Assignment I

INTERNATIONAL
MARKETING
(5588)

MBA Executive

ZAHID NAZIR
Roll # AB 523655

Semester: Spring 2010

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 QUESTION 1
Strategic alliances are business coalitions
among companies that provide strategic
benefits to the partners? What conditions
are best for a successful strategic alliance?
Explain in detail?
(20)

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STRATEGIC ALLIANCE
“A Strategic Alliance is a formal relationship between two or more parties to
pursue a set of agreed upon goals or to meet a critical business need while
remaining independent organizations.”

Partners may provide the strategic alliance with resources such as products,
distribution channels, manufacturing capability, project funding, capital
equipment, knowledge, expertise, or intellectual property. The alliance is a
cooperation or collaboration which aims for a synergy where each partner hopes
that the benefits from the alliance will be greater than those from individual
efforts. The alliance often involves technology transfer (access to knowledge and
expertise), economic specialization, shared expenses and shared risk.

TYPES OF STRATEGIC ALLIANCES

There are four types of strategic alliances: joint venture, equity strategic alliance,
non-equity strategic alliance, and global strategic alliances.

Joint venture is a strategic alliance in which two or more firms create a

legally independent company to share some of their resources and
capabilities to develop a competitive advantage.
Equity strategic alliance is an alliance in which two or more firms own
different percentages of the company they have formed by combining
some of their resources and capabilities to create a competitive advantage.
No equity strategic alliance is an alliance in which two or more firms
develop a contractual-relationship to share some of their unique resources
and capabilities to create a competitive advantage.
Global Strategic Alliances working partnerships between companies (often
more than 2) across national boundaries and increasingly across industries.
Sometimes formed between company and a foreign government, or among
companies and governments

STAGES OF ALLIANCE FORMATION

A typical strategic alliance formation process involves these steps:

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 Strategy Development: Strategy development involves studying the
alliance’s feasibility, objectives and rationale, focusing on the major issues
and challenges and development of resource strategies for production,
technology, and people. It requires aligning alliance objectives with the
overall corporate strategy.
Partner Assessment: Partner assessment involves analyzing a potential
partner’s strengths and weaknesses, creating strategies for accommodating
all partners’ management styles, preparing appropriate partner selection
criteria, understanding a partner’s motives for joining the alliance and
addressing resource capability gaps that may exist for a partner.
Contract Negotiation: Contract negotiations involves determining whether
all parties have realistic objectives, forming high caliber negotiating teams,
defining each partner’s contributions and rewards as well as protect any
proprietary information, addressing termination clauses, penalties for poor
performance, and highlighting the degree to which arbitration procedures
are clearly stated and understood.
Alliance Operation: Alliance operations involves addressing senior
management’s commitment, finding the caliber of resources devoted to
the alliance, linking of budgets and resources with strategic priorities,
measuring and rewarding alliance performance, and assessing the
performance and results of the alliance.
Alliance Termination: Alliance termination involves winding down the
alliance, for instance when its objectives have been met or cannot be met,
or when a partner adjusts priorities or re-allocates resources elsewhere.

WHY STRATEGIC ALLIANCE ?

Strategic alliances are necessary to:

1. Satisfy customer demands.

2. Share R&D costs.
3. Fill knowledge gaps.
4. Make scale economies.

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 5. Make scope economies : Alliances can enlarge dramatically the scope
of a company’s operations. Alliances focusing on scope help
counter the ever- shorter product cycle of modern technology.
6. Jump market barriers.
7. Speed in product introduction.
8. Pre-empt competitive threats
9. Use excess capacity.
10.Reduction in costs.

ADVANTAGES OF ALLIANCES

Alliances are the quickest way to grow a company, particularly in times of

damage. Without implementing difficult and time-consuming internal changes,
they allow a company to:

 Rapidly move to decisively seize opportunities before they disappear.

 Respond more quickly to change.
 Adapt with greater flexibility.
 Increase a company’s market share.
 Gain access to a new market or beat others to that market.
 Quickly shore up internal weaknesses.
 Gain a new skill or area of competence.

Alliances can rapidly meet a company’s need for key resources such as more
customers, additional capital, new/better products, new distribution channels,
additional facilities, increased production capacity, or competent personnel etc.

CONDITIONS FOR STRATEGIC ALLIANCES

“Strategic” may be one of the most over-used words in business today. This
observation is especially valid in the world of alliances, where managers must
distinguish between those alliances that are merely conventional and those that
are truly strategic. As companies gain experience in building alliances, they often
find their portfolios ballooning with partnerships. While these partnerships may
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contribute value to the firm, not all alliances are in fact strategic to an
organization. This is a critical point, since, as those alliances that are truly
strategic must be identified clearly and managed differently than more
conventional business relationships.

Due to the levels of organizational commitment and investment required, not all
partner relationships can be given the same degree of attention as truly strategic
alliances. The impact of mismanaging a strategic alliance or permitting it to fall
apart can materially impact the firm’s ability to achieve its core business
objectives.

THE FIVE CONDITIONS FOR A “STRATEGIC” ALLIANCE

What is it that makes an alliance truly strategic to a particular company? Is it

possible for an alliance to be strategic to only one of the parties in a relationship?
Many alliances default to some form of revenue generation—which is certainly
important— but revenue alone may not be truly strategic to the objectives of the
business. There are five general conditions that differentiate strategic alliances
from conventional alliances. An alliance meeting any one of these criteria is
strategic and should be managed accordingly.

1. Critical to the success of a core business goal or objective.

2. Critical to the development or maintenance of a core competency or other
source of competitive advantage.
3. Blocks a competitive threat.
4. Creates or maintains strategic choices for the firm.
5. Mitigates a significant risk to the business.

The essential issue when developing a strategic alliance is to understand which of

these criteria the other party views as strategic. If either partner misunderstands
the other’s expectation of the alliance, it is likely to fall apart. For example, if one
partner believes the other is looking for revenue generation to achieve a core
business goal, when in reality the objective is to keep a strategic option open, the
alliance is not likely to survive.

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Examining each of the five strategic criteria in depth provides insight into how the
strategic value of alliances can be leveraged.

1. Critical to a business objective

While the most common type of alliance generates revenue through a joint go-to-
market approach, not every alliance that produces revenue is strategic. For
example, consider the impact on revenue objectives if the relationship were
terminated? Clearly, a truly strategic relationship would have a great bearing on
the prospects for achieving revenue growth targets.
In addition to a single strategic alliance, related groupings of alliances—networks
or constellations - may also be critical to a business objective. Sun Microsystems
has established a group of integrator alliances that function as an effective
marketing channel and drive significant revenues for the company each quarter.
This category also includes alliances with high potential, such as alliances that
have large but unrealized revenue opportunity. Consider the impact of new
Industry standards that make it possible for products from different
manufacturers to work together. This can unlock customer value and boost the
revenue potential of new, technology-based products. From writable DVD
formats to next-generation wireless technologies, technical standards are
democratically determined in consortiums of interested industry participants.
With product development racing in parallel, the first mover’s advantage can be
substantial, and hence alliance development and lobbying within an industry
become paramount to financial success.
Cost reduction may also be a core business objective of the alliance, particularly
among supply-side partners. By investing together in new processes, technologies
and standards, alliance partners can obtain substantial cost savings in their
internal operations. Again, however, a cost-saving alliance is not truly strategic
unless it has an underlying business objective, such as “to achieve an industry-
leading cost structure.”

