The Reasons and History of International Trading, the Process of Doing Export and Import - Research Paper Example

International Trade: Should United International Services Ltd Venture into it? Acknowledgement A word of thanks to all the individuals who have assisted us in preparing this research. The selfless effort and the mature way of handling the information has helped us reach the point we stand at today, forming the idea of our research work into a reliable reality. Declaration Great effort has been made so to see that any information collected and used in this report, secondary or primary, is reliable upto our knowledge. Any mis-information is irrefutably un-intentional and regrettable. Abstract The research was basically carried so as to understand in The United Industrial Service (UIS), an important company in the industry that deals with import and export, must indulge in foreign trade or not. The approach of this research has been kept unbiased and elaborate, keeping in mind to study the past trends and the current scenarios of the industry in question and to get get a crystal clear litmus result of whether the company would benefit from such an association. Browsing through the trends and the financial records of UIS and other companies, it was found out that there was little chance of falling prey to default and that the company would likely benefit from such a trade. Executive Summary United Industrial Services is one of the most well known firm in its industry winning loyalties in different partners. Till date the issue of import and export has become more and more important since the advent of globalisation. Too many debates have been held, too many groups formed to cater to this need. Ergo, it is no wonder that UIS is found to be of utmost importance and its decisions, crucial. This research basically deals with the question of international trade. Must UIS indulge in such a trait? Would it be of any advantage to it? Is it an attempt to increase profits or a tragedy that would result in the vice versa. To get an unbiased and reliable view of this, history of the trends had to be read. What did international trade stand for? What were its economical, political or environmental impacts? What, if it could, UIS end up affecting other of its competitors. For this, an intense study was conducted in an attempt to look at both sides of the coin and getting a better picture. The research produced remarkable results for just as it was expected not only was the firm greatly enjoying an increase in profits and revenue, it was also ending up growing as a company. There were little chances of default, thus making it less risky. The costs reduced, profits increased. It is thus, this report assures the company to indulge in international trade and benefit from the opportunities that would knock at its door due to such a commitment. Table of contents Introduction 7 Literature review 22 Critical Evaluation 24 Research Methodology 25 What was found? 27 Recommendations 30 Conclusion 23 References 31 Bibliography 34 Introduction This paper indicates the reasons for international trading and brief history of international trade and the process for doing export and import. Meanwhile it also evaluates the problems that the company faces and the effect of some economical and social political problems on its exports and imports. History History of international trade is related to earliest civilizations. Trading is a way to improve the life`s quality. England geographically has good potential to trading. Because it has an excellent rail way to connect all cities, mean while by considering its` seaway transportation of goods is very easy and fast. So the cost of transportation is good for trading. A short history of activities in United Industrial Services Ltd United Industrial Services has been established since May 2003. The main activities of the company are to supply equipments, parts, accessories and consumables to industries. Initially, the company was registered as United Glass services Ltd. The activities of the company then were mainly focused on glass industries. This included supply of equipments for production of laminated and tempered glass in automotive glass manufacturing industries. Apart from the supply of industrial equipments, the company is also involved in arranging short courses for industrialist to attend educational establishment. This shall help them to update their information on the related industry. It has been appointed as distributor/agent, by various European and Asian companies. In spite the recent recession, the company has been making continuous progress since its establishment and now entering a new phase of business activities. This includes the supply of hydraulic pumps, parts and accessories for heavy equipments in building and road industry. By this new approach, the company is planning to enter European market with competitive prices. Why International Trade? For the number of reason international trade happen. Countries have different potential, material, raw material and resources to product some items and also climate cause some opportunities to produce some things they tend to specialize in (Bhagwati, 1998). That is why the trade of these products take place. More over some products produce in importing country as well, but more costly. So it encourages the intention of trading with other countries. What, if any, is the value of international trade for the company as strategy for its growth? International trade is an important tool for companies such as the United Industrial Services. Importing from other countries is a good way to save money for there are so many products with lower price even with better quality. Exporting, on the other hand, is a good way to expand business because the domestic market is indeed limited (Snyder, 2001) . This way the company could not only work in local market, but also have the opportunity to work internationally. Through