ChapterOneIntroductiontoInternationalBusiness1.1ConceptsofBusinessandInternationalBusiness1.2TheNeedforInternationalBusiness1.3TwoRelatedEconomicTheories1.4InternationalBusinessActivities1.5InternationalBusinessManagement1.6EconomicIntegration

1.1ConceptsofBusinessandInternationalBusiness

1.1.1WhatIsBusiness?

Theconceptof“business”hasalreadybeenexistingforthousandsofyearsthroughoutthehistoryofhumanity.Traditionally,businessisdefinedasanexchangeortradeforthingsthatpeoplewantorneed.Forexample,farmerstradedtheirpotatoesorwheatinexchangefordailynecessitieslikesaltormeat.Thisisgenerallyconsideredastheearliestformofbusiness.

Today,ithasmoremodernandtechnicalexplanations.Inthebroadsense,businessincludesproduction,distribution,andthesaleofproducts.Forinstance,theconventionalstyleofmanufacturingbusinesses,suchasLenovoandFord,involvesalltheseactivitiesintheirbusiness.Theybuild,distribute,andselltheirproductsforprofits.Thesecompaniesperfectlyillustratethemodernbusinessmodelinabroadsense.Withthedevelopmentoftechnologyandtheboostofglobalization,moreandmoreotherkindsofbusinessformsleadtoamorediversifiedanddynamicbusinessenvironment.

Forexample,manyE-businesscompaniesmainlyprovideplatformsforothercompanies’businessactivities,forinstance,TaobaoandeBay,withouttheproductionsegmentsoftheirown.This“simplified”businessmodelismorepopularintoday’sbusinessworld,asitgiveschancesforcompanieswithlimitedresourcestogetinvolvedbyfindinganunconventionalmannerofdoingbusiness.

1.1.2WhatIsInternationalBusiness?

Theglobaleconomyisdramaticallyinfluencingeverybigorsmallaspectsofourlives.Lookaroundus:youmaydriveyourBMW(fromGermany)tobuydailycommodities(fromeverywhere)inyourlocalTesco(fromtheUK),andmayuseyourSamsungSmartPhone(fromKorea)totellyourfriendsthatthereisabigpromotionalactivityforCoca-Cola(fromtheUSA)inthesupermarket,andtheSonylaptop(fromJapan)hasintroducedanewmodel.Alltheabove-mentionedproductsarefromdifferentpartsoftheworld;itistheinternationalbusinessthatputsthemintoourlifeandgivesusgreatconveniencestogetthemallwithoutgoingabroad.

AccordingtoMichaelCzinkotaandotherscholars,internationalbusinessreferstothetransactionsthataredevisedandcarriedoutacrossnationalborderstosatisfytheobjectivesofindividuals,companiesandorganizations.Internationalbusinesstakesonmanyforms,whichareofteninterrelated.Importandexporttradesarecommonformsofinternationalbusinessactivities.Animportisthepurchaseofgoodsandservices,especiallyacrossanationalborder,fromanexternalsource.Forexample,theforeign-madeproductsinyourlocalsupermarketareimportedintotheChinesemarket.

Exportreferstosellinggoodsandservicesproducedinthehomecountrytoothermarkets.Forexample,Japanexportsitselectronicproductstomanycountries.Export-importtradeininternationalbusinessiscalledinternationaltrade.Thereisalsoanotherformofinternationalbusiness,whichisinternationalinvestment,suchaswholly-ownedsubsidiariesandjointventures.

1.2TheNeedforInternationalBusiness

WiththehelpoftheWTOandotherinternationalorganizations,tradebarriersonaninternationalbasisarereducedtoafairlylowrate.Newlyinventedandimprovedtechnologiesenablecompaniestocuttheircostsdowninproduction,promotion,transportationandnearlyeveryaspectofbusinessactivity.Forsomecompanies,thedomesticmarketseemsnolonger“big”enoughand“attractive”enoughforachievingtheirnextgoals.

Thosecompaniesneedanewandmoreprofitablemarkettoservemorecustomersandgainmoreprofits,whichexplainstheneedforinternationalbusiness.

?Internationalbusinessopensnewmarketsforvariouscompanies.SincetheendoftheSecondWorldWar,thegrowthofinternationaltradeandinvestmenthasbeensignificantlylargerthanthatofdomestictrade.Moreadvancedinformationandtransportationtechnologiesenabledomesticcompaniestoreachouttonewoverseasmarketscontinuously.