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 2. Competitive advantage and core competency

Another way in which an alliance can prove to be strategic is to play a key role in
developing or protecting a firm’s competitive advantage or core competency.
Learning alliances are the most common form of competitive/competency
strategic alliances. An organization’s need to build incremental skills in an area of
importance is often accelerated with the help of an experienced partner. In some
cases, the learning objective of the relationship is openly agreed between the
partners; however, this is not always the case. Learning alliances work best when:

1. The objectives are openly shared

2. There is little chance of future competition (such as when the partners are
in adjacent industries)
3. The cultures of the organizations are similar enough to enable process and
methods to be leveraged, and
4. The governance structure of the alliances is established to promote
learning at the executive, managerial and operational levels.

3. Blocking a competitive threat

An alliance can be strategic even when it falls short of establishing a competitive

advantage. Consider the case of an alliance that blocks a competitive threat. It is
strategic to bring competitive parity to a secondary segment of a market in which
the firm competes, when the absence of parity creates a competitive
disadvantage in the related primary segments of that market. For example,
competing in the high and medium price range of a market with a premium
product may leave the firm vulnerable to a low-priced entry. If the firm’s
manufacturing processes do not permit the creation of a low-priced product
entry, a strategic alliance with a volume partner in an adjacent market can
successfully block the competitive threat.

Another example of strategic alliances that block competitive threats are the
airline alliances that permit route-sharing among carriers. The two primary
determinants of customer flight selection are routing and cost. Therefore, the
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adoption of route-sharing alliances by the airlines blocks the competitive threat of
preferential routing in the specific markets in which the airline chooses to
compete. In essence, strategic alliances within the airline industry ensure
competitive parity with respect to routing and force other factors such as on-time
departures and customer service to become the bases for competitive
differentiation.

4. Future strategic options

From a longer-term perspective, an alliance that is not fundamental to achieving a

business objective today could become critical in the future. For example, in 1984,
a U.S. consumer products company needed to expand distribution beyond the
Midwestern states. Faced with the prospect of European competition at some
point in the future, the firm made a strategic decision to invest in an alliance with
a distribution and support services company that had incremental distribution
capacity in the U.S. and a similar presence in Europe, rather than invest in
expanding its own local distribution capabilities. With the option to expand into
European distribution at any point, the firm could work to sew up the U.S. market
before expanding too quickly internationally.

5. Risk mitigation

When an alliance is driven by intent to mitigate significant risk to an underlying

business objective, the nature of the risk and its potential impact on the
underlying business objective are the key determinants of whether or not it is
truly strategic. Dual sourcing strategies for critical production components or
processes are excellent examples of how risk mitigation can become the context
for supply-side strategic alliances.

As process manufacturing companies advance the yield of their operations,

suppliers often collaborate with the manufacturer to ensure their new products
fit within its new operations. The benefits of such an alliance are cost savings to
the manufacturer and accelerated product development for the supplier. In

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situations where the supplier’s product is critical to the manufacturer’s operation,
it may be necessary for the manufacturer to have strategic alliances with two
competing suppliers in order to mitigate such risks as unilateral cost increases or
degradation in quality of service.

The real reason that most alliances fail is the constant change in the business
environment. Trust allows the parties in a strategic alliance to have the difficult
discussions that will transform the alliance over time and give it longevity. When
corporate strategies change as a result of a changing business environment, the
assumptions upon which the strategic alliance was originally based also change.
What was once a strategic investment may no longer remain strategic without
modification to the terms of the alliance. In the most extreme cases, the trust
built between the two companies enables the adaptability—even renegotiation of
the financial terms—to accommodate changes in market or other conditions that
impact one of the partners.

Strategic alliance organizations are feeling increased pressure. As critical

personnel become stretched and financial resources become scarce, strategic
alliance organizations must allocate their resources in the most efficient manner
possible so that truly strategic alliances can support and accelerate the strategy of
the business. The five strategic criteria outlined in this article are primary
determinants of the strategic value of an alliance. Using these criteria to identify
genuine strategic alliances in the portfolio today and as a guide for developing
future strategic alliances are the first steps to improving the impact of an alliance
organization. The management principles, also described above, are the next
steps towards improving the effectiveness of the strategic alliances themselves.

Reference:
En.wikipedis.com
www.scribd.com

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 QUESTION 2
Political risk is a type of risk faced by
investors, corporations, and governments.
It is a risk that can be understood and
managed with proper aforethought and
investment. What can be the possible
strategies in managing political risk at the
pre-investment stage?
(20)

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POLITICAL RISK
Political risk is a type of risk faced by investors, corporations, and governments. It
is a risk that can be understood and managed with proper aforethought and
investment.

Political Risk & Foreign Investment

 Investors might become exposed to a range of political risks when
investing in a foreign country.

 Political risk refers to the potential losses to foreign investors from

adverse political developments in the host country.

 Political risks cover a wide range of risks from outright expropriation of

investor’s assets, to concern about changes in the tax laws that may hurt
the profitability of foreign projects.

Classification of Political Risk

Depending on how firms or investors might be affected by an incidence, political
risk can be classified into 3 categories:

1. Country specific risks (Macro risks)

• Political & Economic stability of the country, attitude of government

and public in the host country towards government of foreign
investors

• Host country’s political & government administrative infrastructure.

For example, number of political parties, frequency of change in
governments, (this can cause frequent policy changes, and
inconsistent & discontinuous economic and political environment.

• Track records of political parties and their relative strength, e.g. what
type of ideology they support, what is the ideology of the main
party?

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2. Firm specific risk (Micro risks)

• Conflict between the activities/goals of firm and those of the host

country as evidenced by existing regulations.

3. Global specific risks

1. Country specific risks (Macro risks)

These affect MNCs at the project and corporate level and originate at the
country level. They include:

1) Transfer risk, which arise from uncertainty about cross-border flows of

capital payments and know-how, unexpected imposition of capital controls
inbound or outbound, blocked funds, withholding taxes on dividend and
interest payments, etc.

2) Operational risks, these are associated with uncertainty about the host
country’s policies affecting the local operations of MNCs, some overlap
with firm specific risk, e.g. unexpected changes in environmental policies,
sourcing local content requirements, etc.