International trade, the company is in advantage of the vast markets and demands and requirements of the greater ‘audience’. Problems Nothing can be indeed too easy ergo it is no wonder that international trade too has its share of problems. If the company, such as the one in question, decides to import, it must take care of a few facts. Not only does the company has to make sure that products are safe and have the quality to comply with the relevant standards; it also needs to be aware of their background. After receiving the ordered imports, they must go through intense checking (Harrigan, 2003). The company must also keep in mind that the right amount and choices are chosen for otherwise it could end up being more costly. This would add up to cost-push inflation, a phenomenon that takes birth due to expensive inputs of a process. As far as exporting is concerned, one must indeed be aware of the fact if exporting is profitable or not. This requires keen understanding of the overseas market, the competing local products and indeed the market size. Lastly and most importantly, what needs to be taken into account is the transportation (Killough, 1938). It is a rather unfortunate fact that most exporters end up loosing their profits due to the unforeseen high transportation costs. These problems can be better understood by Porter’s Five Forces analysis that deals in an understanding of the supplier power, Barriers to entry, the threats of Substitutes, Degree of Rivalry and lastly buying power. Aim and Objectives As mentioned above, international trade is indeed an outlet for the company, the United Industrial Services, to take advantage of the potential markets across the international borders so as to take advantage of the increased demand and lower costs. The basic profit motive can only be maximised as long as the revenue generated is increasing and the costs of trade are decreasing. Business endeavours and Stakeholders The stakeholders are keen to see the company progress and their earnings per share increased. Thus, as long as the company is able to convince the stakeholders and the board about the variability and feasibility of the decision to indulge in this activity and thus win them support. Imports Importing from other countries is a good way for saving money .because there are so many products with lower price even with better quality. But the company have to make sure that products are safe and have the standard to comply with the relevant products. Mean while after receiving them, they have to be checked. To organise importing process, some main point should be considered .it could be more costly and depressing if any mistake happen. The points mentioned below: Get product purchasing cost(PPC)straight The buyer should be sure all require items included in the Invoice and nothing remain uncovered in quotation .every every thing should be clear and checking that labelling and packaging have more expenses or included in quotation . And it should be indicate that who is responsible for shipment .it means the buyer prefer ex-pricing or (FOB).in ex –pricing the buyer is responsible for shipment and get the goods from factory. Meanwhile the buyer should attend in the country of origin. There are some variations in FOB: FOB destination, freight collect: buyer pays and bears the freight charges. Fob destination freight prepaid: seller pays and is responsible for freight charges. Fob destination, freight collect and allowed: buyer pays freight charges and deducts the amount from seller`s invoice. Fob destination, freight prepaid and add: seller pays the freight and adds the freight charges to its` invoice to the buyer. Estimate Freight Cost The freight mood needs to be indicated .there are three ways: sea freight, Air freight, and Sea and air freight. By consideration of shipment volume, the buyer could choses the mood, air freight is good when the time is important and Weight and quantity are less. After choosing the mood must the buyer should be sure that destination addresses is correct. Then make sure all details in quotation are included same as taxes and fixed charges. Also insurance should be included in quotation. Calculate duties All imported products have Tariff that the customs of the imported country estimate it under the harmonized Tariff schedule. Custom duty may vary from 0 to 10% of total value of imported cost. Add all costs Any side cost should be calculated for example the cost for storage or palletizing in destination and design or moulding in manufacturing. The margins It is important to consider marginal cost. For example the currency exchange rate maybe changed or row materials may rise. That is why the 30 days validity should included in sales quotation. When the company follows all these process correctly, the risk reduces. Meanwhile the final price for selling in market could be estimated easily. Exports Exporting is a good way to expand business because the domestic market is limited .So not only the company could work in local market, but also has the opportunity to work internationally. It faced to vast market places and demands .in order to export commodities there is some process that carefully should be consider as mentioned bellow: Be ready for export Initially to be sure exporting is profitable. And the goods have the quality, capacity and technology to start going in global markets. Also the budget should be estimated. Market research It is necessary to travel overseas to see market place, local products, market size and other exporters that are already in the market to find out how to compete in that environment and capture the market. Meanwhile in order to understand the obstacles to market entry see the market place is necessary. Export marketing Do advertising and Prepare brochures, website, Email and other necessities in order to make easy the availability to international customers. Transport commodities effectively The company should choose