Inventory in the form of raw materials, work in process or finished goods is held;
- to facilitate the production process by both ensuring that supplies are at hand when needed and allowing a more even rate of production and
- to make certain that goods are available for delivery at the time of sale.
Although, conceptually, the inventory management problems faced by multinational firms are not unique, they may be exaggerated in the case of foreign operations. For instance, MNCs typically find it more difficult to control their overseas inventory and realize inventory turnover objectives. There are a variety of reasons: long and variable transit times if ocean transportation is used, lengthy customs proceedings, dock strikes, import controls, higher duties, supply disruption, and anticipated changes in currency values.
Advanced Inventory Purchases
In many developing countries, forward contracts for foreign currency are limited in availability or the nonexistent. In addition, restrictions often preclude free remittances, making it difficult, if not impossible, to convert excess funds into a hard currency. One means of hedging is to engage in anticipatory purchases of goods, especially imported items. The trade-off involves owning goods for which local currency prices may be increased, thereby maintaining the dollar value of the asset even devaluation occurs, versus forgoing the return on local money market investments.…
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Multinational Corporations (MNC’s) grant trade credit to customers, both domestically and internationally, because they expect the investment in receivables to be profitable, either by expanding sales volume or by retaining sales that otherwise would be lost to competitors. Some companies also earn a profit on the financing charges they levy on credit sales.
The need to scrutinize credit terms is particularly important in countries experiencing rapid rates of inflation. The incentive for customers to defer payment, liquidating their debts with less valuable money in the future, is great. Furthermore, credit standards abroad are often more relaxed than in the home market, especially in countries lacking alternative sources of credit for small customers. To remain competitive, MNCs may feel compelled to loosen their own credit standards. Finally, the compensation system in many companies tends to reward higher sales more than it penalizes an increased investment in accounts receivable. Local managers frequently have an incentive to expand sales even if the MNC overall does not benefit. Two key credit decisions to be made by a firm selling abroad are the amount of credit to extend and the currency in which credit sales are to be billed.
The following five-step approach enables a firm to compare the expected benefits and costs associated with extending credit internationally:
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- Calculate the current cost of extending credit.
In simple words, free trade means free international trade. The classical economists like Adam Smith, Ricardo and others strongly favored free trade and this doctrine held the field for nearly one hundred years. How ever later, the countries all over the world began to adhere to the policy of imposing restrictions in one form or other.
History and Development of Free Trade Zones
During the last 20 years, the labour charges in developed countries have increased substantially. According to a recent estimate, the labour cost is nearly 1 USD per hour for semi-skilled workers in most European Countries, U.S and Japan. This high labour cost was due to the acute shortage of both skilled and unskilled labour in most of these countries. Countries like Germany, France, Switzerland, Sweden, Austria, Belgium and England even imported laborers from other countries. Therefore, the cost of production involving a considerable labor content has become noncompetitive in these countries. Therefore, these countries prefer to send the raw materials and components to developing countries where trained man power and skill are available at a comparatively lower cost. So that they may have finished products which they can market at competitive prices.
In order to take advantage of this situation, various developing countries which have strong labour force began to organize Free Trade Zones (FTZs) in their countries.…
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Packing Credit is a pre-shipment credit extended to the exporters to facilitate him for meeting several financial requirements such as purchase of raw materials and its processing, packing, storing and shipping of goods. It is a short term credit available to all exporters. Hence, this is called pre-shipment credit which is essentially working capital finance made available to the exporters to arrange for goods as per the export. It is generally granted in the form of loans or cash credits. It may also be granted in the form of overdraft facilities. The exporter who wants to avail the pre-shipment credit facility should make a formal application to his bank along with the firm contract with the buyer or a copy of the export order or a copy of the letter of credit.
Pre-shipment finance is available in various forms. Some of these forms are explained very briefly.
1. Extended Packing Credit Loan
This type of packing credit is advanced by the bankers to their customers who are considered as first class customers for them. This facility is extended for a short period in order to enable the customers acquire or procure goods. Once goods are acquired in the custody of the exporter, the bank converts this clean advance into hypothecation or pledge loan.…
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Credit is an essential requirement for any kind of business. So is the case with exporting also. The various sources available have to be explored by the exporter in order to fulfill the financial requirements of export business.
We can define export credit as “the credits required by the exporters for financing their export transactions from the time of getting an export order to the time of the full realization of the payment from the importers.”
From the time of an export order is received and confirmed, the exporter needs finance at pre-shipment stage and also at post-shipment stage.
Finance is required at pre-shipment stage for the following purposes:
- To purchase raw materials and other inputs to manufacture goods.
- To assemble the goods in the case of merchant exporters.
- To store the goods in suitable warehouses till the goods are shipped.
- To pay for packing, marking and labeling of goods.
- To pay for pre-shipment inspection charges.
- To pay for consultancy services.
- To import or purchase from the domestic market heavy machinery and other capital goods to produce export goods.
- To pay for export documentation expenses.
Finance is needed at the post-shipment stage for the following purposes:
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- To pay to agents / distributors and others for their services.
- To pay for publicity and advertising in the overseas markets.
Marine insurance is a contract by which the insurer, in consideration of payment by the insured of a specified premium determined under tariff rates or otherwise, agree to indemnify the latter against any loss incurred by him in respect of the merchandise exposed to the perils of the sea or to the particular perils insured against.
In a c.i.f. contract, marine insurance is obligatory, and the policy must be one which is usual in the trade and is in a negotiable form. The policy must be stamped and bear a date not later than that of the bill of lading; and if the export is under a letter of credit, it must conform to the terms and conditions laid down in it.
Types of Policies
1. Single Cargo Risk / Open or Blanket Policy
A marine insurance policy may be a “single cargo risk” policy, i.e., a policy which covers a single cargo risk or an “open” or “blanket” policy i.e., a policy which automatically covers all the shipments of the exporter up to an estimated amount during a given period. In an open policy, the overall amount and the period of insurance are specified but not the particulars of the insured cargo.…
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