Assignment Sample on INCOTERMS INTERNATIONAL BUSINESS
Introduction
The financing option refers to the contract which conveys to business owners or holders the right for doing business operations, yet prohibits obligations regarding buying or selling an instrument or asset at a specific price. Some of the financing options include bank loans, cash credit for business, cash flow loans or many others. Incoterms refers to the abbreviation of “International Commercial Terms”. This term has been trademarked by the “International Chamber of Commerce”. It generally describes a transaction held between two parties in terms of export and import of goods and services. The study sheds light on the importance of these two aspects of international business that have helped the retail sector of the UK.
Section 1: Financing Options Importance on International Business
International businesses include various sources for obtaining required financial resources for conducting business. international businesses can use investments or credit for gaining the required financial boost (Morozkoet al. 2018). Multiple companies have been relying on these sources such as “Incorporation, Debenture, conventional loans, government grants and venture capital investment”. These have helped international business in the retail sector of the UK and these have helped them in successful global operations and expansion of businesses.
Incorporation is one of the fastest methods to gain capital for international business that generally relies on sharing through a public or selected viable investors’ group. In this regard, the fact that the business operates globally attracts foreign investors who are not interested in other kinds of businesses. As propounded by Omoshagba and Zubairu (2018), incorporation is effective and helpful for international businesses to protect the assets of businesses against the liability of the company. It enables easy ownership transfer to other parties and it has been found to often achieve lower tax as compared to other personal income. This financial option has been effective and helpful for international retail businesses of the UK to obtain required funds and expand business in other countries thereby increasing sales and profitability.
A debenture refers to the issuance of a loan between a lender and a company in which the lender is considered to be a “smaller entity” than that of the company. These are similar to the bonds by the government, yet, these are not secured by collateral. A debenture is unlike stock issuance as in this case those who acquire funds are not partial company owners. Moreover, in the case of debenture, the international companies are benefited significantly as the lenders do not need to get the entire possession of the company, yet, they achieve a guarantee that they will be getting a guaranteed percentage return on their investment (Ankeli et al. 2021). This is effective enough for international companies as they do not need to lose the entire possession of the company and lose control of it, yet they need a low percentage of the interest. It is highly effective for international companies as this helps them achieve the required funds for global expansion of business. The retail industry of the UK has benefited significantly from this kind of finance option.
Conventional loans are generally provided by the banks as business loans in order to expand in the international environment. The loans provided by financial institutions or banks are generally at a lower rate of interest than that of a venture capital fund. This is practised by various international companies in the UK and it helps them pay the debt gradually. As mentioned by Abbasi et al. (2021), businesses can obtain a short-term loan or a long-term loan as per their requirement. However, the long-term loan is highly effective and crucial for expanding business in a global environment. A low rate of interest is beneficial for them to pay the loan gradually and effectively.
Government grants legitimacy to businesses that want to expand in a global environment and improve their low-income areas. It is a kind of free money for international businesses and these are not required for repayment. This is a kind of donation to international business from the government regarding the appeal for financial support. Government grants are an important source of finance for businesses to expanse in different and foreign environments (Mamaro and Legotlo, 2020). It has been helpful for the retail companies in the UK to expand in other countries.
Venture capital is an effective and crucial tool for encouraging entrepreneurship thereby providing the business owners to establish a business in a new environment. Venture Capitalists make loans for expanding businesses especially for established businesses that are planning to expand their business in new and global environments through crossing the international boundaries. These services are highly effective and beneficial for companies as they often offer financing in a higher risk scenario than those of banks. As discussed by Abbasi et al. (2021), these have been found to demand a certain ownership percentage of the company or a high rate of interest. It is used and practised by several international businesses in the UK for global expansion and it has been helpful for fulfilling their requirements regarding business expansion.
Raising money from private sources
Offering debt or equity products in an open market cannot be the only way to raise funds, yet, private lenders can also play a significant role in keeping money in a flexible manner responsive to the requirements of the business. While the companies need funds regarding business expansion, international companies can reach various private lenders such as insurance companies, private equity funds, private banks and hedge funds (Ankeli et al. 2021). The local branches can work with the foreign management of the company. It is also used by various international businesses in the UK during their expansion in the global environment.
International Companies can look beyond private enterprises or individuals to develop public corporate assistance. Various government agencies offer subsidies to businesses for meeting their specific requirements. Government subsidies are designed and planned to help new businesses that want to expand in a global environment (Mamaro and Legotlo, 2020). Moreover, the international companies which meet regulatory requirements of the business can achieve these benefits and expand significantly.