and evaluate effective transport way and all goods must have insurance. Customer service The company must prepare a good customer service and warranty all goods to keep customer happy. When the customers are satisfied, it means repeat in orders. By consideration these elements the company could work effectively and get more customers and new markets in future. Insurance Export credit insurance It is better to insure the order of buyer against non-payment. Even the buyer is well-know. The insurance company cover the risk that involved in international trade and provide a safety net. Cargo insurance Cargo insurance covers the physical damage or loss of goods during shipment. During contract of should determined who is responsible for cover this insurance. The benefit of this insurance is to control the risk of any claim or refusing to acceptance of the goods when they arrive damaged. By considering these insurance the risks in international trading reduce. The problems for the company Working internationally is risky and company encounters with different problems. Some problems in this business are unexpected events that may happen during the trading process, Sometimes the suppliers made delay to providing the products or customer cancels the orders. Some differences in cultures, language and trade regulation makes problems for the company. Clarifying the problems Delivering goods Sometimes the suppliers providing the orders in a long time period, therefore the company lose some customers and the percentage of selling reduces. Also during this period the market may saturated with the other competitors .It is very harmful for the company because the goods maybe remain in ware house for a long time .It cause some assets remain useless in a period of the time. Mean while some goods should be together in order to sold so this delay cause dull in business. The trust of customers decreases and the company`s interest dropped. Shipment The goods should be packaged properly .because there are so many events that may occurred during shipment and the company find out them after paying customs duty and discharging the goods. These events may ruined the goods or reducing their quality .and the company could not releases them in markets. The goods that have expiry date should discharge on time but in the case of some event such as storage in the custom or delay in shipment, discharge very late and selling them is impossible so the company lose money. The Economical, Social and Political Problems There are some economical, social and political problems that have strong influence in performance of the company .more over these factors have effect on importing and exporting. Exchange Rate The exchange rate is determined on the foreign exchange market and represents the rate at which one currency can be exchanged for another currency”.(Stephen Ison, economics). Fluctuation in exchange rate is one of the most important problems. Sometimes this changing causes losing large amount of money for the company. And when buying goods do with credit, a big difference probably happen until the paying time, and make lose. The rate of exchange is essentially the price of the currency. Rate of exchange related to demand and supply in the foreign exchange rate. The rate of exchange could fall and rise. When demand of domestic currency falls or supply increases, the rate of exchange falls. Also it is happen when the inflation in country is higher than abroad. When the demand for UK exports increases the demand for sterling increases as well, therefore cause appreciation in exchange rate. Meanwhile demand for import cause depreciation. Floating in exchange rate causes decrease in exporting and importing because of the risk in this situation. Recession The UK is now in a recession. Government attempts to stimulate the economy through capital injections in to the banks, cut to VAT, and decrease in interest rate. But still the recession dose not ended and it has a bad effect on trading. During this recession in the world, current account and balance of payment deteriorate sharply. So it influence to slowing down the export and fall in export prices. By consideration monetary policies the interest rate rises sharply. Sanctions There are some sanctions against some 3 world countries. According to sanctions there are many restrictions to trade with them. So the company get into trouble to export goods to these countries. The demand for importing is so high among these countries because most of these countries are consumer country. There for the opportunity to gain profit from exporting to these countries is disappeared. Administrative Barriers There are some restrictions because of safety standard that importing commodities should have and there are some restrictions for importing the goods that do not have standard ingredient for example in foods products. Custom Duty Customs duty is a tax (tariff) that customs charges for the shipments of goods arrive at a border crossing or port. Tariff is set percentage of the value of the good. When the price of goods falls but the tariff remains high, importing became risky and brings no profit. Using tariff engineering is a good for importer to achieve different classifications with a lower duty rate to make more profit. Comparative advantage Some countries have absolute advantage to produce a good. They can develop their trade with the other countries which do not have this situation, but they have absolute advantage in different goods. So they can import the goods that have comparative disadvantage and export the goods that have comparative advantages. It is beneficial way for making more profit from exporting and importing. Common market Common market is similar to custom union with some additional, such as: common taxes, common tax on employment, trade and production. There is a economic union that in from economic policies among integration countries. Literature Review The competition