?Internationalbusinessalsooffersconsumersnewchoices.Thismayfurtherleadtoanincreaseofproductqualityandadecreaseofproductpriceduetothecompetitionintroduced.

?Internationalbusinessacceleratestheflowofideas,humanresources,capitalsandotherfactorsofproductiononaworldscale.Thus,newbusinessideascouldbeputintopracticeinaforeignmarketwhenthereisabetterbusinessenvironmentthaninthedomesticmarket.Also,humanresourcesandcapitalfromallovertheworldcouldflowfreelytothemarketandenjoythehighestpossibleutilizationrate.

Likeatwo-edgedsword,internationalbusinesscanbringbenefitsandopportunitiestosome,whiledeliveringproblemsandthreatstoothers.Forinstance,internationalbusinessactivitiesmayunexpectedlyexposedomesticmarketstofierceforeigncompetitions.Andthatiswhygovernmentsusuallyemploytradeinterventioninstrumentssuchastariffsandquotastoprotectlocalindustries.

1.3TwoRelatedEconomicTheories

1.3.1AbsoluteAdvantage

Production,thecreationofaproductforexchange,alwaysrequirestheuseofsociety’sprimaryelementofvalue,humanlabor.Smithnotedthatsomecountries,owingtothehigherskillsoftheirworkersorthelargerquantityoftheirnaturalresources,couldproducethesameproductsasotherswithfewerlaborhours.AdamSmithtermedthisefficiencyabsoluteadvantage.

AdamSmithobservedtheproductionprocessesoftheearlystagesoftheIndustrialRevolutioninEnglandandrecognizedthefundamentalchangesoccurringinproduction.Inpreviousstatesofsociety,aworkerperformedallstagesofaproductionprocess,withresultingoutputthatwaslittlemorethansufficientfortheworker’sownneeds.Thefactoriesoftheindustrializingworldwere,however,separatingtheproductionprocessintodistinctstagesandeachstagewouldbeperformedexclusivelybyoneindividualfromthedivisionoflabor.Thisspecializationincreasedtheproductionofworkersandindustries.Then,Smithextendedhisdivisionoflaborintheproductionprocesstoadivisionoflaborandspecializedproductacrosscountries.

Smitharguedthatcountriesdifferinproductionefficiency.Eachcountrywouldspecializeinaproductforwhichitwasuniquelysuited.Ifanationhashigherproductivityovertheothercountries,ithasanabsoluteadvantage.Smithsuggestedthateachnationshouldspecializeintheproductionofthecommodityforwhichtheyhaveabsoluteadvantageandtradeaftertheproductionspecialization.Bydoingso,bothnationsbenefitbyengagingintrade.

1.3.2ComparativeAdvantage

PushingAdamSmith’stheoryonestepfurther,DavidRicardopublishedhisbookPrincipleofPoliticalEconomyin1817.Ricardoarguedthatevenifacountrywaslessefficientthananotherinproducingbothgoods,therewasstillthebasisformutuallybeneficialtradeaccordingtothetheoryofcomparativeadvantage.Itstatesthatifeachcountryspecializesintheproductinwhichithasthegreatestcomparativeadvantage,thetradewillbebeneficialtoallconcerned.

Forthistheory,somepointsshouldbementioned:thefirstisthattradewillonlytakeplaceiftheopportunitycostdiffers.Iftheywereidentical,theexchangeratethatwouldbenefitbothcountrieswouldnotexist.Secondly,transportcostsshouldbetakenintoconsideration,andinpractice,theymaybelargeenoughtooffsetanypotentialgainsduetotheexistenceofdifferentopportunitycostratios.Andwhatismore,thecomparativeadvantageisnotastaticconcept.Inthe19thcentury,theUKhadasubstantialcomparativeadvantageintextiles,butthishaddisappearedbythemiddleofthe20thcentury.

Thereisafurtherexampleofcomparativeadvantageandabsoluteadvantage.Thebestlawyerintownisalsothebesttypistintown.Sincethelawyercannotaffordtogiveupprecioustimefromlegalaffairs,atypistishiredwhomaybelessefficientthanthelawyerinbothlegalandtypingmatters.Butthetypist’scomparativedisadvantageisleastinthetyping.Therefore,thetypisthasarelativecomparativeadvantageintyping.

Inthemoreauthenticbusinessenvironmentratherthanonthetheoreticalbasis,itisfoundthatitisrarethatacountryhasthepureabsoluteadvantageintheproductionofaproduct,sothetheoryofcomparativeadvantagemakesmoresenseindealingwiththeinternationalbusiness.