3) Cultural & institutional risks, related to ownership structure, human

resource norms, minimum wage laws, religious heritage, nepotism and
corruption, intellectual property rights, and protectionism.

2. Firm specific risk (Micro risks)

These affect the MNC at the project/corporation level. These are of three
types:

1) Interest rate and Foreign exchange risks, these arise from fluctuation in
host country’s interest rate or currency vis-à-vis home currency.

2) Business risks, arise from factors affecting cash flows and hence
profitability of the firm, such as change in taxation for foreign firms, or local
disputes with trade unions or suppliers, etc.

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 3) Governance & Control risks, arise from uncertainty about the host
country’s policy regarding ownership, and control of local operation,
restriction on access to local credit facilities, goal conflict between a MNC
and the host government.

3. Global specific risks

These too affect the MNCs at the project or corporate level but originate at the
global level.

Examples are:

• Terrorism
• Anti-globalization movements
• Environmental concerns
• Poverty
• Cyber attacks
Problems in assessing Political Risk
Difficulties in anticipating:
1. If any change is likely to occur over the life of the project.
2. How those changes might affect the host country’s goal priorities?
3. How new regulations might be implemented to reflect new
priorities?
4. What might be the likely impact of such changes on the firm’s
operation?

PREDICTING COUNTRY-SPECIFIC RISK

In order to assess country specific risks, one needs to assess political & economic
stability of a country in terms of;
1) Evidence of turmoil or dissatisfaction

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 2) Indicators of economic stability
3) Trends in cultural and religious activities
Data can be assembled by;
a) monitoring the local media (local newspapers, radio & TV broadcasts.
b) publications of diplomatic sources
c) Tapping knowledge of outstanding expert consultants
d) Contact other businesses who have had recent experience in the host
country
e) Conduct on site visits
f) Examine reports of the ratings agencies
Watch for:
Significant changes are rarely identified in advance.
Economic indicators may not continue moving in the same direction in the
future.
Assessment of only one rating company is not sufficient.
Consider ratings of a number of agencies that assess county risks, such as:
• S&P
• Moody’s
• EIU
• Euromoney
• Institutional Investor
• International Country risk guide
• Milken Institute Capital Access Index
• Overseas Private Invest Corp.

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Managing Country-Specific Risks
Transfer Risk
 Prior to making an investment, a firm should assess the impact of blocked
funds on:
• Expected return on investment
• Desired location of financial structure
• Optimal links with subsidiaries
 During the operations a firm can move funds through variety of
repositioning.
 Funds that cannot be moved must be reinvested in local country such that,
avoid deterioration in the real value due to inflation or exchange rate
depreciation.

Pre-investment strategy to Anticipate Blocked Funds

 Assess both temporary and long term impact of funds’ blockage on
expected return of investment.
 Minimize the effect of blocked funds by;
• Borrow locally to avoid problems of repayment of external loans.
• Arrange swap agreements
 Link sourcing & sales with subsidiaries to maximize potential for moving
blocked funds.

Strategies for Moving Blocked funds

1. Provide alternative conduits for repatriating funds.
2. Use transfer pricing between related units of the MNCs.
3. Lead and lag payments
4. Use fronting loans (parent company deposits fund with an international
bank and that bank lends to the firm. In case of hostility between the

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 parent country and the local country, the local govt. may still allow funds to
be repaid to the international bank).
5. Create unrelated exports (some new exports can be created to move the
profits out).
6. Special dispensation (Bargain to get at least some part of the blocked funds
out).
7. Beware of self-fulfilling prophecies (some actions may backfire and cause
full blockage of funds).

Forced Reinvestment
 Temporary blockage
• invest in money market (if available), or deposit in banks (even
though the rate of return might be low)
 Long term blockage
• invest in bonds or bank time deposits or lend to other businesses
 No possibility of short or long term investment,
• invest in another related line of activity, e.g. in Peru an airline co.
invested in hotels
• purchase other assets that might better cope with inflation, e.g. buy
land, office buildings, or commodities that can be exported to global
markets
• Stockpile inventories that can be sold at a later stage.

Managing Country-Specific Risks

Cultural and Institutional Risks
There might be a number of Cultural &/or Institutional differences between MNCs
& the local country:

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 • Differences in allowable ownership structures - Countries may
require majority local share ownership. In particular in certain
industries such as banks, national defence, etc.
• Differences in human resource norms - Requirement to recruit
locally might cause difficulties in firing some workers
Employment of women managers may face resistance
• Differences in religious heritage - Religious differences might restrict
the activity of the firm
Firm’s link with HQ/subsidiary in some countries may cause problem
• Nepotism and corruption in the host country - These may restrict
the ability of the firm to operate efficiently. They might also add
more costs in terms of corruption or adversely affect firms reputation
at home in terms of Corporate Social Responsibility.
• Protection of Intellectual Property Rights (IPR) - Need to draw
some legal agreement with the host country to protect IPR.
• Protectionism - Need for awareness about the sectors that are highly
protected, e.g. defence, agriculture, etc.

PREDICTING FIRM SPECIFIC RISKS

Main objective: anticipate the effect of political change on activities of a
specific firm.
Different firms have different degrees of vulnerability to change in policy or
regulations.
For example, a food chain franchise may not experience similar risks as a
car manufacturer, or a firm involved in hotel and catering.
Need for tailor-made studies by in-house analysts for a firm specific activity.
Outside analysts may not have full view of position of firms and changes
that are taking place.

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 Need to plan protective steps to minimize risks of damage from
unanticipated changes.

Firm-Specific Governance Risks

This is related to ability to exercise effective control over firm’s operation
within a country’s legal & political environment.
Government goals might be different from firm’s goals. Governments try to
protect their constituencies, firms try to protect their shareholders.
Possible areas of conflict;
Impact of firm’s activity on the economy
Perceived infringement on national sovereignty
Foreign control of key industries
Sharing or non-sharing of ownership and control with local interests
Impact on a host country’s balance of payments
Influence on the foreign exchange value of the country’s currency
Control over export markets
Use of domestic versus foreign executives and workers
Exploitation of national resources.

Reduce Governance Risks by Negotiating investment Agreement

To avoid future conflicts it is better to anticipate future problems and
negotiate in advance.
Investment agreement should spell out managerial and financial policies
on the following issues;
i. The basis on which funds may be remitted, e.g. dividends,
management fees, royalties, patent fees, and loan repayments.
ii. The basis for setting transfer prices.
iii. The right to export to 3rd country markets.
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 iv. Obligations to build or fund social & economic overhead projects,
such as schools, hospitals, and retirement system.
v. Methods of taxation, including the rate & type of taxation, and
means by which the base rate is determined.
vi. Access to host country capital markets, particularly for long term
borrowing.
vii. Permission for 100% foreign ownership versus required local
ownership (joint venture) participation.
viii. Price controls, if any, applicable to sales in the host-country markets.
ix. Requirements for local sourcing versus import of raw materials and
components.
x. Permission to use expatriate managerial and technical personnel,
and to bring them and their personal possessions into the country
free of exorbitant charges or import duties.
xi. Provision for arbitration of disputes.
xii. Provision for planned divestment, should such be required,
indicating how the going concern will be valued and to whom it will
be sold.