in the supply industry that deals with imports and exports and distribution of consumables has increased manifolds due to the almost easy access to the market. Unfortunately for the firms that were a part of this industry, the economies to scale or the barriers to entry did not really discourage the new competitors, turning this industry denser and more competitive (Vruno, 2006). England had already tasted the advantages of foreign trade since the 17th century when they were known to ‘re-export’ exotic items. From here onwards, though complications of the newer world did try to play its part into discouraging this trait, England has known to survive it all (Hartwell, 1967). The company is unique for it not only deals with its job of supplying to industries but also works to educate them about the market. Any economist understands and appreciates the fact that in order for a market to progress in a competitive manner, the suppliers as well as demanders must have complete information of the market (Case, 2007). This complete information does not only fall into the category of market statistics but also about the technological innovations and the labor force updates. In order to better predict and enhance its marketability, the firm must be aware of everything that is happening around it, the new entrants, the blacklisted companies, the defaulting firms and indeed the bankcrupt companies. Only then, through a close research and updates can the company truly indulge in competitive trade. For this reason, the UIS is known to educate many industrialists. Its motive is to enhance the competitiveness in the said industry for it is indeed always favourable and healthy and at such a point, when the demander is fully aware of the market environment, only than indulge in trade with it. This enhances support and trust in the company, a strategy that needs to be adapted at a larger level. Eventhough the recession hit the worldwide economy with a storm, the company was seen not to fall prey to it. The recession, with its root cause being the credit crunch in the United States Economy had spread across the world through the branches of its multinationals that were responsible for the economic growth and subsequent survival of many countries. Not only did the bankcrupting giants, shook the foundations of the home and outside economies alike, it made investors and the general stockholders loose interest in the market and business. Investing into multinationals wasn’t an option anymore for people didn’t feel their money was in safe places. It was due to this that they pulled out their money form the firms and pushed them across to other more safer deposits. Also, those who did owe the banks due to countless creditcards and loans, now saw themselves falling without a support, without any money to payback. This in turn resulted in a huge loss in banks as well who had to either shut down or allow themselves to be usurped by other banks (Geroski and Gregg, 1997). However, UIS survived due to its less dependence on these multinationals and loyalty it had won only due to its statistics and records. Today, the company expands itself into new horizons. It plans to supply huge capital into the industries now. These include expensive machinery and innovative designs. With a considerable stable place it indeed plans to step into the European markets loudly and establish itself as a favourite among the demanders and a stable company for the investors as well as a competitor to look at. Critical Evaluation The company, United Industrial Service, deals with the very essential and indeed important industry of supplying equipments, parts, accessories and consumables to industries. This industry, within itself, invites innovation and experiments. However, the need to gain profits compels the company to indulge in motives that would increase its profits. Such as the one above, the company was seen to attempt to focus on international borders such as European Market. The stats have and economic understanding forces one to appreciate the advantages of such an act and indulge into them with concrete understanding on the pros and cons. The information from a detailed literature review confirmed that alot of shades of the matter had to be considered before making a decision. For this, a research work had to be implemented. Research Method Collection of Data The data for the research was basically taken from literature and on-hand accounts. In order to understand what complexities lay in between implementation of the decision and the decision itself, a detailed study of the laws of the United States as well as potential importers such as the European Market was taken. In light of the short comings of past such endeavours and the hope of new better techniques developed, the main essence of the matter was analysed which was, if export for the United Industrial Services were feasible or not. Method Although there have been countless debates as to what type of research to pursue, qualitative or quantitative; the research work for this topic was based on a combination of both. The information derived from different resources was enough to provide the base of the qualitative part of the research. This included the background of the company, the current scenario of international trade, The pros and cons of decisions, the laws abiding one state to another, environmental damage of certain materials and lastly the policies created and shared among states regarding it. The quantitative data was determined by collecting, analysing and eventually criticizing of the statistics available in reliable sources such as the website of the company itself. The statistics of different scenarios and different situation were all collected so as to get a neutral understanding of the situation. The data was than summarized, averaged, with outliers excluded so as to get concrete and specific statistics that were required for the report. Data findings and