International Trading Operation - H&R Johnson Tiles Ltd - Essay Example

International trading operation Ans1) Create a company (or research on a company) who export product: I have chosen H & R Johnson Tiles Ltd. for research that is well known for their presence in the tiles market on the global front. The company was set up in Cobride way back in 1901 and over the years grew up to be a major company based in the UK for manufacturer of tiles. By the year 1921, in excess of one million square years annually were being manufactured in the UK by the industry with an export market of nearly 30% of the net production. Presently, H&R Johnson has invested more than 35 million pounds over the last three years in forming a completely new mechanized manufacturing unit on a singly integrated site in Stroke on Trent. Importance has been accorded to the application of modern design technology which provides premium product quality and extremely high practical interpretations of design themes. The company has a wide-ranging collection of competitive products which matches a broad spectrum of consumer tastes and needs. (The history of ceramic tile manufacturing and the formation of H&R Johnson) The market experience of H&R Johnson lets international design fashions to be converted into products which particularly fulfils the requirements of the customers of UK. The company is equipped with a nation-wide network of independent retailers and distributors, coupled with a major investment in logistics which facilitates providing extremely increased levels of customer service. Building on the achievements of the its first century, H&R Johnson has been subjected to sweeping changes in the course of the year to position itself as the front ranking company and innovator for the demands of the tile industry in the new millennium. The eventual objective of the company lies in providing with the consumer with the "total solution for tiles". (The history of ceramic tile manufacturing and the formation of H&R Johnson) Ans2) Which country you are going to trade with: Since Tiles find wide applications in almost every country, however some countries are found to be more favourable compared to others. Nevertheless, the major export markets of H&R Johnson are the Asia-Pacific rim, the Central Asian countries, the Middle East, Africa, Central/East Europe, Western Europe, North America, Central America and South America. H&R Johnson is the largest manufacturer of ceramic tiles in the UK with production of decorative and innovative tile design. The company is the designer, manufacturer and exporter of ceramic glazed and unglazed wall, floor tiles and fittings along with floor and wall tile adhesives, grouts and tile fixing systems. Since the bygone four years, more than 35 million pound has been invested in the development of a new completely mechanized manufacturing facility on a lone location on Strole-on-Trent. (Nature of Business) Ans3) Which product are you going to export H&R Johnson exports floor and wall tiles. The company range consists of 'ARTILE' which are ceramic glazed wall tile embellished with digital images. 'ASPECTS' is the well-known ceramic wall and floor tiles. 'CAMPBELLS' are tiles meant to be fixed around the fireplace. 'CRISTAL' brand consist of ceramic glazed wall and floor tiles as well as wall and floor tiles. The 'ELEMENTS' and 'FREEDOM' range are popular ceramic wall and floor tiles while H&R Johnson is wall and floor tiles and ceramic glazed wall and floor tiles. The 'JOHNSON PROFESIONAL' consists of tile fixing systems, whereas 'KERASTAR' are ceramic, porcelain floor and cladding tiles. 'MINTON HOLLINS' are ceramic wall tiles and period designs while NORCROS ADHESIVES are tile fixing systems. The PRISMAFIT range consists of ceramic fittings and coves. Finally, 'SENSATIONS' and 'SPIRIT' is one more premium brand of glazed wall tiles. (Nature of Business) Ans4) What kind of payment use eg: documentary credit/confirmed irrevocable letter of credit/ transferable letter of credit/ document collection/ cash payment advance and so on: Confirmed Irrevocable Letter of Credit -- CLIC is the preferred payment mechanism. A CLIC is opened by the issuing bank whose authenticity has been established by the advising bank and where the advising bank has given its confirmation to the credit as a added measure and it is known as Confirmed Irrevocable LC. Usually the inclusion "we conform the credit and hereby undertake." or "we add our confirmation to this credit and hereby undertake" are generally added in the L/C. An exporter whose payment method is a confirmed irrevocable L/C is guaranteed of payment in case the importer or the bank issuing the same defaults payment. The CLIC is especially vital from buyers in a nation which is either economically or politically unstable. Under a confirmed irrevocable L/C, either the exporter or the importer pays additional money known as the confirmation fee, which might differ from one bank to another inside a nation. The fee is normally added to the account of the exporter. The exporter might mention in the sales contract that the confirmation fee and other charges outside to the seller's country are in the account of the buyer. (Documentary Credits (Letters of Credit)) Letters of Credit -- LCs constitutes a document that is normally issued by a Bank or a financial institution which authorizes the recipient of the letter i.e. the customer of the bank to withdraw amounts of money till a specified total, in keeping with any terms and conditions set forth in the letter. This normally happens in which a customer of the bank looks forward to guarantee a seller which is the beneficiary who will receive payment for any goods it sells to the customer. For instance the bank might give an extension to the letter of credit conditioned upon the beneficiary's stating documentation that the articles purchased with the line of credit have been dispatched to the address of the customer. The customer might make use of the letter of credit to guarantee the beneficiary that, in case it fulfils the conditions stated in the letter, it will be paid for any goods that it sells and ships to the customer. (The Letter of Credit) It has been observed that in case of international sales, difficulty is being faced regarding the manner in