Investment Insurance and Guarantees

Insure political risk with a home country public agency. For example,
Overseas Private Investment Corporation (OPIC) in the USA.
Some of the risks insured in developed countries:
Inconvertibility (risk of not being able to convert profits, royalties,
fees, or other income, as well as the original capital invested).
Expropriation (risk of host government preventing the investing firm
to take control over the use of property for one year)
War, revolution, insurrection, civil strife (risk of damages to the
property and activity of investor and firm’s inability to repay a loan)

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 Business income (risk of loss of business income resulting from
damages incurred due to political violence)

Reducing Political Risks

MNCs should secure some bargaining points.
Local sourcing (purchase of raw material & components locally can reduce
political risk but increase commercial and financial risk)
Facility location (production facilities can be located such that to minimize
risk. Resource oriented activities have to be near resources, but footloose
and market oriented activities can move to other locations to reduce risk,
e.g. oil wells and refineries)
Control of transportation (can substantially influence the bargaining power
of both local governments and MNCs, and hence political risk. E.g. oil
pipelines cross national frontiers.)
Control of technology (control over key patents can reduce political risks for
firms.)
Control of Markets (firms can increase their bargaining power by
controlling the markets where their products are sold, e.g. petrol stations
back at home. Some governments try to bypass this, e.g. Q8)
Brand name and trademark control Keep control of brand name ad
trademark.
Thin equity base - borrow locally rather than financing all the capital
externally
Multiple-source borrowing - If funds need to be raised externally, then it is
better to borrow from a number of different banks in different countries
rather than just from home banks

PREDICTING GLOBAL SPECIFIC RISKS

More difficult to predict than the other two types
Sometimes impossible, e.g. Sept. 11th

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 Once something happens various protective measures may be taken in
anticipation of further attacks.
Assess the following:
 Type of terrorist threats
 Their location
 Potential targets

Global-Specific Risks
Terrorism and War
Support government efforts to fight terrorism & War
Manage Cross-Border Supply Chain by:
 Keeping larger Inventory
 Work more closely with local suppliers
 Evaluate air Transportation vis-à-vis land
MNCs have been criticised for their role in globalization, global warming &
poverty
Hence are exposed to extreme reactions by activists.
Attacks might happen both at home and in foreign countries.
Need for government support to manage the risk

Reference:
Political Risk Analysis by Dr. Sima Motamen

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 QUESTION 3
Because of the distance between markets,
place (distribution) is the primary focus of
the study of international marketing. In
this regard, what are some of the
alternative middlemen choices that one
has when developing an international
distribution system?
(20)

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INTERNATIONAL DISTRIBUTION SYSTEMS
When planning for international markets, distribution plays a very important role.
Sometimes distribution may be the biggest constraint to successful marketing as
getting the product to the target market can be a costly process if barriers in a
distribution structure cannot be overcome. Distribution channels differ to a great
extent from one country to another on a number of dimensions, due to
influencing factors such as culture, tradition, customs, legal requirements. There
are, however a number of things that are common to all channels regardless the
product category or the market.

Marketing channels have been defined by Bradley as a set of independent

organizations involved in the process of making a product or service available for
use or consumption. One of the main differences in establishing a domestic or an
international distribution system consists of the complexity of the variables
involved in the choice of “international activities”, when each foreign market has
a different distribution system.

Main aspects that a company must consider when making international channel
decisions are given below. In order to decide over the distribution strategy in a
particular country, a company should study:

What are the general distribution structures in a country.

What are the specific (wholesaling, retailing) distribution patterns in

a certain industry.

What are the middlemen choices in that country.

What are the factors affecting the choice of the distribution channel.

How to locate, select, motivate, evaluate and terminate channel

members.

What alternative distribution strategies can be used.

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 What are the main logistic decisions to be taken.

TYPES OF INTERMEDIARIES
There are two basic decisions that the company has to take when choosing
intermediaries to serve a particular foreign market. The first is to determine what
type of relationship to have with intermediaries, the alternatives being
distributorship or agency relationship. The second is that the company has to
decide whether to use indirect exporting, direct exporting or integrated
distribution to penetrate a foreign market.

Distributorship or agency relationship?

A distributor (merchant) is a company that purchases the product from the

producer and sells it further. Therefore, it has more independence than the
agency, being able to better control the marketing activity for product lines
carried. The main characteristics are that they take title to manufacturer’s goods,
assume trading risks and are less controllable by the manufacturer.

An agent operates based on commission, does not usually handle physical goods
and has less freedom of movement than a distributor, meaning that the
manufacturer has more decision power over marketing activities. The main
characteristics are that agents work on commission and do not take title to the
merchandise.

Middlemen are differentiated according to the fact they take title to the goods or
not. Middlemen in different countries have different names but regardless the
names they have, that sometimes can be misleading, the marketer should study
what are the functions that the middlemen fulfill. Many middlemen in
international markets wear many hats and they can be clearly identified only in
the relationship with a specific firm.

A middleman can fulfill all distribution functions for some companies or only
some distribution functions for other companies, meaning that the same

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company can be an agent for a client and a merchant/distributor for another
company.

Indirect exporting, direct exporting or integrated distribution?

Indirect exporting means to sell your products to another domestic firm that acts
as sales intermediary and usually takes over the producer’s operations on the
international side. Indirect exporting is practiced by firms in their early stages of
the internationalization process.

Direct exporting means that the company takes direct responsibility for its
products abroad by either selling directly to a foreign customer or finding a local
foreign representative to sell its products in the market.

Integrated distribution means that the company makes an investment into the
foreign market in order to sell its products in that market or more broadly. Such
investment can be a sales office, a distribution network or even a manufacturing
facility.

Table below presents possible types of middlemen that can be involved in

international marketing.

The use of multiple channels. Another decision that the company has to make is
either to go through a single distribution channel or more distribution channels.
The addition of new distribution channels is meant to offer alternative ways for
current and potential customers, so that to have customized channel approaches
for each distinct consumer segment in the market. For many products the use of
multiple distribution channels becomes a necessity as one of the executive
managers of Bloomingdale, one of the major USA retailers stated, that each
product should be sold in three channels at the same time: brick-and-mortar
store, catalogue and on-line channel. However, where multiple channels are
managed together, the potential for channel conflict is great.