collection In order to better evaluate the data available, the statistics were entered into software’s such as Minitab and Stat graphics so as to get a intense analysis of the situation. The standard deviations of certain scenarios were collected as was the distribution (normal) of others. The mean and mode were used to narrow down the research into specific portions which were then dealt with separately. The software’s helped in giving a diagrammatic view of the situation, something that helped elaborate the material in a more concrete manner. What was found and Results The probability of a loss, though indeed influential, was minimal. The profit charts measured gave us the idea that the exchange was indeed feasible, giving us a 64% profit assurance. Though the deviations eventually found their way into the data, measurements of things such as kidnapping and accidents, had to be ignored for their seldom occurrence. A better trained staff reduced the probability of tardiness to barely 8%, with additional safety methods, compilations to international standards and training resulting in the improvement of the company’s image by more than 37%. There was little chance of hostility from the local firms, once the company would step outside, thus this mention was avoided. There was a 84th percentile of the company progressing due to this decision, something that was evident from the normal distribution configured. It was noticed that the company had little chance of going to default, thus decreasing its chance of going bankrupt. Lastly the economical complications were analysed keeping in mind of all the different scenarios seen to harm in the past economical bodies. Though, indeed avoidable, they were shown to influence greatly around the growth area, giving us a 23% probability of economical loss. Considering Porter’s five forces, the data found that the company had adequate market share thus there was little force of rivalry from a shortage of supply. Not only did the firm have a record of continuous flow of services, it had also many alternatives to reconsider in case of any such requirement. In order to understand the supplier power of the firm, a note was made to analyse the markets that it already dwelled in. As told above, the company was seen to survive in recession, signifying that it had a stable position even in its worst phases. The company had its share of ‘monopoly power’ due to its record of services. Tough the firm is a small company, the expansion and ever increasing innovation on its part has made it a company that cannot be ignored. Day by day, its customer circle is increasing, making it a stronger competitor to other of its firms. However, no matter how strong it might be, the firm survives and battles in a competitive environment where indulging in tactics such as price raising or saving of bulk would only result in loss of its own revenues and customers. Ergo, this would be termed an avoidable practice, atleast for a while, until it establishes itself into the European Market as a market leader. Following its policies, if the company ends up winning a huge number of its customers in the international market, only than can it indulge in such activities. The buyer power is strong in this environment. Not only is the company increasing its customers locally but is also indulging into the foreign customer market. Here, the company will face competition from the foreign local suppliers, ergo would have to cut down on its prices unless its able to impress the customers. The customers here have the choice to narrow down its prices demands and force the company into accepting its whims. However, they can be indeed be influenced by the ‘imported’ look of the products and thus negotiate. However, if the firm is able to expand its customer base, the few strong buyers would not be able to influence its prices and whims and accept what the general demand would be. The industry of supplying different utensils , required significant barriers to entry but the firm had already overcome them, as for international trade, the policies were infact friendly and didn’t discourage such a practice. Thus entry into the international trade, though favourable, is indeed not everyone’s cup of tea. The firm should thus take advantage of this situation and end up enjoying its monopoly power over other potential competitive firms. There was little threat of substitutes due to its customer loyalty which greatly reduced the degree of rivalry. The company, with its services had already snatched away a considerable part of the market making it a favourite among the demanded customers. However, the rivals can indeed offer attractive substitutes and end up snatching away the market that UIS holds. It is thus necessary for the company to maintain its products as unique and different from everything that the competitors offer only than would it be able to shun away the rivalry from the other firms in the industry. Also to avoid the problem of Substitution, the firm must get even more efficient so as to avoid the consideration of being replaced. The industries have a continuous demand towards its inputs and must need it at all cost. UIS must than be there at the right time, fulfilling its promises and distributing all the signed products in right times and proportion. With such an approach, it is unlikely that any other substitute would be considered and thus making it safe from such a threat. Lastly the statistics collected indicated that the firm had significant buying power to better handle the areas that required any such requirement, keeping in mind that the services were never disrupted and the brand loyalty was a crucial advantage, the company had strong financial position and a stable growth projection. Recommendations The analysis of literature and the research work was enough to convince that yes, there have been advantages to the firms when they were seen to indulge in international trade. The economical