which to fulfil the desire of the seller for payment to be made before transferring the bought goods and the buyer's concern that payment not to be made till the buyer is guaranteed that it will get the goods that is bought and that the bought goods will fulfil the particulars stated in the sales contract. Documentary LCs has been designed to fulfil the questions of both the parties. The fundamental benefit of CLIC are (i) The irrevocable commitment by the Issuing Bank to make the payment of the purchase price on compliance by the beneficiary which is the seller of the terms and conditions of the CLIC which will include providing to the Nominated Bank with the documents referred to in the CLIC. (ii) The guarantee by a Confirming Bank, a bank which has a credit rating in the minimum as high as that which is needed in the sales contract, which the Conforming Bank will be compelled to the same extent as that of the Issuing Bank with respect to the obligations of the Issuing Bank under the CLIC (iii) The designation of a Nominated Bank, which is a Bank in the most possibility situated in the same area as that of the seller, which will practically make payment in favour of the Beneficiary who is the seller in case the Beneficiary adheres to the terms and conditions of the CLIC. (iv)The needs of the beneficiary gives some original documentation to the Nominated Bank like an onboard bill of lading, commercial invoice and/or inspection certificate as stated in the CLIC before the expiry date stipulated in the CLIC so as to receive the amount stipulated in the CLIC. (International Sales Transactions: Confirmed Irrevocable Letters of Credit) Ans5) What is the period of credit When goods are exported, one might be needed to pay or accept payment in a number of currencies. One is required to arrange a supplier or a buyer in advance who is going to shoulder the entire costs of exchanging the currency. In maximum situations, the buyer i.e. the importer will pay the currency conversion fees; even though presently it is a lot simpler for payment to be converted as it enters the bank account especially with Euro payments. The various types of payment methods are (i) Open Accounts -- OA: In this case, an OA is where one credit checks the buyer and organize a suitable credit limit and credit period for payment. When goods are shipped, the payment is due after a fixed number of days. This type of payment method is generally used exclusively in strong or long-term business relationships, in which one can be sure that the buyer will surely make payment. This type of payment is chosen by small businesses when importing, assists one to keep positive cash flow. It is nevertheless much more preferable to get payments in advance at the time of exporting. (Introduction to Exporting: Part 2) (ii) Documentary Collection -- DP, DA: In this typical situation, the exporter sends several documents to the bank of the customer, when the customer pays in full, thereafter the bank hands them over the import and release documents -- DP. In some cases, the customer will sign a "bill of exchange" that fixes a particular number of days to make payment. In this is normally 90 days following collection. Following the signature of the Bill by the customer, they will receive the import and release documents -- DA. This is an effective route to payment in case of small businesses. It assists in providing security in case of both the buyer and the seller. However, one must be sure that the customer is dependable and creditworthy. (iii) Payment in Advance: Payment in Advance is the most preferred way of payment in case of a small business looking to export. It assists in helping to keep the cash flow positive and lowers the risk of exporting. The primary demerit is that few buyers will be eager to pay in advance, in situations of problems associated with the order. (Introduction to Exporting: Part 2) Ans6) A short term finance facility for the seller Working Capital constitutes a short-term finance facility for the seller. An organization's capability to be eligible for general working capital and trade financing needs depends inter alia, on the potential of its balance sheet and its chances for producing enough earning over the life of the loan to repay it. Conversely trade finance, normally implies financing independent transactions or a sequence of similar transactions. This apart, trade finance loans are sometimes self-liquidating in nature which implies that the lending bank make restrictions that all sales proceeds are to be collected by it, and subsequently applies the proceeds to make payment for the loan. The remaining part is credited to the account of the borrower. The main lookout in case of the business exporter must be to assure that the he will make the complete payment and on time as well. Foreign buyers might have their own worries, inclusive of the fears that goods that have been ordered will align with the standards with that of the necessary stipulations and come in a timely fashion. Hence, it is vital that there is unanimity in terms of payment and in a manner which is acceptable to both the parties. The method of payment that the exporters use can affect in a considerable manner the financial risk of a specific export sale. Overall, the more liberal the terms of sales are to a foreign buyer, the higher risk it poses before the exporter. (Chapter 5: Export Financing--Financing Export Sales) Ans7) What are the risks involved dealing with the country who you export to: Similar to any type of business transaction, export involves an element of risk. A lot of techniques are there to safeguard businesses from the inherent risks involved with exports. International transactions can entail different risks from those faced on the domestic front. These cover foreign exchange risk coverage, political risk that might outcome from the inability of the buyer to remit foreign currency, shipping risks resulting from loss, damage, delays in customs clearance, legal matters at the local level and standard regulations. These risks can generally be readily found out and assessed. Besides, there are country specific risks, for instance exporting to New Zealand, Singapore or Hong Kong on LC or secured terms hold low risk in case it is performed and the buyer has good standing