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 INTERNATIONAL CHANNEL INTERMEDIARIES
Domestic (Indirect)
Agents (commission based)
Broker Is a low cost agent that Broker
brings buyers and sellers
together
Export Agent Is an individual middleman
that has a short term
relationship with the
manufacturer for whom
provides a selling service in
one or two markets.
Export Works under the name of
management manufacturer, as a low cost
company (EMC) independent marketing
department with direct
responsibility to the parent
firm.
Export jobber Deals mostly with the
commodities and work on a
job-lot basis assuming
responsibility for arranging
transportation.
Merchants (take title of goods)
Global retailer Buys from local suppliers
/wholesaler and sells in their
subsidiaries abroad.
Trading Accumulates transport and
company distributes goods from
many countries. Generally
located in the developing
countries.
Buying office Purchase merchandise on
request and does not have
long term relationship.
Complementary Arrangements to distribute
marketing the product of another
company. Also called piggy-
backing.
Foreign (Direct)
Agents (commission based)
Works based on commission
and deals with commodities,
operating on a country or on
a group of countries basis.
Manufacturer’s Does not take physical
representative possession of goods, but
takes the responsibility for
the producer’s goods in a
city, regional market area,
entire country or several
countries.
Managing Conducts business in a
agent foreign nation under an
exclusive contract with the
parent company,
compensation being based
on percentage of the profits.
Merchants (take title of goods)
Complementary Arrangements to distribute
marketing the product of another
company
Distributor / Has the exclusive rights in a
dealer foreign country to sell the
products of the
manufacturer.
Retailer / Buys from foreign
wholesaler manufacturer and sells the
goods further
Purchasing Purchases goods from
agent manufacturer and sells them
to wholesalers and retailers.
Page | 27
CHANNEL MANAGEMENT
The logical steps to be followed when developing international distribution
channels, as part of the channel management are:
1. Locating middlemen.
2. Selecting middlemen.
3. Motivating middlemen.
4. Controlling middlemen.
5. Terminating middlemen.

Locating and selecting middlemen are the first steps in the process. In order to
locate middlemen, the company establishes a number of criteria to be used in
evaluating middlemen. Most companies emphasize on actual or potential
productivity of the middlemen, but there are more criteria that should be taken
into consideration. Table below presents a model for channel member selection.

Criteria for channel member selection

Page | 28
Motivating middlemen. Once middlemen have been selected, the manufacturer
should motivate them in order to keep a high level of interest in the
manufacturer’s products. The main motivational tools that can be used are:

• Financial rewards- incentives (discounted products) and margins.

• Psychological rewards- publicity, local newspaper, trips in the country of

the manufacturer.

• Communication- letters, periodicals with information, personal visits.

• Support- credit, special product information, technical assistance, product

service, advertising support.

• Close relationship- long term relationship, friendship in some cultures

(Arab, Japan, Latin America).

Controlling and evaluating middlemen. The company wants to exert enough

control over channel members to help guarantee that they interpret and execute
the company’s marketing strategies. The company has to make sure that local
intermediaries implement price, sales, advertising and service policies. The issue
of control becomes more difficult at international level due to the usually longer
chain on the one hand and due to differences in culture, tradition, legal systems
in distribution on the other hand. The issue of control becomes important when
there are no integrated distribution systems and when the company distributes
its products through independent intermediaries mainly.
There are two types of control a company may pursue when controlling its
distribution systems in a country:
Control over the system
Control at middlemen level

Terminating middlemen
There are two main questions related to the middlemen termination: When do
we terminate middlemen and how do we terminate middlemen?
Page | 29
When?
Middlemen will be terminate when they cannot be controlled, when they do not
perform by not meeting the planned sales volume and when the market situation
changes and the distribution strategy has to change.
How?
Middlemen can be terminated through simple dismissal, as in USA or Romania or
with compensation because of legal protection. In some countries, legal
protection makes it difficult to terminate a relationship with a middlemen. In
Columbia, for instance, when a manufacturer terminates an agent, it is required
to pay 10% of the agent’s average annual compensation multiplied by the number
of years the agent served, as a final settlement. In other countries in order to
determine whether the relationship should be ended the company has to go
through an arbitration process. Whenever contracts are signed with middlemen
competent legal advice is very important, so that termination conditions to be
stipulated in the distribution agreement.

References:

Global marketing Strategy by Chee H and harris R.

****************

Page | 30
 QUESTION 4
(a) What is the difference among
ethnocentricity, polycentricity and
geocentricity?
(10)
(b) How MNCs are identified in terms of
size, structure, performance and
behavior?
(10)

Page | 31
a).

MANAGEMENT ORIENTATIONS
The form and substance of company’s response to global market opportunities
depend greatly on the management’s assumptions or beliefs, both conscious and
unconscious, about the nature of the world. The worldview of company’s
personnel can be described as ethnocentric, polycentric, regiocentric and
geocentric. Management at a company with a prevailing ethnocentric orientation
may consciously make a decision to move in the direction of geocentricism. The
orientations collectively known as the EPRG framework are summarized in below
figure.

ORIENTATIONS OF MANAGEMENT AND COMPANIES

Polycentric
Each host country
is unique; sees
differences in
Ethnocentric foreign countries
Home country is
superior; sees
similarities in
foreign countries

Regiocentric
Sees similarities and Geocentric
differences in a world Worldview;
region; is ethnocentric sees similarities and
or polycentric in its differences in home and
view of the rest of the host countries
world

ETHNOCENTRIC ORIENTATION

A person who assumes his or her home country is superior compare to the rest of
the world is said to have an ethnocentric orientation. The Ethnocentric
orientation means company personnel see only similarities in markets and
assume the product and practices that succeed in the home country will, due to
their demonstrated superiority, be successful anywhere. At some companies, the

Page | 32
ethnocentric orientation means that opportunities outside the home country are
ignored. Such companies are sometimes called domestic companies. Ethnocentric
companies that do conduct business outside the home country can be described
as international companies; they adhere to the notion that the products that
succeed in the home country are superior and, therefore, can be sold everywhere
without adaptation.

In the ethnocentric international company, foreign operations are viewed as

being secondary or subordinate to domestic ones. As ethnocentric company
operates under the assumption that “tried and true” headquarters’ knowledge
and organizational capabilities can be applied in other parts of the world.
Although this can sometimes work to a company’s advantage, valuable
managerial knowledge and experience in local markets may go unnoticed. For a
manufacturing firm, ethnocentrism means foreign markets are viewed as a means
of disposing of surplus domestic production. Plans for overseas markets are
developed utilizing policies and procedures identical to those employed at home.
No systematic marketing research is conducted outside the home country and no
major modifications are made to the product. even if the consumer needs or
wants in international markets differ from those in the home country, those
difference are ignored at headquarters.

