Overseas or international trade consist of the phenomena of importing, exporting and entreport trade. Imports consist of goods and services that flow from foreign countries to ones country, while exports are goods and services that are sold overseas from one country. Entrepot means re-exportation of imported goods and services.
Import, export or entrepot trades may be individuals or organisation’s dealing in international trade. Organisational purchasers/marketers buy/sell goods and services internationally for their organisations. Imports and exports are either visible, consisting of merchandise or invisible, consisting of services rendered and which payment must
be made by the countries receiving them.
Reasons for importing Advantages of International Procurement.
The buyer’s main reasons for importing/sourcing from abroad are as follows
1. Quality
Quality means the inherent purity of the material as distinct from those available from other sources. To most buyers, the quality factor include, an assurance on reliability and consistency of the manufactured goods. Such differences will often place the buyer in a vantage position when negotiating with both local and foreign sources.
2. Price
Price is considered by aggregating all factors that will enable the buyer to compare and contrast the competitive nature of production, transportation and lead time variables. Such comparison may be based on low raw materials cost associated with nearness to source of raw materials, lower wage and social costs, economies of large scale production, subsidy guaranteed by government, higher productivity from abroad, lower transportation costs, lower costs of packaging and delivery, etc.
3. Inadequate supply at Home
It may be that the home supplier cannot meet the required demand, specification or volume.
4. Availability
Where the items are more available abroad than at home. Deliveries from home suppliers may be too protracted or uncertain due to lack of capacity, strikes, general shortages, etc.
5. Technical consideration
Technological changes may dictate the need to change plant of machinery which are only available abroad.
6. Customer Preferences and Brand Insistence
This may cause an organisation to import, especially, Where consumer products are concerned and there is insistence on a brand.
7. Product Features
Suppliers abroad, offering products with longer service intervals, or smaller overall size or lower weight may attract the home buyer especially where foreign designs give him comparative advantages.
8. Reciprocal Trading or Manufacturing Agreement
Any of these may tilt the buyer in favour of importing. Reciprocal trading may be the alternative option for a developing country trading with a developed country to balance their foreign currency transactions From the foregoing, the basic motives or objectives for importing from abroad are cost reduction, continuity of supplies quality considerations and the maintenance of reciprocal trading agreements which balance off” balance of payment” deficits.
Factor That Restricts Importation
1 Linguistic/Communication
Problem associated with communicating with potential suppliers in terms of time and language.
2 Non-Availability of Goods
Problems associated with the uncertainty of goods being available, especially, in times of emergency.
3. High Cost
Problems associated with need to buy in large quantities to cover longer lead times, thereby increasing inventory stock holding cost and obsolescence.
4. Variations In Specifications and Standards
Problems associated with variations which may exist between the local and foreign specifications and standards.
5. Spares and Replacements
Problems associated with the possible difficulties involved in obtaining spares and replacements.
6. Currency, Legal and Procedural Problems
Problems associated with possible complications of import procedures, currency regulations and legal difficulties.
7. Freight, Handling and Supplier Appraisal Problems
Problems associated with freight conditions, the handling of rejects where they exist and the need to have a correct appraisal of the supplier may be difficult to achieve.
8. General Administration Problem
Problems associated with the general administration including the required trained personnel to handle the import purchasing.
9. Market Research and Intelligence Problems
Problems associated with market research and intelligence as well as travel and communication which is prompt and clear are also areas of grave concern.
Basic Import Procedure And Documentation
Procedure for foreign purchase include:
Locating a Foreign Source
A buyer should contract the Ministry of External Affairs/ Ministry of Trade, Nigerian Embassies or consultant abroad, foreign embassies or consulates in Nigeria. Generally, foreign embassies or consulates in Nigeria have commercial attachee who are in a position to furnish possible suppliers, names in his country. Other sources of foreign suppliers’ information could be obtained from chambers of commerce, government departments, the foreign departments of banks, and shipping and forwarding agents.
Negotiation/Preparation for Requirement
1. The buyer obtains import quotation of various suppliers abroad to compare the true cost of any source he considers using. True cost ofimported goods will include freight, packing, insurance, handling and forwarding changes and customs duties or tariffs may be applicable to certain classification of goods.