1.4InternationalBusinessActivities

1.4.1MainTypesofInternationalBusinessActivities

1.?InternationalTrade

Internationaltrade,alsoknownasworldtrade,foreigntradeoroverseastrade,isthefairanddeliberateexchangeofgoodsandservicesacrossnationalboundaries.Internationaltradewaskeytotheriseoftheglobaleconomy.Intheglobaleconomy,supplyanddemand—andthusprice—bothimpactandareimpactedbyglobalevents.

IndustrypolicychangesinAsia,forexample,couldresultinanincreaseinthecostoflabor.ThiscouldincreasethemanufacturingcostsforanAmericansneakercompanythatisbasedinMalaysia,whichwouldthenresultinanincreaseinthepricechargedforapairofsneakersthatanAmericanconsumermightpurchaseattheirlocalmall.

2.?InternationalInvestment

Internationalinvestmentorinternationalfinanceisanothermajortypeofinternationalbusinessactivity.Itgenerallyexpandstheeligibleinstrumentsforaninvestmentportfoliobeyondjustdomesticinvestments.Aninvestorcanlooktothesametypesofinvestmentoptionsinternationallythattheyhavedomestically.ForChineseinvestors,globalinvestmentmarketsoffervariationsofstocks,bondsandmutualfunds.

Investorscanalsoinvestinoptionsandfuturesonunderlyinginternationalinvestmentsandcurrencies.Theinternationalinvestmentcouldbedividedintomanytypesaccordingtodifferentstandards.Accordingtowhetherinvestorsowncontrolrightinthemanagementofacompanyornot,therearetwotypesofinternationalinvestment:foreigndirectinvestment(FDI)andforeignindirectinvestment,alsocalledforeignportfolioequityinvestment(FPEI).

1.4.2CommonFormsofInternationalBusinessActivities

1.ExportsandImports

Exportingisthesaleofgoodsorservicesmadeinonecountryforuseorresaleinothercountries.Importingreferstobuyinggoodsorservicesmadeinothercountriesforuseorresaleinone’sowncountry.Asmentioned,export-importtradeininternationalbusinessisusuallycalledinternationaltrade.Therearealsotwotypesofproductsthatareinvolvedininternationaltrade—goodsandservices.

Goodsarecommodities,physicalortangibleitemsthatsatisfyhumanwantsorneeds,orsomethingthatpeoplefindusefulordesirableandmakeanefforttoacquire,suchasclothing,machinery,mining,manufacturingactivitiesandsoon.Serviceisatypeofeconomicactivitythatisintangible,notstoredordoesnotresultinownership,suchashotel,tourism,businessconsulting,education,etc.

2.ForeignDirectInvestmentandForeignIndirectInvestment

Foreigndirectinvestment(FDI),accordingtotheIMFandOECD,isdefinedascross-borderinvestmentbyaresidententityinoneeconomywiththeobjectiveofobtainingalastinginterestinanenterpriseresidentinanothereconomy.Thelastinginterestimpliestheexistenceofalong-termrelationshipbetweenthedirectinvestorandtheenterpriseandasignificantdegreeofinfluencebythedirectinvestoronthemanagementoftheenterprise.

Ownershipofatleast10%ofthevotingpower,representingtheinfluencebytheinvestor,isthebasiccriterionused.FDIisakeyelementininternationaleconomicintegration.Itusuallyinvolvesparticipationinmanagement,joint-ventureandtransferoftechnologyandexpertise.

FDIcreatesdirect,stableandlong-lastinglinksbetweeneconomies,encouragesthetransferoftechnologyandknow-howbetweencountries,allowsthehosteconomytopromoteitsproductsmorewidelyintheinternationalmarket,andisanadditionalsourceoffundingforinvestment.

Foreignindirectinvestmentorforeignportfolioequityinvestment(FPEI)referstothepurchaseofstocks,bondsandmoneymarketinstrumentsbyforeignersforthepurposeofrealizingafinancialreturn,whichdoesnotresultinforeignmanagementownershiporlegalcontrol.

Themajorpointofdifferencebetweenforeigndirectinvestmentandforeignindirectinvestmentisthatdirectinvestorsgaininterestintheownershipbycontrollingthedomesticfirm,whileindirectinvestorsdonothaveanymanagerialcontrolorsecuritiescontroloverthefirminwhichtheyhaveinvested.