POLYCENTRIC ORIENTATION

The polycentric orientation is the opposite of ethnocentrism. The term

polycentric describes management’s often unconscious belief or assumption that
country in which a company does business is unique. This assumption lays the
groundwork for each subsidiary to develop its own unique business and
marketing strategies in order to succeed; the term multinational company is often
used to describe such a structure.

GEOCENTRIC ORGANIZATION

A company with a geocentric orientation views the entire world as a potential

market and strives to develop integrated world market strategies. A company

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whose management has a regiocentric or geocentric orientation is sometimes
known as a global or transitional company.

The geocentric orientation represents a synthesis of ethnocentrism and

polycentrism; it is a ‘worldview’ that sees similarities and differences in markets
and countries and seeks to create a global strategy that is fully responsive to local
needs and wants. A regiocentric manager might be said to have a worldview on a
regional scale; the world outside the region of interest will be viewed with an
ethnocentric or polycentric orientation, or a combination of the two.

The ethnocentric company is centralized in its marketing management, the

polycentric company is decentralized and the regiocentric and geocentric
companies are integrated on a regional and global scale, respectively. A crucial
difference between the orientations is the underlying assumption for each. The
ethnocentric orientation is based on a belief in home-country superiority. The
underlying assumption of the poly centric approach is that there are so many
differences in cultural, economic and marketing conditions in the world that it is
impossible and futile to attempt to transfer experience across national
boundaries.

Reference:

Global Marketing by Keegan

***************

Page | 34
b).

Introduction

The multinational corporation (MNC) is considered as the most potent and

institution in the world today. Globalization, the process that has a significant
impact on how the world operates today is mostly driven by the expansion of
MNCs. Since the end of the Cold War in 1991, governments have sought to reduce
the role of the state in the economy and lower barriers to the international
movement of goods, services, capital, ideas and technology. Globalization has
paved the way for the elimination of boundaries between nation states and now
Multinational Corporation are spreading across the world in search of new
markets, opportunities and resources.

THE MULTINATIONAL CORPORATION

A multinational corporation can be defined as one having a subsidiary or a

branch or a place of business in two or more countries or operates in two or
more countries or territories. Therefore, a multinational can be called so by
virtue of its physical presence in two or more countries or by virtue of
geographical scope of its operations in two or more countries. Multinationals
are sometimes also referred to as ‘transnational corporations’. The term
‘multinational’ is more of an American term whereas the term ‘transnational’ is
European. Conservatively counted there are about 63,000 multinational
corporations in the World.

Among the Fortune 500, all major multinational corporations are either American,
Japanese or European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda
and BMW. On one side, they create jobs and wealth and improve technology in
countries that are in need of such development and on the other hand, they may
have undue political influence over governments, exploit developing nations and
create a loss of jobs in their own home countries. Very large multinationals have
budgets that exceed those of many countries. They can be seen as a power in

Page | 35
global politics. Multinationals often make use of outsourcing as a strategy to
produce certain goods for them.

Wal-Mart is bigger than Norway, Royal Dutch/Shell Group is bigger than South
Africa and General Motors is over twice as big as Nigeria. Of the largest 100
economic actors in the World today, 51 are corporations and 49 are countries.

It has been estimated that the World’s 500 largest companies controlled at least
70% of World trade, 80% of foreign investment, and 30% of global GDP. The 100
largest had assets of $28,813 billion, of which 40% were located outside their
home countries.

Multinationals World over are termed so due to there are ability to market their
products and services in various countries. However, they are binational or
national in terms of ownership and management personnel. To take an example,

Page | 36
Royal Dutch/Shell Group is binational in ownership and managerial personnel but
multinational in product/services. The Prolasca in Nicaragua is national in
production but multinational in ownership, marketing, finance and management.
On the other hand, Unilever, which is now been multinational in terms of
ownership as well as product/services is a complete multinational.

Thus, multinational companies may have their management as binational and

their functions as multinational. We could also have multinational companies
based on their pattern adopted in each of the functions such as marketing,
production, finance and management.

The first multinational appeared in 1602 and was the Dutch East India Company
(Source: www.sabrizain.demon.co.uk/malaya/dutch1.htm). These corporations
originated early in the 20th century and proliferated after World War II. Typically,
a multinational corporation develops new products in its native country and
manufactures them abroad, often in third World nations, thus gaining trade
advantages and economies of scale. India was an appendage of Great Britain and
the imperial preference policy of Great Britain converted India into an agricultural
hinterland. The East India Company used to import raw materials from India at
throwaway prices and export the finished goods at high price leaving their colony
impoverished as a debtor country. During the last two decades of the 20th
century many smaller corporations also became multinational, some of them in
developing nations.

STAGES OF EVOLUTION OF MNCs

There are three stages of evolution of a multinational company which are listed
and described as follows:

1. Export stage
Initial inquiries – firm rely on export agents
Expansion of export sales
Further expansion of foreign sales branch or assembly operations (to save
transport cost)

2. Foreign Production stage

There is a limit to foreign sales (tariffs, non tariff barriers)

Page | 37
 Direct foreign investment vs. licensing. Once the firm chooses foreign
production method of delivering goods to foreign markets, it must decide
whether to establish a foreign production subsidiary or license the
technology to a foreign firm.

3. Multinational stage
The company becomes a multinational enterprise when it begins to plan, organize
and coordinate production, marketing, research & development, financing and
staffing function. For each of these operations, the firm must find the best
location.

CATEGORIES OF MULTINATIONAL CORPORATIONS

Sloman and Sutcliffe (2000), identified three classifications of Multinational

Corporations. These are:

1. Horizontally Integrated Multinational – This type of multinational seeks to

produce essentially the same product in different countries. The primary objective
of this strategy is to achieve growth by expanding into new markets.

2. Vertically Integrated Multinational – In this case, the multinational undertakes

various stages of production in different countries for a core business. Thus in
some countries it will go backwards into the business’s supply chain to the
components or raw materials stages, and in others it will go forwards into the
product’s assembly or distribution. The principal motive behind such a growth
strategy is to be able to exert greater control over costs and reduce the
uncertainty of the business environment.

3. Conglomerate Multinational – Such multinationals will produce a range of

different products in different countries. By this process of diversification,
conglomerate multinationals will look to spread risks, and maximize returns
through the careful buying of overseas assets.

Page | 38
REASONS BEHIND THE EMERGENCE OF MULTINATIONAL CORPORATIONS

1. Reduction is Costs

Nations like individuals are not equally endowed with factors of

production. Some nations are rich in labor, some in capital, and some in raw
materials. In other words, individual nations might have specific advantages over
others. Because such factors of production are largely immobile, especially
between nations, businesses respond by becoming multinational: that is, they
locate where the necessary factors of production they require can be found
(Sloman and Sutcliffe 2000).

