UNIT 4.pptx ppt on international business strategy for MBA

International business laws notes for MBA students

1. UNIT 4 INTERNATIONAL TRANSACTIONS LAWS

2. CONTENTS 4.1 Letters of Credit 4.2 NBFC Factoring and Types of Factoring, 4.3 Warehousing, International Packaging, Marking & Labelling, Inspection, International Ocean Transport 4.4 International Air Transport, Multi-modal transportation 4.5 International Insurance 4.6 Cyber Laws issues and Laws in India pertaining to cyber crimes 4.7 Documentation pertaining to export and import

3. 4.1 Letters of Credit Letter of credit meaning: A letter of credit is a commitment issued by a bank on behalf of one of its customers to guarantee a payment that must be made to a third party as the result of an import/export transaction. In other words, the issuing bank will guarantee the payment to the exporter.

4. Definition of letter of credit: UCP 600 defines letter of credit as: “Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.”

5. A letter of Credit has the following characteristics: Issued by Buyer’s Bank: An LC is released by the buyer’s bank to the seller and is a formal document that comprises all the conditions of the deal. Transferability: The LC can be assigned or transferred to a third party by the beneficiary as a mode of payment, and this third party can get it encashed on the due date. Further, it can be transferred several times and remains valid. Revocability: Some letters of credit are revocable, and therefore these can be canceled at any time; however, most credit letters are irrevocable. Maturity: The LC is a time draft which means it has a due date on which the beneficiary can encash the amount from the issuing bank. Negotiability: It is a negotiable instrument whereby the parties can discuss and amend the terms and conditions of the LC. Similar to other negotiable instruments, the letters of credit bear an unconditional promise to pay a certain sum on the due date or demand of the beneficiary.

6. Types of Letters of Credit

7. LOC types: 1#1 – DP LC or DA: In this form of LC, the payment must be made on the date of maturity following the credit terms . This is the type of LC where payment is given against documents on presentation. After receiving and examining the payment-related documents, the buyer is handed over the title for the goods. The buyer then pays the predetermined amount paid on the due date mentioned in the LC. This is also referred to as the “maturity” of the Letter of Credit (LC).

8. #2 – LC Irrevocable and Revocable The irrevocable letter of credit can be canceled or amended only with the beneficiary’s consent. A revocable LC can be withdrawn or amended at any time without giving prior notice to the beneficiary. Most LCs are irrevocable. #3 – Restricted LC Here, only a nominated bank is authorized to accept, pay, or negotiate the terms of an LC. As nominated, the authorization for LC is restricted to a particular bank. LOC types:

9. #4 – LC with or without Recourse A confirmed LC is without recourse to the beneficiary. But an Unconfirmed or negotiable LC is always with recourse to the beneficiary. For LCs with recourse, the reimbursement is negotiated between a customer and its nominated bank. Reimbursements occur when the buyer defaults. #5 – Confirmed LC A confirmed LC is one where the advising bank makes additional confirmation at the request of the issuing bank that payment will be made. Hence the advising bank is equally responsible for payment. Therefore, the confirming or advising bank must bear the cost if the buyer doesn’t pay the sum to the beneficiary. LOC types:

10. #6 – Transferable LC The beneficiary can transfer such an LC in whole or in parts to a second beneficiary, usually supplied to the seller. However, the second beneficiary cannot transfer it further to another beneficiary. #7 – Back-to-Back LC In this type of LC, the second LC is opened by the beneficiary in the name of the second beneficiary, wherein the first LC is kept as security for the second one. This type of Letter of Credit (LC) is generally offered to suppliers. LOC types:

11. #8 – Standby LC This is an LC, which is like a performance bond or guarantee issued by the bank. Therefore, the beneficiary can claim it by providing the required documents. A list of required documents is also mentioned in the LC. #9 – Revolving LC A revolving LC covers multiple transactions over a period. For example, it can be used for regular shipments. The same commodity is sold to the same buyer repeatedly by one seller. In such an instance, the buyer can use a revolving LC. LOC types:

12. Parties to Letter of Credit Applicant: The applicant in an LC transaction is usually the buyer or importer of goods. The applicant of the LC has to make the payment if documents, as per the conditions of the LC are delivered to the Bank. Beneficiary: The beneficiary is the party to whom the LC is addressed, i.e., the seller or exporter. The beneficiary would receive payment from the nominated bank against submission of documents as per the LC condition. Issuing Bank: The issuing bank is the Banker to the importer or buyer which lends its guarantee or credit to the transaction. The issuing bank is liable for payment once the documents as per the conditions of the LC that receives from the Negotiating Bank. Negotiating Bank: The Negotiating Bank is the beneficiary’s bank. The beneficiary in an LC transaction would be the seller or exporter. The negotiating bank would claim payment from the issuing bank or the opening bank. Advising bank: that advises the beneficiary at the request of the issuing bank. The advising bank and the negotiating bank may or may not be the same bank.

