1. Avoiding and Managing Common Mistakes and Problems

2. Important Terms Advising Bank Advising Bank Boycott Boycott Business-to-business relationships Business-to-business relationships Buy forward Buy forward Containerization Containerization Hard currency Hard currency Infrastructure Infrastructure Issuing bank Issuing bank Landed cost Landed cost Letter of credit Letter of credit Soft currency Soft currency Tariffs Tariffs

3. Common Pitfalls Business is not a science. Business is not a science. Companies frequently make errors when it comes to international trade. Companies frequently make errors when it comes to international trade. -Cost -Cost -Standards -Standards -Marketing -Marketing -Infrastructure -Infrastructure

4. Costing Landed cost is the full cost of a product after transportation and all other costs have been factored. Landed cost is the full cost of a product after transportation and all other costs have been factored. Companies have to determine the total costs before they can think of a retail price. Companies have to determine the total costs before they can think of a retail price.

5. Standards Different countries have different standard of quality or production. Different countries have different standard of quality or production. ISO helps with this, but sometimes countries have special regulations. ISO helps with this, but sometimes countries have special regulations.

6. Marketing Sometimes, companies do not do enough research and fail in marketing. Sometimes, companies do not do enough research and fail in marketing. Marketing campaigns could : -Be offensive -Confuse the market -What else? Marketing campaigns could : -Be offensive -Confuse the market -What else?

7. Infrastructure Like marketing, this step in research is often missed. Like marketing, this step in research is often missed. Physical infrastructure might not be good enough for an incoming company. Physical infrastructure might not be good enough for an incoming company. HR infrastructure may be poor HR infrastructure may be poor Corruption and bribery are not considered. Corruption and bribery are not considered.

8. Let’s look at a Scenario Salina goes to a trade show in France and sees a table with a display of Jams. She wants to bring it back and sell it in Merrickville. Salina goes to a trade show in France and sees a table with a display of Jams. She wants to bring it back and sell it in Merrickville. They are €1.50 each…this is what Salina would pay for them. They are €1.50 each…this is what Salina would pay for them. She must consider: -tariffs (1.7%) -duties (20%) -brokerage fees -transportation costs -insurance -currency exchange -finance arrangements

9. Exchange Rates/Currency Strategies STEP 1 is converting the local cost to our own currency. -€1.50 is how many Canadian dollars NOW. STEP 1 is converting the local cost to our own currency. -€1.50 is how many Canadian dollars NOW. Hard Currencies are those that are easily transferrable and stable. Hard Currencies are those that are easily transferrable and stable. Soft Currencies fluctuate and are not widely accepted. Soft Currencies fluctuate and are not widely accepted. Is the currency that Salina wants to do business in a hard or a soft currency. Is the currency that Salina wants to do business in a hard or a soft currency.

10. Currencies are rated by international ratings agencies to be: Currencies are rated by international ratings agencies to be: AAA, AA, A, BBB, BB, B, and C. AAA, AA, A, BBB, BB, B, and C. These represent the confidence that the rest of the world has in doing business with that currency. These represent the confidence that the rest of the world has in doing business with that currency. Usually, businesses only deal with hard currencies. Why? Usually, businesses only deal with hard currencies. Why?

12. How can we protect ourselves from Currency Fluctuation? Any ideas? Any ideas? Buy Forward – Buying currency at the same time that an order is made. Buy Forward – Buying currency at the same time that an order is made. Or…we can enter into agreements to cover differences. Or…we can enter into agreements to cover differences.

13. If Salina orders the case of Jam and the euro costs 1.50 CAD, we can buy a whole bunch of euro at the same time. If Salina orders the case of Jam and the euro costs 1.50 CAD, we can buy a whole bunch of euro at the same time. If the euro climbs in value, and it costs 1.75 CAD for one, we already have the euro saved If the euro climbs in value, and it costs 1.75 CAD for one, we already have the euro saved

14. Letters of Credit So we have euros ready to go. The jam company is not ready to commit yet. So we have euros ready to go. The jam company is not ready to commit yet. Letters of credit are provided to the company that the buyer has enough money on deposit in a French bank to pay for the order. Letters of credit are provided to the company that the buyer has enough money on deposit in a French bank to pay for the order. The issuing bank is the importer’s bank, the advising bank is the exporter’s bank. The issuing bank is the importer’s bank, the advising bank is the exporter’s bank. They swap letters to make sure the funds are there. They swap letters to make sure the funds are there.

15. The advising bank then monitors the transaction to make sure everything goes through and the arrangements are met. The advising bank then monitors the transaction to make sure everything goes through and the arrangements are met. When Salina gets the goods, the advising bank pays the seller. When Salina gets the goods, the advising bank pays the seller. If the banking system is not very developed, this process is difficult. If the banking system is not very developed, this process is difficult. What other issues are there? What other issues are there?

16. Tariffs and Duties Unfortunately for Salina, there are good jam companies here. Unfortunately for Salina, there are good jam companies here. France is a “Most- favoured-nation” so it has low tariffs. France is a “Most- favoured-nation” so it has low tariffs. Right now, jams have a 1.7% tariff rate. Right now, jams have a 1.7% tariff rate. With a potential Canada-EU FTA coming, these might vanish. With a potential Canada-EU FTA coming, these might vanish.

17. Transportation

18. Transportation Salina has to think about 5 things when figuring out costs: -Which agent or shipping company to use -How to ship it -The weight of the goods -The size or volume of the goods -The distance to their destination. Salina has to think about 5 things when figuring out costs: -Which agent or shipping company to use -How to ship it -The weight of the goods -The size or volume of the goods -The distance to their destination. Page 221 for charts Page 221 for charts

19. Transportation is very competitive. Margins are very small so companies make money on volume. Transportation is very competitive. Margins are very small so companies make money on volume. There are companies that specialize: -Automotive containers -Refrigeration There are companies that specialize: -Automotive containers -Refrigeration Agents take care of this for companies, but they work on commissions. Agents take care of this for companies, but they work on commissions.

20. What is the most expensive method of shipping? -Why would it be used? What is the most expensive method of shipping? -Why would it be used? Least expensive? Least expensive? -Why would it be used -Why would it be used Containers reduce costs, increase efficiency, reduce theft, increases safety. Containers reduce costs, increase efficiency, reduce theft, increases safety. What costs more to ship? Pillows or Salina’s jam? What costs more to ship? Pillows or Salina’s jam?

21. Hidden costs These are costs that are not immediately obvious. These are costs that are not immediately obvious. Phone charges, translation, labelling, local taxes, government charges, even transportation. Phone charges, translation, labelling, local taxes, government charges, even transportation.

22. Let’s figure out the cost of that 1.50 euro jar of French jam from Salina. Let’s figure out the cost of that 1.50 euro jar of French jam from Salina.

23. Problems with Standards Production standards Production standards Service standards Service standards Quality standards Quality standards Ethical standards Ethical standards

24. Production Standards

27. Ethical Standards Health and Safety for workers Health and Safety for workers Child Labour Child Labour Animal-testing Animal-testing Military relationships Military relationships These usually lead to boycotts. These usually lead to boycotts.

28. ICE 7.1 and 7.2 Pg. 224 #1, 3 Pg. 224 #1, 3 Pg. 226 #3 Pg. 226 #3