2. Growth Strategy

Once markets within the domestic economy have become saturated, and
opportunities for growth diminish, dynamic firms may seek new markets and
hence new opportunities by expanding production overseas. Businesses can look
to expand in one of two ways: through either internal or external expansion.
Expanding by becoming multinational enables the business to spread its risks, and
in addition, it enables the business to exploit any specific advantages it might
have over its foreign rivals in their home markets (Sloman and Sutcliffe 2000).
Such advantages, according to Sloman and Sutcliffe (2000), might include the
following:

The ownership of superior technology. Given the dominant market

positions that many MNCs hold, their possession of the most up-to-date
technology is to be expected, and likely to be one of the principal key to
success. Such ownership will not only enhance productivity levels of the
MNC, but probably also contribute to the production of superior-quality
products.
Entrepreneurial and managerial skills.
Research and development capacity. Like big business generally, MNCs are
likely to invest heavily in research and development in an attempt to

Page | 39
 maintain their global competitiveness. MNCs are often world leaders in
process innovation and product development.

3. Competitive Advantage

One way in which the MNC might exploit its dominant position is by
extending the life cycle of a given product. By shifting production overseas at a
particular point in the product’s life cycle, the business is able to reduce costs and
maintain competitiveness. In the domestic market, it might be faced with growing
competition and static demand. Rivals might also be busy copying its technology.
By extending its production to different geographical locations, where demand is
still growing, where there is less competition and where it has a technological
advantage over local companies, its profitability can be more effectively
maintained in the long run (Sloman and Sutcliffe 2000).

MULTINATIONALS : ADVANTAGES AND DISADVANTAGES

ADVANTAGES
The foray of multinationals into a
country requires labour thereby
ensuring new job opportunities.
They will bring in advanced technology and
management style.
The pressure of competition forces
companies to undertake product
innovation as a result of which new
and better products flock the market.
Better logistics management and
financial strength enjoyed by
multinationals sets new standards in
the prevailing markets
Expands and creates new markets.
Improves the income to the
exchequer by way of direct and
indirect taxes.
DISADVANTAGES
Share of profit remitted to the parent
company reduces the amount of
money created.
A strict money-making oriented
approach of multinationals may prove
to be non beneficial.
High and regulated transfer prices may
increase the costs of operations.
The enormous financial strength and
influence enjoyed by multinationals
may be selfishly utilized through
political pressure.
Multinationals may abuse resources
such as labour and natural resources to
gain competitive advantage in
international markets.
Employees in developed nations are
always under the threat of low job
securities or loss of jobs.

Page | 40
Provides economic support for developing
nations.

Reference:

Advance Law Lexicon by P.Ramanatha Aiyar, Wadhwa Publications

******************

Page | 41
 QUESTION 5
Explain the following in detail?
(a) Letter of Credit (7)
(b) Commercial Invoice (6)
(c) Packing List (7)

Page | 42
a).

LETTER OF CREDIT

The English name “letter of credit” derives from the French word “accreditif”, a
power to do something, which in turn is derivative of the Latin word
“accreditivus”, meaning trust.

A letter of credit is basically a document issued by a bank guaranteeing a client's

ability to pay for goods or services. A bank or finance company issues a letter of
credit on behalf of a buyer, authorizing the seller to obtain payment within a
specified timeframe once the terms and conditions outlined in the letter of credit
are met. The letter of credit acts like an insurance contract for both the buyer and
seller and practically eliminates the credit risk for both parties, while at the same
time reducing payment delays. A letter of credit provides the seller with the
greatest degree of safety when extending credit. It is useful when the buyer is not
well known and when exchange restrictions exist or are possible.

The LC can also be the source of payment for a transaction, meaning that a will
get paid by redeeming the letter of credit. Letters of credit are used primarily in
international trade transactions of significant value, for deals between a supplier
in one country and a customer in another. The parties to a letter of credit are
usually a beneficiary who is to receive the money, the issuing bank of whom the
applicant is a client, and the advising bank of whom the beneficiary is a client.
Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled
without prior agreement of the beneficiary, the issuing bank and the confirming
bank, if any. In executing a transaction, letters of credit incorporate functions
common Traveler's cheques.

Elements of a Letter of Credit

A payment undertaking given by a bank (issuing bank)

On behalf of a buyer (applicant)
To pay a seller (beneficiary) for a given amount of money

Page | 43
 On presentation of specified documents representing the supply of goods
Within specified time limits
Documents must conform to terms and conditions set out in the letter of
credit
Documents to be presented at a specified place

PARTIES TO AND ASSOCIATED WITH THE LETTER OF CREDIT

1. Applicant

The applicant is the party who requests and instructs the issuing bank to open a
letter of credit in favor of the beneficiary. The applicant usually is the importer or
the buyer of goods and/or services. The applicant can also be another party acting
on behalf of the importer, such as a confirming house. The confirming house is
equivalent to a buying office, it acts as an intermediary between buyer and seller,
and it can be located in a third country or in the seller’s country.

2.Beneficiary
The beneficiary is entitled to payment as long as he can provide the documentary
evidence required by the letter of credit. The letter of credit is a distinct and
separate transaction from the contract on which it is based. All parties deal in
documents and not in goods. The issuing bank is not liable for performance of the
underlying contract between the customer and beneficiary. The issuing bank's
obligation to the buyer, is to examine all documents to insure that they meet all
the terms and conditions of the credit. Upon requesting demand for payment the
beneficiary warrants that all conditions of the agreement have been complied
with. If the beneficiary (seller) conforms to the letter of credit, the seller must be
paid by the bank.

3.Issuing Bank
The issuing bank's liability to pay and to be reimbursed from its customer
becomes absolute upon the completion of the terms and conditions of the letter
of credit. Under the provisions of the Uniform Customs and Practice for
Documentary Credits, the bank is given a reasonable amount of time after receipt

Page | 44
of the documents to honor the draft. The issuing banks' role is to provide a
guarantee to the seller that if compliant documents are presented, the bank will
pay the seller the amount due and to examine the documents, and only pay if
these documents comply with the terms and conditions set out in the letter of
credit. Typically the documents requested will include a commercial invoice, a
transport document such as a bill of lading or airway bill and an insurance
document; but there are many others. Letters of credit deal in documents, not
goods.

4.Advising Bank
An advising bank, usually a foreign correspondent bank of the issuing bank will
advise the beneficiary. Generally, the beneficiary would want to use a local bank
to insure that the letter of credit is valid. In addition, the advising bank would be
responsible for sending the documents to the issuing bank. The advising bank has
no other obligation under the letter of credit. If the issuing bank does not pay the
beneficiary, the advising bank is not obligated to pay.

5.Confirming Bank
The correspondent bank may confirm the letter of credit for the beneficiary. At
the request of the issuing bank, the correspondent obligates itself to insure
payment under the letter of credit. The confirming bank would not confirm the
credit until it evaluated the country and bank where the letter of credit originates.
The confirming bank is usually the advising bank.