All the above-mentioned financial options are effective for international businesses and are used by retail companies in the UK. These have benefited the companies to successfully perform in new environments.
Section 2: Impact of Incoterms in Maintaining Commercial Relation of International Business
The incoterms define a set of trade or commercial rules that are established by the International Chamber of Commerce and used in sale contracts of international business. In addition, incoterms are globally recognized as prevention of confusion in terms of international trade contacts by justifying or clarifying particular obligations of sellers and buyers (Iccwbo.org, 2020). Business companies and parties who are involved in International and Domestic trade commonly use incoterms to understand exact terms of business arrangements and maintain proper transportation across routes and water. As per the view of DURDAĞ & DELİPINAR (2021), essential terms of international trade for selling and buying both domestic and foreign products need to maintain incoterms rules.
Moreover, the rules guide international business export and import in purchasing labeling packaging of freight shipment or transport preparing certification and transporting goods. In this globalization era, the supply chain is increasingly becoming an effective and natural business phenomenon for international business purposes. The UK Retail Industry can use incoterm principles for foreign transportation by consisting of an effective manufacturer supplier distribution and retailer network through a global supply chain. According to Yaakub et al. (2018), Incoterms help to make transportation easier in international business by producing Logistic all challenges language differences and emphasizes legal systems and business practices. For instance, in France, Germany, Australia, Incoterms are used as a legal custom but Poland uses Incoterms rules as trade custom. Similarly, in Spain Incoterms rules includes a high level of Legislative act and legal force to drive any kind of trade transaction in the international market. At the same time, the UK Retail Industry used Incoterms rules in freight transactions for both local and international sellers and buyers.
Apart from this, Incoterms rules had to clarify cost operational maintenance and risk to be acquired by sellers and buyers in terms of international trade transactions. The international retail industry has benefited by familiarizing itself with Incoterms that help to avoid confusion regarding buyers and carriers rules and define cost management and clear responsibilities of individual parties. In the words of Matvieiev et al. (2021), Incoterms rules are widely used in the international community in having custom in foreign trade systematized and standardized transaction process in international and local trade. The terms of Ex Works (EXW) Incoterms offers sellers to make the product available at sellers International and local locations so buyers need to take the entire risk of bringing products and transportation costs to their destination (Iccwbo.org, 2020). The free carrier (FCA) Incoterms represents a loss of responsibility to deliver products to a career including transportation risk and cost for passing goods to buyers (Great.gov.uk, 2021).
The Incoterms free alongside ship (FAS) reported that every seller has to place products alongside the ship at UK port and they have the responsibility of managing product damage risk and loss but buyers need to be near the transaction cost. In addition, the free on board (FOB) Incoterms proposed that for overall cost involvement processes are responsible for sailors until the products are loaded to UK port. According to Matvieiev et al. (2021), the free onboard incoterm represents buyers’ responsibilities of bearing risk involvement and cost in shipment after loading foreign goods in the buyer’s location. Besides that, the cost and freight (CFR) incoterm proposed that sellers have to pay the freight and cost to bring the product to overseas ports of exact destination (Great.gov.uk, 2021). Moreover, the major benefit of using Incoterms rules for preventing misunderstanding due to different interpretations of sellers and buyer contracts in international business.
Incoterms of 2010 and 2020include cost insurance and freight (CIF) rules that are the same as the rules of cost and freight Incoterms. The Carrier and Insurance Paid to (CIP) stated that sellers have to pay for insurance and carriage until loading the goods to the destination point but first the carrier has to manage the product damage risk. In the words of DURDAĞ & DELİPINAR (2021), Incoterms help to reduce risk in international trade by reducing language barriers as well as can notations of terms by understanding and reflecting local business rules. For instance, if the UK retail business defines tariffs as fees, taxes, and searches in post through the state, federal, and local government. In terms of shipping or transaction of products to local and international businesses, a company can define specific terms of trade agreements before importing and exporting products through contracts.