in the market. (Risk management: Minimize risks with management plans) The various risks from exports are (i) Political risks: Some nations might be going through a phase of political instability which might lead to payment defaults, exchange transfer blockages, nationalization or property confiscation. Civil disorder might impact personal security. (ii) Legal risk: The differences in law might be there in foreign countries. These might put an influence in such areas as import procedure, taxation, employment practices, currency dealings, the protection of intellectual property and agency/ distribution arrangements. Getting advice from reputed legal practitioners in the nation concerned is important. (iii) Graft and corruption: Graft and corruption are outlawed in almost all countries, but might be there in varying degrees in some nations. (iv) Credit/financing risks: In order to safeguard against default of payment, it is important at least in the beginning to employ payment methods which give one some security, e.g. irrevocable letters of credit. The Bank will be capable of giving advice on payment options and their comparative benefits. Banks even advice regarding the manner in which one can be able to protect oneself against currency changes relativities as international trading exposes one to foreign exchange risks. (v) Quarantine compliance: Some countries have rigid quarantine needs and the requirement to guarantee that they are applied. (Risk management: Minimize risks with management plans) Ans8) What kind of transportation you use Logistic H&R Johnson which is UK's largest tile manufacturer have done electronic trading with its bigger customer since years through the use of Electronic Data Interchange -- EDI and are poised to be in a strong position to extend the technology and business lessons it has been able to learn to smaller business partners. Nevertheless, H&R Johnson has found it impossible to give the facility to its smaller customers with a low cost solution for electronic ordering and is considering encouraging its top 20 smaller customer to make use of it. It is a fact that in the manufacturing sector, Small and Medium Enterprises -- SMEs are especially embroiled in the reengineering of the supply chain in order to support the electronic trading. This is in part because of the truth that SMEs are often placed in the terminal part of the supply chain to a much bigger company with the potential and resources to put EDI in its place, to enforce compliance from their suppliers and to get the benefits of E-Commerce. The company H&R Johnson is also striving to foster an electronic support with its supply chain. Being a supplier to large customers, the company had to align to their demands for electronic ordering, presently observes the advantages of extending this potential before the smaller customers also. (Analysis of E-Commerce practice in SMEs) Ans9) Payment & loans: It is always better to take recourse to Pre-export financing. The objective of this type of loan is to make financial resources available to a producer/exporter before initiation of the production related to conclude export contracts. Maximum of the overall export value mentioned in the export contract should be applicable. The exporter is indebted to prove this reality through a binding statement that the goods origin conditions were observed. (Pre-export financing) On the other hand, export credits are designed for medium and long-term export financing. They are extended directly by a Bank or a group of Banks to a foreign buyer or a buyer acting on behalf of a buyer who has approved to enter into a contract with an exporter. An export financing generally consists of (i) Buyer's Credit: This is a regulated loan i.e. it is granted in keeping with the global OECD agreement, European and national regulators. In majority of the OECD and also some of the non-OECD nations, these credits might benefit from state export assistance in the shape of a credit-risk insurance from an Export Credit Agency (ECA) possibly attached with a interest subsidy mechanism which is granted by an entity duly given the mandate by the government of the county exporting the same so as to present the buyer a fixed rate of credit. (Export Credit) ii) Commercial Loan: This might be granted as an extra facility so as to finance all or part of the commercial contract which is not financed by the Buyer's Credit. This category of facility does not come within the purview of the constraints of regulated credits. The benefits of the clients as a result of the same are (i) It allows to be paid in cash as and when the commercial contract is implemented (ii) to be exempted from the whole credit risk, the risk being assumed by the lending Bank or Banks (iii) to lessen the make-up of the balance sheet. (iv) to give the buyer with a pleasing offer which ranges up to 100% of the commercial contract in case a commercial loan is granted, absence of provisions for risks and costs. For his part, the buyer can take advantage of financing with a better condition which the market might present, especially as regards the duration and/or the rate of interest. (v) It is a financing tool especially aligned for major projects. (vi) Multi-sources financing: Export financing methods are in place in majority of the OECD nations besides in some of the non-OECD nations. In case of BNP-Paribas, it is seen that export finance is a global business line with teams situated in 11 nations. Export finance, as a medium/long-term facility is committed to the financing of the equipment in the widest sense of the term or even medium or small-scale installations. In comprises of services contracts and civil engineering contracts. (Export Credit) Reference Chappell, Caroline; Feindt, Sylvie. Analysis of E-Commerce practice in SMEs. January, 1999. Chapter 5: Export Financing--Financing Export Sales. Documentary Credits (Letters of Credit). Export Credit. Introduction to Exporting: Part 2. Larson, Aaron. The Letter of Credit. August, 2004. Nature of Business. 2007. Pre-Export financing. Risk management: Minimize risks with management plans. Shannon, William J. International Sales Transactions: Confirmed Irrevocable Letters of Credit. The history of ceramic tile manufacturing and the formation of H&R Johnson. Read More