DIFFERENT FIELDS OF LETTER OF CREDIT

FROM :( NAME & ADDRESS OF OPENING BANK )

This clause contains details of bank which has opened the Letter of Credit, and
it works on the behalf of the buyer of goods. The opening bank plays the first
step in the whole process of letter of credit.

TO :( NAME & ADDRESS OF ADVISING BANK )

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This clause shows the details of bank which plays the foremost role in the
process of letter of credit. The advising bank belongs to the country of seller. It
plays the role of middleman between the seller and the opening bank

TYPE OF L/C :IRREVOCABLE

This clause shows the type of L/C in which it is being made. Various types of
L/C’s are Revocable, Irrevocable, Commercial, Negotiable etc.

L/C Number :
The clause shows a particular number for L/C and every L/C has different
number so that difference can be judged between different L/C’s.

DATE OF ISSUE :
This clause shows that date on which the opening bank has issued the L/C.

DT. & PLACE OF EXPIRY :

This shows about the date and the place in Pakistan the L/C will get expired,
means that financial institution where the L/C is send by the opening bank.

NAME & ADDRESS OF THE:

APPLICANT

It contains detail about the buyer of the goods. It gives complete address of
the buyer.

BENEFICIARY

It shows details of the seller of goods, like seller’s name, address, country to
which he belongs.

AMOUNT OF CREDIT IN :
 US DOLLARS /EURO/ANY
 OTHER FREELY
 EXCHANGEABLE CURRENCY
 (IN FIGURES & WORDS)
It shows the currency in which the deal is been made, the code for that
currency as well as the amount of the goods

Page | 46
 PERCENTAGE CREDIT : AS PER CONTRACT
AMOUNT TOLERANCE

Sometimes the amount in the letter of the credit and the exact amount of the
goods does not match. There can be a difference between the both. So a
specific percentage of amounts of goods specified in L/C is given as a tolerance
and the exact amount of goods can be in between the minimum and maximum
tolerated limits.

CREDIT AVAILABLE WITH:

This part shows the details of that party from where the amount can be
reimburses by the seller. This state’s either a specified bank in Pakistan or any
bank in Pakistan.

USANCE OF THE DRAFTS :

This clause shows whether the draft is payable at sight or at any date in future.

DRAFTS TO BE DRAWN ON:

It tells about the party which acts as a drawee. Generally the opening bank
acts as a drawee.

PARTIAL SHIPMENT : AS PER CONTRACT

This clause contains details whether the shipment of goods is allowed through
one shipment or the goods can be sending through various shipments.

TRANSHIPMENT : AS PER CONTRACT

Transshipment means when the goods are send,

SHIPMENT FROM :
It tells about that place from where goods are send by the seller.

SHIPMENT TO :
It’s that place where the goods are sending by the seller. And generally its that
country where the buyer lives.

Page | 47
 LATEST SHIPMENT DATE :
It’s that date till which the goods should reach to the buyer. After that date,
it’s the choice of the buyer whether he accepts the goods or not.

DESCRIPTION OF GOODS :
 Description of Materials
 Size ( in mm) and Quantity (in MT)
 Specification
 Tolerance
 Quantity
 Quantity Tolerance
 Price per MT (in USD/Euro/any other freely exchangeable currency)
DOCUMENTS REQUIRED :
Beneficiary’s Commercial Invoice - one original plus two signed copies covering
materials shipped. Invoices will be raised on the basis of (THEORETICAL/ ACTUAL/
DRAFT SURVEY) WEIGHT.

DOCUMENTS NEED FOR L/C

Letter of credit documents are required to be arranged in the following series:

By seller (duplicate documents)

Bill of exchange
Bill
Goods lorry receipt
Party acceptance letter
Debit note
Packing list
Original letter of credit
By seller’s bank (Duplicate documents)

Letter
Bill of exchange
Bill

Page | 48
 Goods lorry receipt
Party acceptance letter
Debit note
Packing list
Letter of credit (duplicate)
By buyer’s bank (Original documents)

Bill of exchange
Bill
Goods lorry receipt
Party acceptance letter
Debit note
Packing list
Letter of credit (DUPLICATE)

*******************

b).

COMMERCIAL INVOICE
A commercial invoice is a document used in foreign trade. It is used as a customs
declaration provided by the person or corporation that is exporting an item across
international borders. Although there is no standard format, the document must
include a few specific pieces of information such as the parties involved in the
shipping transaction, the goods being transported, the country of manufacture,
and the Harmonized System codes for those goods. A commercial invoice must
also include a statement certifying that the invoice is true, and a signature.

A commercial invoice is primarily used to calculate tariffs.

A sample commercial invoice format

Page | 49
****************

Page | 50
c).

PACKING LIST
A packing list is a shipping document that accompanies delivery packages, usually
inside an attached shipping pouch or inside the package itself. It is also known as
shipping list, packing slip, bill of parcel, unpacking note, packaging slip, delievery
list or customer receipt. It commonly includes an itemized detail of the package
contents and does not include customer pricing. It serves to inform all parties,
including transport agencies, government authorities and customers about the
contents of the package. It helps them deal with the package accordingly.

CONTENTS OF THE PACKING LIST

When you prepare your goods for shipment, you may be required to prepare a
detailed export packing list. This is a formal document that itemizes quite a
number of details about the cargo such as:

The name of the exporter (referred to as the shipper) and their contact
details (tel, fax, cell, e-mail), including physical (not postal) address
The name of the importer (referred to as the consignee, meaning the
person or firm to whom the goods are to be sent) and their contact details
(tel, fax, cell, e-mail), including physical (not postal) address
The gross (i.e. the weight of the product and packaging - that is, the total
weight), tare (i.e. the weight of the packaging without any contents) and
net (i.e. the weight of the product only) weights of the cargo
The nature, quality and specifications of the product being shipped
The type of package (such as pallet, box, crate, drum, carton, etc.)
The measurements/dimensions of each package
The number of pallets/boxes/crates/drums, etc.
The contents of each pallet or box (or other container)
The package markings, if any, as well as shipper's and buyer's reference
numbers
Reference to the associated commercial invoice such as the invoice number
and date

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 A purchase order number or similar reference to correspondence between
the supplier and importer
An indication of who the carrier is (airline, shipping line or road hauler)
Reference to the Bill of Lading or Air Waybill number

PURPOSE OF THE PACKING LIST

The packing list should be attached to the outside of a package in a waterproof

envelope or plastic sheath marked "Packing list enclosed". The list is used by the
shipper or forwarding agent to determine (1) the total shipment weight and
volume and (2) whether the correct cargo is being shipped. In addition, customs
officials (both local and foreign) may use the list to check the cargo. Packing lists
come in fairly standard forms and can be obtained from your freight forwarder.

References:

www.12manage.com

www.enwikipedia.com

*****************

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