3.StrategicAllianceandJointVenture

Strategicalliancereferstobusinesscooperationoftwoormorecompaniesformutualgains.Itisalsodefinedasanagreementbetweentwoormorepartiestopursueasetofagreed-uponobjectiveswhileremainingindependentorganizations.Jointventure(JV)isaformofstrategicalliancethatisanassociationoftwoormoreentities(whetherenterprises,government,individualorotherwise)combiningpropertyandexpertisetocarryoutasinglebusinessenterpriseandhavingajointproprietaryinterest,ajointrighttocontrolandasharingofprofitsandlosses.

Jointventureisaspecialtypeofstrategicallianceasitrequiresthepartnerstofoundanewcompany.Duetothesharedresearchanddevelopment,technologiesandsalesnetwork,thistypeofstrategicalliancewillhelpthepartnerstogainmutualbenefits.Forexample,in2004,IBMsolditsPCdivisiontoLenovoGroup.Companiesenteredintoajoint-venturethatwouldmakeLenovothethirdlargestPCmakerintheworld,behindDellandHewlettPackard,andgiveIBMan18.9percentstakeinLenovo.Also,in2005,Skype(Denmark)formedwithTomOnline,China’sleadingwirelessInternetprovider,ajointventurethatdeveloped,customizedanddistributedasimplifiedChineseversionofSkype’sVoiceOverInternetProtocolsoftwareandpremiumservicestoInternetusersandserviceprovidersinChina.

4.Licensing

Licensingisanarrangementbetweencompanies.Acompanyallowsanothercompanytouseitsbrandname,copyright,patent,technologytrademarkorotherassetsinexchangeforanamount(royalty)basedonsales.Insimplewords,acompanyissellingtherighttoproducetheirowngoods.Forexample,PepsiColalicensesHeinekentomakeandsellPepsi-ColaintheNetherlands.Also,accordingtothelicensingagreement,theWaltDisneyCompanymaypermitaChineseclothingcompanytoproduceT-shirtswiththeirfamouscartooncharactersontheminreturnforapercentageofthecompany’ssales.

Licensingisamarketingandbrandextensiontoolwidelyusedbyeveryonefrommajorcorporationstothesmallestofsmallbusiness.Entertainment,sports,andfashionaretheareasoflicensingthataremostreadilyapparenttoconsumers,andthebusinesshasreachedintotheworldsofcorporatebrands,art,publishing,collegesanduniversitiesandnon-profitgroups,tonameafew.

Licensingcanextendacorporatebrandintonewcategories,areasofastore,orintonewstores.Licensingisawaytomoveabrandintonewbusinesseswithoutmakingamajorinvestmentinnewmanufacturingprocesses,machineryorfacilities.Inawell-runlicensingprogram,thepropertyownernotonlymaintainscontroloverthebrandimageandhowitisportrayed(viatheapprovalsprocessandothercontractualstrictures),buteventuallyreapsthebenefitinadditionalrevenue(royalties).

5.Franchising

Franchisingisabusinessrelationshipinwhichthefranchisor(theownerofthebusinessprovidingtheproductorservice)assignstoindependentpeople(thefranchisees)therighttomarketanddistributethefranchisor’sgoodsorserviceandtousethebusinessnameforafixedperiodoftime.TheInternationalFranchiseAssociationdefinesfranchisingasa“continuingrelationshipinwhichthefranchisorprovidesalicensedprivilegetodobusiness,plusassistanceinorganizingtraining,merchandisingandmanagementinreturnforaconsiderationfromthefranchisee”.

Forthefranchisor,franchisingcreatesanothersourceofincomeforthem,throughthepaymentoffranchisefees,royalty,andleviesinadditiontothepossibilityofsourcingprivatelabelproductstofranchisees.Thiscapitalinjectionprovidesimprovedcashflow,ahigherreturnoninvestmentandhigherprofits.Otherfinancialbenefitsthatthefranchisorenjoysarereducedoperating,distributionandadvertisingcosts.Ofcourse,thatalsomeansmoreallocatedfundsforresearchanddevelopment.Additionally,therewillalwaysbeeconomiesofscaleconcerningpurchasingpower.

Ontheotherhand,franchisinghelpspossibleentrepreneurstogetajumpstartonlaunchingabusiness.Franchisesofferprovenbusinessmodelsandmarketingsupportforfranchiseesandprovideawiderangeofoptionstomeetvirtuallyanybusinessinterests.Also,afranchiseagreementrequiresthefranchiseetofollowcorporateguidelineswhenoperatinghisbusiness.Forexample,aMcDonald’sfranchiseeisrequiredtomakehamburgersaspecificwayandmaynotdeviate.Forthefranchisor,thismeansfewerconcernsaboutthequalityoftheproductthatissold,andhedoesnothavetoworryabouta“rogue”franchiseewhowantstodothingsinhispreferredway.CompanieslikeKFC,PizzaHut,andDairyQueenarefranchisorswhosellfranchisesthatareownedandmanagedbylocalresidentsinmanyforeigncountries.

