Describe The Dilemmas Or Concerns Of Buyers And Importers ✓ Solved

Describe the dilemmas or concerns of buyers/importers and sel

1. Describe the dilemmas or concerns of buyers/importers and sellers/exporters in international trade.

2. Explain Mohanty's business decision problem.

3. Explain the various payment options available in international business, and their relative merits and demerits for exporters and importers.

4. Explain the various risks in international trade. Identify risks that are common in domestic trade and risks that are unique to international trade. Explain the methods for managing these risks.

5. Identify the most crucial risk when an exporter deals with new clients from developed countries. Explain the best payment method for mitigating commercial (default risk). How should Mohanty manage the commercial risk her company is facing?

6. Explain the concept and mechanics of a Documentary Letter of Credit (DLC) and its application in international business. How does a Documentary Letter of Credit (DLC) work as a credit enhancement device for importers and a credit risk mitigating tool for exporters?

7. Provide a detailed explanation of what you have learned from the case.

Paper For Above Instructions

International trade is a complex field influenced by multiple dilemmas faced by buyers/importers and sellers/exporters. One of the primary concerns for buyers is the reliability of suppliers. They must assess the credibility of sellers, especially when transactions occur across borders where familiar regulatory frameworks may not exist. Sellers, on the other hand, face the dilemma of ensuring payment. The fear of non-payment poses a significant risk when dealing with unfamiliar buyers in international markets.

Moreover, logistical challenges such as transportation and customs regulations can complicate international trade. Buyers must consider shipping times and costs, while sellers must ensure their goods meet the destination country's standards and comply with legal requirements. Language barriers and cultural differences can also create misunderstandings that affect negotiations and contract fulfillment.

In the context of Mohanty’s business decision problem, the uncertainty around currency fluctuations and trade regulations adds layers of complexity to the decision-making process. Mohanty must navigate these uncertainties to protect her company’s financial interests while aiming for growth through international ventures. Additionally, establishing trust with new clients, especially in developed countries known for stringent consumer protection laws, further complicates her decision-making process.

Payment options in international business are varied, but they come with their own sets of merits and demerits. Key payment options include advance payment, letters of credit, documentary collections, and open account terms. Advance payments are favorable for sellers as they reduce the risk of non-payment but may deter buyers due to the upfront cost. Letters of credit provide a secure payment guarantee and are widely used; however, they involve administrative complexities and costs that might not be feasible for smaller transactions. Documentary collections offer less security than letters of credit but are less expensive, making them suitable for established trading partnerships.

Open account transactions carry the highest risk for sellers, as they ship goods before payment is made, relying on buyer credibility. Conversely, buyers prefer this option as it improves cash flow and reduces upfront capital requirements. Therefore, balancing these payment methods requires careful consideration of the buyer-seller relationship and market reputation.

Risks in international trade are multifaceted. Some common risks mirror those in domestic trade, such as credit risk and market risk. However, international trade introduces unique risks such as geopolitical instability, currency exchange rate fluctuations, and compliance with foreign regulations. The language barrier can lead to misunderstandings that increase operational errors. To manage these risks, businesses often employ strategies such as conducting thorough due diligence, securing insurance, and utilizing diversified payment options to mitigate potential losses.

When dealing with new clients from developed countries, the most crucial risk is commercial risk, particularly the risk of default. One of the best methods to mitigate this risk is through the use of letters of credit, which provide sellers with assurance that payment will be made as long as the contractual terms are met. For Mohanty, managing this risk requires establishing robust credit assessment protocols for potential buyers, leveraging letters of credit for transactions, and possibly obtaining trade credit insurance to shield her company from unexpected defaults.

The Documentary Letter of Credit (DLC) plays a pivotal role in international trade as a credit enhancement device and a risk mitigation tool. It functions as a promise from a bank on behalf of the buyer (importer) to pay the seller (exporter) upon the presentation of specified documents, which typically include shipping and delivery confirmation. This not only assures the seller of payment but also guarantees that the buyer will receive the goods as per agreed-upon terms. Hence, the letter of credit reduces credit risk for both parties involved, making it a preferred method in international transactions.

Reflecting on this case and the associated dilemmas, one can glean the importance of understanding both the risks and opportunities that international trade presents. Effective risk management strategies are essential to navigate the complexities of cross-border transactions. The case underscores the necessity of establishing reliable communication lines, understanding payment mechanisms, and recognizing the different risks inherent in international markets compared to domestic scenarios. As businesses expand globally, incorporating these lessons will be vital for sustainable growth and risk mitigation.

References

• Chetty, S., & Campbell-Hunt, C. (2004). A Strategic Approach to Internationalization: A Case Study on a New Zealand Firm. International Business Review, 13(3), 381-401.
• Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in Emerging Economies. Academy of Management Journal, 43(3), 249-267.
• Klassen, R. D., & Vachon, S. (2003). Key Dimensions of Environmental Management in Operations: An Integrative Framework. Journal of Operations Management, 21(5), 659-672.
• Morrison, A. J. (2000). Enhancing the Export Performance of Small Firms. Journal of International Business Studies, 31(1), 43-50.
• Rugman, A. M., & Verbeke, A. (2001). Governance, Resources, and International Business Strategy: A Resource-based View. Management International Review, 41(1), 6-10.
• Wild, J. J., & Han, J. C. (2010). International Business: The Challenges of Globalization. Prentice Hall.
• World Trade Organization (WTO). (2022). An Introduction to the WTO. Retrieved from https://www.wto.org
• Grosse, R., & Bejikia, S. (2003). The Impact of Globalization on International Trade: Case Studies. The International Trade Journal, 17(3), 257-276.
• OECD. (2021). Trade and COVID-19: An Overview of Risks and Economic Impacts. Retrieved from https://www.oecd.org
• Hofstede, G. (2011). Cultures and Organizations: Software of the Mind. McGraw-Hill.