Chapter 1
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Introduction
Objectives
After studying this chapter, you are able to
1. know what foreign trade is.
2. list some forms of international business.
3. describe procedureof exporting business.
4. describe procedure of importing business
Key Terms
future trading processing trade
tangible trade intangible trade
consignment foreign trade
International trade refers to an exchange of products (tangible merchandise ) and services (intangibles) across national borders. Firms organize ,manufacture, market ,and conduct other value-adding activities on an international scale .Through international trade ,firms and nations exchange many physical and intellectual assets including products ,services ,capital ,technology ,know-how ,and labour.
International trade can be broken down into four types:
1．foreign trade
A distributorship import and export
B agency；
C invitation to tender and submission of tender；
D consignment；
E auction
F processing trade (processing with the Customers’ materials ，processing with the Customers’ sample ；assembling with Customers’ Parts );
G Counter trade (Barter trade ;Counter Purchase ;compensation trade)；
H Lease trade；
I Futures trading
2． trade on services（insurance，banking，hotels，consulting，travel and transportatiion）
3． portfolio investment（shares and long term debts）
4． direct investment（establishment of a plant or distribution network abroad）
Of all the foreign trade types ,exporting and importing comprise the most fundamental international business activities. Exporting is an extension of trading with the customer living in another country. Importing is the process of purchasing goods and services from other nations . International trade contributes to economic prosperity and standards of living ,provides interconnectedness to the economy and access to a range of valuable intermediate and finished products and services ,and helps countries use their resources more efficiently. Consequently ,governments have become more willing to open their borders to foreign trade and investments.
Foreign trade differs from domestic business. Firms engaged in international trade operate in business environments characterized by unique economic conditions ,monetary conversion , laws and regulations, and national culture .Not only does the firm find itself in less familiar surroundings than it does domestically, it would face to many uncontrollable and variable factors which the firm is hard to control. These variable factors introduce more risks for the firm involved in international business. Internationalizing firms are routinely exposed to four major types of risk : cross – cultural risk ,country risk ,currency risk, and commercial risk .The firms must manage these risks to avoid financial loss and product failures. Therefore, we should always keep a keen eye on all the factors that may affect market situations both at home and abroad.
To sum up, foreign trade is vital to the modern society .It may generate considerable benefits and improve people’s livelihood . Owing to the open policy and globalization ,China has ranked the first in foreign trade since 2016. Foreign trade has made great contribution to China’s economy .
1.1 Basic principles for trading internationally
l Equality
l Free intention
l Fairness
l Faithfulness
l Legality
1.2 General procedures of international trade
For export trade
(1) Preparation for Exporting-- Market Research
No customer, no business. Before business , the exporter must conduct the market research to locate the target country , further the target customer by field research or desk research. After careful analysis by SWOT ,the objective and reliable customers may be selected. If the foreign and domestic trade laws and regulations have no influence on the business, you may make out the price project. A good beginning is half of the battle.
(2) Business negotiation and establishment of sales contract
(3) Performance of export contract
l To have L/C opened, if the payment is effected by L/C
l To get the goods ready
l To apply for the inspection
l To arrange shipment by chartering a ship (plane) or booking space
l Taking out insurance
l Making declaration to customs
l Sending out the shipping advice
l Making out documents for settlement
l Applying for refunding taxes
For import trade
(1) Preparation for Exporting-- Market Research
Before importing business, the importer must do research into the world markets to select the most favorable markets and suppliers . In addition to this ,the importer should acquaint with all the elements of importing ,especially the importing tariff and policy of China .In the end ,the importer should work out managing scheme or price plan .
(2) Business negotiation and establishment of purchase contract
(3) Performance of export contract
l Applying for L/C , if the payment is effected by L/C
l Contracting for the carriage of the goods
l Taking out insurance
l Making declaration to customs
l Checking the goods discharged
l Examining documents and paying the proceeds
l Allocating the goods
1.3 Regulations and Practices Concerning International Trade
International trade in goods is closely related to international trade laws and practices. In practice, the laws and regulations of various countries will be involved., for example ,Contractual Law, Bill Law ,Agency Law in international trade practices. su In international trade, the United Nations Conventions on Contracts for International Sales of Goods .Incoterms 2000, Incoterms 2010, Uniform Customs and Practices for Documentary Credits, Uniform Rules for Collection are particularly important. Students should focus on understanding and mastering them.
Relevant Knowledge-Theory of Relative Advantage
The theory of comparative advantage was put forward by David Ricardo, a British economist. This view holds that: with another country. In contrast, even if a country is at a disadvantage in producing both kinds of products, that is to say, producing both kinds of products is disadvantageous and international Trade still benefits. Countries that produce both products should specialize in producing and exporting products that are relatively beneficial.
Import the products that are more disadvantageous, that is, import the products that are relatively disadvantageous.
1.4Reference books and websites
http://www.mofcom.gov.cn
http://www.cosco.com.cn
http://www.cifa.org.cn
http://www.ccpit.org
http://www.customs.gov.cn
http://china.alibaba.com
http://www.wto.org WTO
1.5Basic skill training
1) Logging on the websites to master about the following special terms
Comparative advantages
International balance
