether Bondwin has met the conditions. Overview of trade between Bondwin and Martagon Bondwin’s documents as a seller There are several documents that are involved in the trade between different countries. These documents are meant to facilitate the trade between different countries. One of the main documents involved in the international trade is the Export Cargo Shipping instruction. This is the document that is issued by exporter or the seller. This document contains instructions for the particular shipment. Another document that is important to the seller is the pro forma invoice. Pro forma invoice indicates that the seller is willing to sell the goods to the buyer. It also indicates the terms and prices. It is closely related with a quotation but there is a slight difference. In most cases, banks prefer pro forma invoice to quotations especially when importer is making payments in advance. Packing list is also essential in international trade. This is a list that indicates what is contained in every package. This document is required by the custom so that they can have the clue of what is contained in each package before examination. This facilitates the examination process. It is easier to examine the contents when one has an idea of what is inside. Commercial invoice is also necessary legal documents. The documents are issued when the transaction takes place between the seller and the buyer. This document is also legally significant since it gives evidence of what the buyer owes to the seller. Therefore, it can be a potent source of evidence in case dispute arises between the trading partners. In order to export any good from China, the seller must have export license. Export license is a document that indicates that the exporter is allowed to export goods and services to another foreign country or market. This document is usually issued by the licensing agency. Martagon’s documents as a buyer While the seller requires having several documents in taking goods or services to a foreign country, the buyer just needs the contract. The contract must indicate in detail the method of payment that is to be used in conducting transactions. It must also indicate the mode of transport that is to be used in transporting the goods from the domestic to the foreign market. This can be through the sea, air or land. This will be determined by efficiency and effectiveness if a particular mode of transport. Conclusion This discussion has clearly revealed how international trade is carried out between different countries that are geographically located in different places. The discussion has revealed that there is a significant difference between trade among member states and the trade between non member states of economic unions. This discussion has also examined the modes of payments and transportation of goods from the countries of origin to the destination country both in the member and non member state in EU. Financial institutions are also crucial in the international trade. However, there is a need to have the required expertise, creativity or innovativeness in order to succeed in the international trade. Although it’s advantageous for the member states, competition still remains high in the international trade. Reference List Grath, A., 2008. The Handbook of International Trade and Finance: The Complete Guide to Risk Management, International Payments and Currency Management, Bonds and Guarantees, Credit Insurance and Trade Finance. UK, Kogan Page Publishers. Read More