13. Process of Letter of Credit Step 1: The applicant or the buyer approaches the desired bank for the issuance of a letter of credit. This bank is known as an opening or issuing bank. Step 2: There will be an advising bank (mostly an international bank) for the beneficiary or seller that will receive the Letter of Credit issued by the issuing bank of the buyer. Further, the advising bank will check the authenticity of the letter of credit by checking the name, product details, etc. Step 3: Advising bank will share the letter of credit with the seller by keeping him/her rest assured that the money shall be received, as banks are now involved in this process. Step 4: Post seller assurance, the goods will be shipped as per the details mentioned by the buyer or applicant. The seller will now receive the bill of lading as the seller has already exported the goods.

14. Step 5: The buyer shall now present the Bill of Lading to the Nominated or the Negotiating bank (International bank) where the bank will check all the shipping documents, and whether all goods were shipped as per the instructions. Finally, the nominating bank will do the payment to the seller or exporter. Step 6: Further the nominating bank will share the shipping documents with the issuing bank and will demand payment. Step 7: Issuing bank will further share the documents with the buyer, seeking approval on whether all documents the correct, as per the buyer’s information, and if all the products are shipped or not. Step 8: The buyer now does the payment to the issuing bank and further the issuing bank sends the payment to the nominated or negotiating bank.

15. Factoring Meaning of factoring: factoring is a financing arrangement that is typically used by small and medium-sized businesses to help them maintain a steady cash flow. As every business owner understands, cash flow is important to ensure the successful, continuous operation of their business. This is why it’s important to know the different types of factoring. In general, factoring means a company is turning over their invoices to a third party in return for receiving a portion of those invoices in cash within a few business days. Primarily, there are two types of factoring, recourse factoring and non-recourse factoring.

16. Concept of Factoring The seller makes the sale of goods or services and generates invoices for the same. The business then sells all its invoices to a third party called the factor. If the factor is a bank or financial institution, then such factoring is called reverse factoring. The factor pays the seller after deducting some discount on the invoice value. The rate of discount in factoring ranges from 2 to 6 percent. However, the factor does not make the payment of all invoices immediately to the seller. Instead, it pays only up to 75 to 80 percent of the invoice value after deducting the discount. The remaining 20 to 25 percent of the invoice value is paid after the factor receives the payments from the seller’s customers. It is called factor reserve. Another name for factoring is receivables/invoice factoring.

17. 1) Recourse and non-recourse factoring Recourse and Non-recourse Factoring: In this type of arrangement, the financial institution, can resort to the firm, when the debts are not recoverable. So, the credit risk associated with the trade debts are not assumed by the factor. On the other hand, in non-recourse factoring, the factor cannot recourse to the firm, in case the debt turn out to be irrecoverable.

18. 2) Advanced and Maturity Factoring Advance and Maturity Factoring: In advance factoring, the factor gives an advance to the client, against the uncollected receivables. In maturity factoring, the factoring agency does not provide any advance to the firm. Instead, the bank collects the sum from the customer and pays to the firm, either on the date on which the amount is collected from the customers or on a guaranteed payment date.

19. 3.Disclosed and undisclosed factoring Disclosed and Undisclosed Factoring: The factoring in which the factor’s name is indicated in the invoice by the supplier of the goods or services asking the purchaser to pay the factor, is called disclosed factoring. Conversely, the form of factoring in which the name of the factor is not mentioned in the invoice issued by the manufacturer. In such a case, the factor maintains sales ledger of the client and the debt is realized in the name of the firm. However, the control is in the hands of the factor.

20. 4) Full factoring Full-Service Factoring In full-service factoring (also known as full factoring), the factor performs a full range of services, including maintaining a sales ledger, sending regular statements of accounts to the client, collection of receivables, and credit control - gauging the creditworthiness of the customer, deciding credit limits and credit insurance for bearing the credit risk. Full-service factoring is also known as Old Line Factoring. Businesses prefer it as it eases pressure on the accounting division and frees up the company's scarce resources, which can be put to optimal use. Given the entire gamut of services, this type of factoring charges the highest rates for services. Beyond the discount charges (interest charges), the administrative cost of factoring ranges between 0.5% to 2.5% of receivables.

21. 5)Domestic and International Factoring Domestic and Export Factoring Domestic factoring involves three parties - the client (the seller), the customer (the buyer) and the factor (the financial entity). All the parties are located in the same region. Domestic factoring is also far easier to operate and execute since cultural, legal and trade barriers between the trading parties are more or less similar. In sharp contrast, factoring solutions for export transactions requires a much more deeper skill set, understanding of international trade processes, and a strong global presence and network of buyers and sellers. In export factoring there may also be an additional party - the import factor (factor located in the customer’s region) in addition to the client, the customer, and the export factor (in the client’s region). The import factor is responsible for services like determining creditworthiness and credit limit for the customer and collecting money from the customer on the due date and remitting it to the export factor.