Apart from this, Delivered at Place Unloaded (DPU) stated that exporters need to arrange product delivery and carriage for unloading at a particular destination. This incoterm stated that after the arrival of products buyers have to complete customs clearance of products in the important country with their own risk and cost including tax and payment of customs duties. Delivered Duty Paid (DDP) this Incoterms proposed that the seller has the responsibility of delivering overall goods to the destination of the buyer’s country and needs to pay the entire transaction cost. In addition, Incoterms help international business organizations to gain competitive advantages and monetary benefits of all international trade shipping practices. According to Yaakub et al. (2018), Incoterms govern shippers’ authority to drive adjustment of local terminology that directly impact a company’s competitive advantages by enduring shipping regulations and limitations of transaction capacity.
At the same time the UK retail business industry and sure timely payments of services and goods with proper delivery with the help of involving Incoterms. In the report of DURDAĞ & DELİPINAR (2021), incoterm ensure individual business parties to mental and effective competitive advantages in terms of the international supply chain. Moreover, the UK Retail Industry can successfully reduce unfair business practices and bribery incidents by using incoterm in the international trade business.
Conclusion
Based on the above discussion it can be concluded that this report is focused on incoterm and financial options on international business in order to maintain commercial relations and business growth. Financial options include debenture in corporation conventional loans, venture capital investment, and government grants on business planning and the growth of multiple companies to drive international business. In this globalization era, incoterm rules are becoming an essential business part of international trades’ daily language. Incorporation of incoterm includes buyers and sellers contracts with proper guidance to exporters-importers Transporters lawyers and insurers of international trade.
References
Abbasi, W.A., Wang, Z. & Alsakarneh, A., (2018). Overcoming SMEs financing and supply chain obstacles by introducing supply chain finance. International Journal of Business and Management, 13(6), 165-173. Retrieved on 12th January 2022, from: https://pdfs.semanticscholar.org/76c3/a7757c209577ec33e264861d5e66f416e110.pdf
Ankeli, I.A., Adepoju, A.S., Ajayi, T.M., Kemiki, A.O., Popoola, N.I. & Alabi, O.T., 2021. Property Tax Dynamics Reengineering in Nigeria: The Alternative Infrastructure Financing Option for National Development. ATBU Journal of Environmental Technology, 14(1), 1-13. Retrieved on 12th January 2022, from: https://www.ajol.info/index.php/atbu/article/view/217890/205495
DURDAĞ, C., & DELİPINAR, G. E. (2021). The past, today and future of incoterms in international delivery: A review on the innovations in logistics. Journal of Economics Library, 7(4), 201-207. Retrieved on 12th January 2022, from: http://www.kspjournals.org/index.php/JEL/article/viewFile/2166/2160
Great.gov.uk, (2021). International trade contracts and incoterms. Retrieved on 12th January 2022, from: https://www.great.gov.uk/advice/prepare-for-export-procedures-and-logistics/international-trade-contracts-and-incoterms/
Iccwbo.org, (2020). ICC’s world-renowned Incoterms® rules facilitate trillions of dollars in global trade each years. Retrieved on 12th January 2022, from: https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/
Mamaro, L.P. & Legotlo, T.G., 2020. The Impact of Debt Financing on Financial Performance: Evidence from Retail Firms Listed on Jse. The Journal of Accounting and Management, 10(3). Retrieved on 12th January 2022, from: https://dj.univ-danubius.ro/index.php/JAM/article/download/318/667
Matvieiev, P., Klepikova, O., Kornuta, L., Abbaszade, M., & Kuznetsov, S. (2021). Public and private economic and legal interests in the field of international transport in the latest edition of Incoterms. Amazonia Investiga, 10(46), 217-224. Retrieved on 12th January 2022, from: https://amazoniainvestiga.info/index.php/amazonia/article/download/1791/2066
Morozko, N., Morozko, N. & Didenko, V., 2018. Modeling the process of financing small organizations. Journal of Reviews on Global Economics, 7, 774-783. Retrieved on 12th January 2022, from: https://www.lifescienceglobal.com/pms/index.php/jrge/article/view/5745/3224
Omoshagba, T.P. & Zubairu, U.M., 2018. A Systematic Review of the Field of Debt Financing. Covenant journal of entrepreneurship, 1(3), 74-93. Retrieved on 12th January 2022, from: https://journals.covenantuniversity.edu.ng/index.php/cjoe/article/download/968/638
Yaakub, S., Szu, L. Y., Arbak, S., & Halim, N. A. (2018). INCOTERMS selection factors and its effect on export performance. Journal of Advance Research in Business, Marketing, and Supply Chain Management, 2(1), 9-18. Retrieved on 12th January 2022, from: https://www.jarims.aibma.org/images/vol22018/sbppg9-18.pdf
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