6.ManagementContract

Amanagementcontractisanarrangementunderwhichoperationalcontrolofanenterpriseisvestedbycontractinaseparateenterprisethatperformsthenecessarymanagerialfunctionsinreturnforafee.Managementcontractisoftenconductedwhenthelocalcompanyisinlackofskillsandexperiencestorunaprojectoracompanyitself.Managementcontractallowsbusinessownerstoturnovercompleteresponsibilityforthewholebusinessorpartofthebusinesstoanindividualorcompany.Thisallowsthebusinessownerstofocusononeareaofthebusinesswhileanexpertmanagesanother,oritallowsthepossibleentrepreneurtoinvestinabusinessevenifheorshehasnoexperienceinthefieldorprofessionatall.

InChina,itisnotunusualformanyhotelstousethisformofinternationalbusinessactivities,astheycandirectlybenefitfromexistingeconomiesofscale,aglobalreservationsystem,andbrandrecognitionandsoon.Foranotherexample,manyprofessionalactors,athletes,andmusiciansturnoverthemanagementoftheircareerstoanagentormanager.Thispersonhandlesaspectsofthecelebrity’scareer,includingbookings,contracts,endorsements,appearances,investmentsandpublicrelations.Thistypeofmanageroftennegotiatesanathlete’scontractswithhisteamandsponsors,amusician’srecordingcontractsandaTVpersonality’snetworkcontracts.

Anagentoftenchargestheartistorathleteapercentageofhisannualearnings,alsowithotheragreedpercentageofthoseearningscontinuingtoaccruetotheagentforsixmonthsorlongerafterhisdeparturetorewardhimforthegroundworkhelaidbeforehisdeparture.

7.ContractManufacturing

Contractmanufacturingininternationalbusinessreferstoaprocessthatanoverseascompanyproducesallorpartsoforothermaterialsonbehalfoftheirclients.Itisaformofoutsourcingbutcanbebeneficialtoallcompaniesinvolved.Inacontractmanufacturingbusinessmodel,thehiringfirm—typicallyanOEM—approachesthecontractmanufacturerwithadesignorformula.Thecontractmanufacturerwillquotethepartsbasedonprocesses,labor,tooling,andmaterialcosts.

Typically,anOEMwillrequestquotesfrommultiplecontractmanufacturers.Afterthebiddingprocessiscomplete,thehiringfirmwillselectasource,andthen,fortheagreed-uponprice,thecontractmanufactureractsasthehiringfirm’sfactory,producingandshippingunitsofthedesignonbehalfofthehiringfirm.

Manywell-knowncompaniesusecontractmanufacturingasanalternativetooperatingandmaintainingtheirownfactories.Contractmanufacturingcanbeusedforanythingfromsinglecomponentstoacompleteproduct.Printers,computers,cellularphonesandpersonalcareproductsareallexamplesofproductsthataremadebyusingthismethod.

Inaninternationalcontext,establishingaforeignsubsidiaryasacontractmanufacturercanbringfavorabletaxbenefitstotheparentcompany,allowingthemtoreduceoveralltaxliabilitiesandincreaseprofits,dependingupontheactivitiesofthecontractmanufacturer.

However,somerisksdoexist.Thereisapossiblelossofcontrolandvisibility,thusruiningthecompany’sreputationandsalesvolume.Butwhenworkingwithanexperiencedcontractmanufacturer,thesedisadvantagesareoutweighedbyqualityandreliability.

8.WhollyOwnedSubsidiaries

Thisinternationalbusinessactivityrepresentsthatorganizations(parentcompanies)establishacompany(whollyownedsubsidiary)inadomesticorinternationalmarketwithfullownership.Itrequiresalargeamountoffinancialinvestment.However,inreturn,thecompanywillobtainthegreatestcontroloveroperationsandmaximumprofitssincethereisnoownershipsplitagreement.Awhollyownedsubsidiaryusuallyoperatesindependentlywithitsseniormanagementstructure,products,andclients.However,theparentcompanyhassignificantcontroloverthestrategicdirectionofthesubsidiary.