22. International warehousing: What is an international warehouse? An international warehouse is a strategically positioned facility in a foreign country that stores and distributes goods for global trade. It acts as a central hub for managing inventory, fulfilling orders, and optimizing logistics across borders, facilitating efficient international supply chain operations and expanding global business reach. Take it from Ben Hyman, co-founder and CEO of Revival Rugs, a retailer with warehouses in California, Turkey, Morocco, and India. He says, “This allows us to sell directly to the consumer, cutting out the middleman. When someone buys one of our products, the process is smooth, transparent, and affordable. Steep markups and costs that don’t add value are eliminated. We credit that to our international warehouses.”

23. The 4 types of international warehouse 1. Public warehouse A public warehouse is open for any business to use, at the discretion of the warehouse operator. It’s usually the first choice for ecommerce businesses looking for an international warehouse, since they can pay a fee to access existing storage and fulfillment options outside their own country, without building the warehouse themselves. 2. Private warehouse Unlike a public option, private warehouses are owned by private companies. Think of them as extensions of your business. If your headquarters are in the US, you could build a private warehouse—solely for your own use—in another country to cater to international shoppers.

24. The 4 types of international warehouse 3. Bonded warehouse A bonded warehouse is a place for businesses to store inventory set to be imported or exported. Also known as a customs warehouse and run by the local government, it’s a way for businesses to bring products in or out of the country without paying tax or import duties. 4. Distribution center An international distribution center is different from traditional warehousing. A warehouse stores goods, while distribution centers can do additional tasks like fulfill and package orders. Some operators offer both services under the same roof.

25. Why you need to use international warehouses ? Shippers and players in the international logistics business are under pressure. Increase in energy prices, fluctuations in supply and demand for transport capacity, and delays in port trans-shipment are some of the lingering issues impacting supply chains today. That’s why the global warehousing and storage market was valued at $477 billion as of 2022. It’s expected the market will reach $634 billion by 2028. More brands are using international warehouses to continue production through the year, sell their goods, and predict future demand. International warehouse space means cutting both shipping costs and shipping times, giving you an advantage with positive customer experience in an increasingly competitive delivery market. For the most part, warehouses located internationally will be in global trade hubs like Hong Kong, the Middle East, Los Angeles, and Houston. No matter where your headquarters and manufacturing are located, strategically placed warehouses let you easily cross borders throughout Asia, Europe, and North America

26. How to choose warehousing? Structure and layout of the building Availability of trained workers Customer base and zoning Accessibility to major linkages Material handling capacities The size of your warehouse Rules and regulations Taxes and rent rates Market and environmental factors of the locality

27. International Packaging

28. TYPES OF PACKAGING

29. PROF VIRAJA K R

30. What does multimodal transport mean? Multimodal international transport consists of moving goods in a single transport unit (container, swap body, etc.) from one country to another, using two or more means of transport: air, sea, river, rail or road (lorry). The loading unit, with the goods inside, passes from one mode of transport to another by physical means, but the loading unit cannot be broken up, meaing that the goods cannot be separated. The international multimodal transport unit par excellence is the container, mainly the 20 and 40 tonnes container. There is also the so-called intermodal transport unit (ITU), which is basically used in operations that use the land mode and can be containers, swap trailers or semi-trailers.

31. The European Union is working to introduce a new type of container: the European intermodal loading unit, which combines the advantages of containers (strength and stackability) and those of swap trailers, in particular their larger capacity. International multimodal transport has been regulated since 1980 by UNCTAD (United Nations Conference on Trade and Development) in its Convention on International Multimodal Transport of Goods.

32. The European Union is working to introduce a new type of container: the European intermodal loading unit, which combines the advantages of containers (strength and stackability) and those of swap trailers, in particular their larger capacity. International multimodal transport has been regulated since 1980 by UNCTAD (United Nations Conference on Trade and Development) in its Convention on International Multimodal Transport of Goods.

33. This convention provides that a single multimodal transport contract, the FIATA Bill of Lading (FBL), is to be used in a multimodal transport operation. It also defines the roles and responsibilities of the multimodal transport operator, as well as the responsibilities of the shipper . The multimodal transport operator can be a logistics operator, an agency or a freight forwarder who undertakes a commitment as the main carrier vis-à-vis the exporter or importer. The operator issues the multimodal transport contract, a unified document of all the means and modes of transport used, in which it assumes the responsibilities for the execution of the contract.

34. Advantages of multimodal transport Simplifies by using a single loading unit, a single transport operator and a single contract. It is the only mode that allows the use of a single contract, all others require more than one. The contracting company has a single representative throughout the entire process, without having to engage different logistics operators. It speeds up and reduces handling times when the unit load moves from one mode of transport to another. The FBL has preferential entry and passage through customs. Lower costs. Reduced controls, as unit loads are sealed. Lower chance of theft or loss. Goods can be monitored and tracked through digital and satellite systems, making it particularly suitable for the transport of high-value goods. Increased certainty of timing of delivery.

35. Conclusion Multimodal international transport is best carried out by an expert logistics operator such as Noatum, which can handle the entire logistics chain and choose the most suitable chain of transportation for each operation.

36. Documentation pertaining to export and import