ICMs require the following additional knowledge
Financial instruments – financial resources will differ, the need to access credit history for customers outside of Canada for credit granting or finding alternatives by funding foreign representation to reduce exposure. .
Foreign exchange concepts – understanding the concepts to make the right decisions
Import and exchange control regulations – knowing when responsibility changes hands and the meaning of it
Incoterms – foreign customers will likely pay their domestic suppliers first, extending their terms. Therefore knowledge of incoterms is necessary to reduce loss or frustration in collection activities.
Internatonal banking and funds transfer systems – may be delayed
International collection methods International credit risk assessment – accessing data for monitoring purposes may be challenging, may need an interpretor
Methods of financing international sales – Finding the most cost effective way to carry the receivables, while remaining profitable
Methods of “laying off” (reducing) international risks - awareness of the various risks, such as, economic, political, transfer and translation risk
Documentary collections – a solution may be to have a financial intermediary to help in the remittance process
Documentary letters of credit – educating yourself on the documentation required in obtaining and collecting a letter of credit from a bank
International trade is more common for consumers and businesses because improved telecommunications (internet) makes it easier to communicate internationally. Free trade zones and trade agreements are reducing restrictions and tariffs. Processing international transactions has been made easier, as well as having increased competition from the global economy, resulting in more companies taking higher risks.
Question#2 (a)
1. Foreign agent – the pros of using an agent is that they promote the owners products and seek orders. They also screen customers and orders to insure they are legitimate. They help in getting credit information to make credit decisions. It was also mentioned that the import process is cumbersome, an agent will advise on import regulations and help in getting appropriate licenses. The cons are the “fad” factor, if this is a short term agreement it may not be cost effective to locate an agent, try them out and later come to the conclusion that this was a short term “fad”. As well, the title does not usually pass to the agent, therefore the risk is with the principle unless stated otherwise in their contract. If the risk lies with the agent, they will demand a higher commission. They may not be capable of assuming the credit risk, there may be issues with transfer payments to the principle and disputed items are not usually covered.
2. Consignment accounts controlled by an acquaintance – the pros of using consignment would be reducing the frustration in importing smaller orders through customs. Based on the assumption that the acquaintance is a sophisticated business person and it a reliable source, this could in itself be a pro or a con depending on the “acquaintance” reliability. You still have title of the product until it is sold. A con would be the unknown factor of the “fad”. Having full control of your inventory is a benefit, but knowing the shipping quantity may be challenging, depending on the demand.
3. Distributor – the pros of having a distributor as a foreign representative is that all risks fall to them. The cons are that they require a discount to take on the extra risk and expenses
To me, the solution is a toss up between using consignment or the distributor method. The consignment method gives you title to your product, while reducing the effort of importation. The distributor method takes the credit risk, but comes with a fee. The owner needs to evaluate the costs of utilizing the two methods before making a decision.