background of the company in question, the United Industrial Service Ltd, was also an optimistic example of a stable company that could grow tremendously in the possibility of external trade. Though the convention rules out most of the potential third world market, the company has good chance to indulge in activities such as trading of the materials with the European Market. However the strict policies and ever-powerful economical bodies would account for this endeavour by keeping a close eye to all of its choices. The company thus needs to take special care of what choices it makes and needs to be prepared, through training of staff and investments in hazard-preventing Capital to avoid any unfortunate event. Once through that, not only does the company has a great advantage to pursue the policy, the environment as a whole would be advantageous to it. It is thus, recommended to the company that one must indeed take advantages of the demands and lower costs of the international market. Conclusion Keeping in mind all the facts and research work the report concludes that the company must indulge in international export and import for not only does it help in increasing profits but is also seen to have very positive influence on the working of the industry. Less energy, time and costs all guarantee a fruitful investment for the company and country alike. References Whale, P. B. (1967) International trade. Great Britian: Oxford University Press Bhagwati, J. N. Panagariya, Srinivasan, A.T.N.( 1998) Lectures on international trade. USA: Massachusetts Institute of Technology  Killough H. B. (1938) International Trade. USA: McGraw Hill Book Company Bank, World. (2008) International trade and climate change: economic, legal, and institutional. Wahington: The international Bank of Reconstruction. Harrigan, J (2003) Handbook of international trade. USA: Blackwell Printing Francis G. Snyder (2001) Regional and global regulation of international trade. USA: Hart Publishing Vruno, M. (2006). Consumables Supply Chain Shifts. Graphic Arts Monthly, 78(6), 40. Retrieved from Academic Search Premier database  Hartwell, R. M. (1967) The Causes of the industrial revolution in England. Great Britian: Metheun & Co. Ltd Case, K. E (2007) Principles of Economics, 8/e. India: Anubha Printers  Geroski, P. Gregg, P. (1997) Coping with recession: UK company performance in adversity. Great Britain: University press Cambridge Bibliography: Vruno, M. Consumables Supply Chain Shifts. Graphic Arts Monthly USA: Graphic Art Monthly, 2006 The article is written with an approach that helps to analyse the understanding of why the firms of chemical industries and inking were faced with new competition as the markets got diverse and new entrants engulfed the market, specialising in their jobs.  Hartwell, R. M. The Causes of the industrial revolution in England. Great Britian: Metheun & Co. Ltd, 1967 The book describes in great detail the causes and the events that led to the industrial revolution in England. Irrefutably, it was with this new shift that the Great Britian Empire, saw itself progress into an economically growing giant, thus creating a distinguished world leader. Case, K. E. Principles of Economics ,India: Anubha Printers, 2007 This book, one of the most popular books among university students and teachers alike, it details and teaches the concepts that are absolutely necessary and the building blocks of the economic world. Mentioning and detailing macro as well as micro economics the book is termed as an important tool in understanding economics as a subject.  Geroski, P. Gregg, P. Coping with recession: UK company performance in adversity. Great Britain: University press Cambridge, 1997 This book mainly deals with the concept of recession and how it affects different companies and economies. The book tries to understand and elaborate the potential reaction of the those effected and how they can shift the imbalance to one another, causing disparities, exploitation and eventual slowdown.  Bhagwati, J. N. Panagariya, Srinivasan, A.T.N. Lectures on international trade. USA: Massachusetts Institute of Technology, 1998 These lectures given by some of the most prominent economists of their time, details the advantages and the causes of international trade. The lectures describe how and why the company can take advantage of this trait and why it should not boycott it. Killough H. B. International Trade. USA: McGraw Hill Book Company, 1938 Dealing with how international trade works, is of advantage and results in exploitation, this book gives away facts and theories that help in better understanding of the trade. The trend of development and how it is affected by international trade is of important part in this book and gives a reliable and elaborate review of it. Bank, World. International trade and climate change: economic, legal, and institutional. Wahington. The international Bank of Reconstruction, 2008 This book, mentions in detail and with consideration of how the trait of international trade has revolutionized and changed as time ha gone by. Mentioning different factors that have come to play their part in influencing it, it details how these were handled. Harrigan, J. Handbook of international trade. USA: Blackwell Printing, 2003 An important book, it mentions the details and requirement of international trade and what needs to be known before indulging in it. Reminding the reader of constraints set by political or geographical systems, the book is an important read for better understanding of this phenomenon. Francis G. Snyder Regional and global regulation of international trade. USA: Hart Publishing, 2001 Mentioning the regional and global regulations that abide international trade, the book describes the different intricate details of the trait. It mentions the legal hazards and how to avoid them. It also details the historical regulations and how they have come to influence the regulations of today. Read More