Some of these information must be obtained from Customs and Excise offices or forwarding agents. The quotations from foreign suppliers should contain description/specification of goods, quantities required, price and currency required for payment, the delivery date, payment terms, packaging particulars (with gross and set weight), and delivery/pricing methods(e.g CIF, FOB, FAS, C&F, EX, etc)
2. The buyer then obtains import license if required each time he buys from abroad. He must know the type of license to be obtained, the date the license will expire, any import restrictions such as strategic goods, conditions applicable to re-export of goods, whether duty-free licenses can be obtained.
3. As part of negotiation, a buyer must obtain clear payment terms from the supplier. Suppliers often specify that payments be made to them in any of the following ways:
(i) Through a letter of credit for the total value due say in 30 days, 60 days, 90 days, 120 days, etc. OR
(ii) Through an initial payment with order, and balance against letter of credit OR
(iii) Through an initial payment with order, and balance on receipt of goods, OR
(iv) Through payment against shipping documents.
The method of payment specified will depend upon the supplier’s circumstances, his knowledge of the buyer, the amount of money involved, the period of credit he is prepared to give, etc.
Letter of Credit
Is an instrument issued by a bank to an individual or corporation by which the bank substitute its own credit for that of the individual or corporation. It declares that a buyer has made some funds available in the name of the foreign supplier and which the latter can draw upon if stipulated conditions of the contract are fulfilled.
Application for a letter of credit from a particular bank by a buyer must give details from the suppliers quotation and where necessary the import license number.
Letters of credit are normally for a specified period of time and depends upon the suppliers willingness to give credit. Its variants include:
(i) Irrevocable (confirmed): Those amount be conciled before the expiry date except the supplier gives his consent.
(ii) Revocable (unconfirmed) these are subject to conciliation if this is agreed in the contract of sales.
(iii) Divisible: This is a letter of credit in favour of a middleman, he may transfer portions of the goods to a number of different suppliers.
(iv) Transferable: This is made in favour of an agent or middlemen, who will transfer the credit to the supplier he will ultimately use in the contract.
(v) Assignable: This provides for credit to be paid to a supplier’s assignors in the event OF LIQUIDATION.
4. As part of negotiation of terms and conditions of contract, the buyer must also agree to the forms of pricing and shipping with the supplier. These include:
(i) FOB (Free On Board): Here, the transfer of title occurs when the goods are loaded aboard the vessel. The buyer has to accept all costs and risks from that point. The price quoted here includes carriage from the supplier’s premises to the port of loading/dispatching. Obligation to obtain transport and insurance (except) to a named delivery point) rests with the importer.
(ii) CIF(Cost, Insurance, Freight): The seller assumes all costs and risk until the goods arrive at the port of destination, the selling price quoted will usually include the ocean freight (i.e cost of goods, transport charges and insurance).
(iii) C&F(Cost and Freight): The seller is responsible for all costs to the port of destination, but the buyer has to insure his risk. So prices quoted include the cost of carriage and freight of the goods to a named destination
(iv) FAS(Free Along-side Ship/Steamer): The buyer is responsible for costs and risks on delivery of goods to dock alongside the carrying vessel. Here, responsibility for the goods passes to the buyers as soon as the seller delivers the goods to the carrier or port authority for shipment, so the buyer bears the cost of loading, freight and insurance which are not part of the price quoted by the seller.
(v) Ex-Wharf: Ex can be prefixed to wharf, ship, works, warehouse and factory. This indicate that price applies only at point of origin of good. The buyer bear all other costs and risks from the time he is obliged to take delivery of the goods. Quotations may therefore be “ex-works” and delivered “buyers”
(vi) FOR (Free on Rail): Prices quoted on these terms include carriage only from the suppliers’ premises to the railway stations from which the goods are to be dispatched, the buyer having to pay railway charges.
(vii) Loco: A Loco or spot price is the price for goods at the place where they lie at the time of sale. This is usually the sellers factory or warehouse. So such prices, are quoted ex-wharf or ex-warehouse, signifying that the buyer must himself bear the cost of taking the goods away.
(viii) FRANCO: A price quoted FRANCO free or rendu covers free delivery to the buyers premises, including payment of ports dues and of any import duties that may be levied, as well as cost of transport from ships to the buyer’s premises FRANCO invoice is usually made out in the currency of the importing country.