The buyer and the exporter are referred to as the applicant and the beneficiary respectively. A foreign bank usually issues a letter of credit, which a local bank confirms. In other words, the local bank promises to pay the issuing bank. A letter of credit may not be open to changes (irrevocable) unless there is an agreement between the exporter and the buyer or revocable. However, the latter is usually inadvisable.b. Draft: A draft, also referred to as a bill of exchange, refers to dealing in which the seller (exporter) delegates the collection and receipt of a sales payment to the remitting bank. The remitting bank then sends documents to the importer’s bank, including payment instructions. The exporter receives importer’s payments from the banks involved in the transaction process. Drafts require importers to make face payments either at sight or at the mentioned date. The draft contains instructions indicating required documents for the transfer of goods ownership.a. Greenfield: This refers to a market entry strategy where the parent company establishes a new wholly-owned branch subsidiary (builds its facilities from scratch) in a foreign country, for example, Nissan’s Mississippi Canton plant in the automobile industry. The advantages of using this strategy include economies of scale and scope, greater control over the foreign business, effective implementation of long-term strategy, solid market commitment, control over brand, control over staff, and proactive response to threats and opportunities. The risks involve high costs, difficulty in overcoming competition, long duration of entry success, and possible costly market entry barriers.b. Acquisition: This refers to a company’s growth strategy whereby, a company wishing to expand internationally decides to purchase an already existing firm in a foreign market rather than establish its own new wholly owned enterprise.
Final Exam in International Business