Inconclusion,internationalbusinessactivitiesextendfromarelativelysimpleapproachofinternationaltradetoamorecomplexapproachofinternationalinvestmentsuchasacquiringforeignbusinessorestablishingnewsubsidiaries.Adiversityofinternationalbusinessactivitiesboostthedevelopmentofinternationalbusinessandthusbenefitsindividuals,companies,organizations,andcountriesinvolvedtosomeextent.

1.5InternationalBusinessManagement1.5.1InternationalMarketingManagement

1.WhatIsMarketing?

Marketingisasocialandmanagerialprocessbywhichindividualsandgroupsobtainwhattheyneedandwantviacreatingandexchangingproductsorvalueswithothers.Thecoreconceptofmarketingistocreatesuperiorcustomervaluethatisgreaterthanthevaluecreatedbycompetitors.Themanagersinthemarketingdepartmentneedtounderstandthecustomer’sneeds,wantsanddemands.Therefore,intheinternationalmarketingpractice,managershavetounderstandbothdomesticandforeigncustomer’sneedsandwants.

2.WhatIsInternationalMarketingManagement?

Internationalmarketingmanagementisthemanagementoftheprocessofplanningandundertakingtransactionsacrossnationalborderstocreateexchangesthatsatisfytheobjectivesofindividualsandorganizations.

3.WhatIsMarketingMix?

Themarketingmixreferstothesetofactions,ortactics,thatacompanyusestopromoteitsbrandorproductinthemarket.Themarketingmixisalsocalledthe4Ps,andthe7Ps.The4Psareprice,place,productandpromotion.Theservicemarketingmixisalsocalledthe7Psandincludestheadditionofprocess,peopleandphysicalevidence.

Inthecontextofinternationalbusiness,afirm’smarketingmixmayvaryfromcountrytocountrytoaccommodatelocaldifferencesinculture,economicconditions,productstandards,distributionchannels,governmentregulations,etc.Suchdifferencesoftenrequireadjustmentsinproductattributes,pricingstrategy,distributionpolicies,andcommunicationpolicies.

1.5.2InternationalFinancialManagement

1.?WhichCurrencytoUsefortheTransaction?

Oneuniqueproblemininternationalbusinessischoosingthecurrencyforthetransaction.Bothexportersandimporterswanttousetheirowncurrencytominimizefinancialrisks.Orsometimes,theymayselecttouseathirdcountry’scurrency.Forexample,aChineseandaJapanesecompanycandointernationalbusinessbyusingUSdollarsorEurosasthepaymentcurrency.

2.WhenandHowtoCheckCredit?

Thereliabilityandtrustworthinessoftheforeignbuyerisanothercriticalissueforinternationalmanagers.Ifanimporterisafinanciallyhealthyandreliablecompanyandonewithwhomanexporterhashadprevioussatisfactorybusinessrelations,theexportermaychoosetosimplifythepaymentprocessbyextendingcredittotheimporter.Butiftheimporterisfinanciallytroubledorknowntobeapoorcreditrisk,theexportermaydemandaformofpaymentthatreducesitsrisk.

Informationaboutbusinesscreditscanbeprovidedbymanysources.Forexample,bankscanprovideneededcreditinformation.Somenationalgovernmentagenciesinchargeofexportpromotionalsooffercredit-checkingservices.Therearealsosomeconsultingcompanieswhosemainserviceistoprovidecredit-checkingservices.Generallyspeaking,ifacompanyisdoingbusinesswithaforeigncompanyforthefirsttime,itisamusttogothroughacredit-checkingprocess.Otherwise,theremightbeseriouspaymentdisputes.Therefore,itisimportanttobuildalong-termtrustingrelationshipwithforeignpartners.

3.WhichFormofPaymenttoUse?

1)PaymentinAdvance

Itmeansthattheexporterreceivestheimporter’spaymentpriortoshippingthegoods.Asillustratedbytheexplanation,paymentinadvanceisthesafestmethodofpaymentfortheexporterininternationalbusiness.Byusingthismethodofpayment,theexporterscanreducetheirfinancialrisk.What’smore,paymentinadvanceshortenstheactualprocessofonesingleinternationaltransaction.

Ontheotherhand,sometimes,paymentinadvanceisdangerousandnotfavoredbyimporters.Theimportermustgiveuptheuseofitscashpriortotheactualreceiptofgoods,andbeartherisksthattheexportermightfailtodeliverthegoods.

Therefore,paymentinadvanceisnotthemostpopularinternationalpaymentmethodduetotheunbalanceofsafetyforthepartiesinvol