All about Business and management

September 12, 2007

Role of Commercial banks in International business

Filed under: International Business — Jagdish Hiray @ 9:04 am

            Banking section plays important role in internalation business. Today almost all major banks have offices in major cities around the world. Many banks have formed colloboration with banks in other countries to better serve their international business community. Banks form a bond of trust between buying and selling transactions in international market. For individual banks offer services like foreign exchange, traveler’s check, electronics transfer. For businesses bank plays ar ole of trusty agent by offering servics like ‘Documentary Collection’ and ‘Letter of Credit’. 

           One of the problem international businesses encountering doing business internationally is lack of trust. With the help financial devices commercial banks are able for a bond of trust between internalional buyers and sellers. In commercial methods like ‘Commercial Collection’ and ‘Letter of Credit’ banks act as agents to handle payments as well as relevant documents. Letter of Credit is most wide acceptable and used methog of doing international transactions. Some banks and government agencies offer export credit insurance to businesses. In some cases, exporter has to forgo a letter of credit, in such cases banks offer export credit insurance. 

           Foreign exchange market is another area where international commercial banks play vital role.            Foreign exchange market serves two main functions, convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk. Multinational corporations constantly need various currencies for their operations and to hedge against foreign exchange risk. International banks provide foreign exchange services to their commercial business clients to complete their business transactions. These banks act as a broker between commercial customer and foreign exchanges around the world. International businesses receive payments in foreign currencies for their export, the income it receives from foreign investments and income received from licensing agreements with foreign firms. Internations business use foreign exchange market to pay foreign firms for its products and services and when it makes direct investment in foreign country. International banks play major roles in these transactions.

            Many commercial banks offers short as well as long term loan finaning to internaltional businesses. Many countries have form banks backed by government fundings to provide fundings for exporters and importers. In United States, Export-Import bank, an independent agency of the US government, provides financial aid to faciliate export and import of goods. Eximbank also guarantees repayment of loans US commercial banks make to foreign borrowers for purchasing US exports. 

           Banking sector plays vital role of catalysts in international market. Due to technology advances in banking sector, communciation gap and delays in international business have really narrow down a lot. 

August 17, 2007

International business and legal system

Filed under: International Business — Jagdish Hiray @ 3:27 pm

            Today we are living in global economy where we use goods manufactured in one country and packaged in another country. Businesses have cross boundaries of countries and expanded themselves across the world, in search of availability of raw materials, cheap labor, talent and market for their goods. However, doing business internationally is totally different than in home country. While doing business in other countries, business people have to well aware of country’s culture, people’ behavior, country’s legal system, its political environment and economical conditions.

                        The legal system of a country is significantly important to international businesses. Differences in legal systems can affect the attractiveness of a country as market or investment site. A country’s law regulate business practices, defines business policies, rights and obligations involved in business transactions. The government of a country defines the legal framework within which firms do businesses. Therefore laws differ from country to country. For example, China has Communists government where business laws are strictly controlled by government to controlled business sectors. Where as India has democratic government and business laws are made to protect small businesses and consumers. Although different countries have different laws and regulations, knowledge of common law, civil law, contract laws, laws governing property rights, product safety and liability for a country helps business people to make business decisions.

             The common law system is commonly found in former Great Britain’s colonies and is based on country’s legal history, past court rulings on cases and ways in which laws are applied in specific situations. Judges in a common law system have power to interpret the law under unique circumstances for an individual case. Countries like United States, Australia, India uses common law systems. In civil law system, laws are based on detailed set of written rules and codes. Judges have less flexibility and have power only to apply the law. France, Germany, Russia operate with a civil law system. Some counties have legal system, which is based on religious teachings. Countries like Pakistan, Saudi Arabia, Iran and Middle Eastern nations follow Islamic laws, which is based on holy principles of Koran. It is very important for international business to interpret law according to country and its impact on their commercial activities.

             Many business transactions are regulated by contract, and contract law governs contract enforcement. It is very important for international business people to have good understanding of country’s contract laws. Contracts drafted under common law system are tend to be very detailed, where as contracts are much shorter and less specific in civil law system due to already drafted civil codes.  Therefore common lawa system has long and expensive jurisdiction process. However it has advantage of greater flexibility and allows judges to interpret a contract dispute in particular situatio as compare to civil law system. Businesses should consider these differences while dealing with contracts. Most of countries have laws to protect property rights but in reality local authorities do not enforce these laws. Property rights can be violated through private action or by public action. Private action refers to piracy, theft, blackmail and threats from individuals and groups. A weak legal system might not able to protect businesses from wrong doings. For example, after collapse of communism in Russia, weak legal system and local authorities were failed to protect local as well as international businesses from “Russian Mafia”.Business people often have to pay these mafias to protect their businesses. Public actions involve violation by local authorities or government bureaucrats for some favor or as a part of corruption for monetary benefits. Corruption in government is very common in countries like India and Mexico. The protection of intellectual property rights differs from country to country. Weak enforcement encourages the piracy of intellectual properties like patents, copyrights and trademarks. Pirated software is widely available in China, where as selling of Rolex watches, Levi’s jeans and computer software on streets is very common in Asian countries.

             Courtiers are taking steps to enforce the law to protect intellectual properties, reduce piracy to attract international businesses. International business community has come together to form set of rules to resolve contract dispute by forming ‘United Nations Convention on Contracts for international Sale of Goods” (CIGS). By adopting CIGS, a nation agrees to the other member nation that it will treat the convention’s rule as part of its law. When firm do not wish to accept CIGS, dispute can be settled in any recognized arbitration court like ‘Court of Arbitration of International Chamber of Commerce’ in Paris. Many countries have also signed an agreement to crack down piracy and protect intellectual properties by signing ‘Paris Convention for the Protection of Industrial Property”. In 1970s, United States government passed the ‘Foreign Corrupt Practices Act’ to prevent US businesses bribing foreign government officials to obtain business contracts.

              Considering impact of various aspects of legal system in international business, it is very important for business people to have good understanding of legal systems of countries they do business with.

August 7, 2007

India : Past, Present and Future

Filed under: International Business — Jagdish Hiray @ 7:11 pm

                 Traditionally India is known as a country with its ancient heritage and centuries old culture, it is country where people from different cultures and languages staying together in a society divided by nature of work, cast and wealth. India has one of the biggest democracies in the world and second largest population in the world. It is land of great saints, philosophers, freedom fighters and great people like Mahatma Gandhi, Mother Teresa. British ruled India for more that hundred years, India got its independence by its peace and long running independent movement. Today, India has one of the fastest growing and developing economies in the world. But since past decade, India has attracted business community around the world because of its growing market potential and continuous flow of talented manpower.

                 After India got independence from British in 1947, country went through bloody riots caused by partition of Pakistan from main land. Riots caused considerable damage to country’s infrastructure and lowered moral of people. However people of India demonstrated strong integrity and support for government. Managing such a huge country in democratic manner was a big challenge in front newly formed government. British took most of wealth over period of time and left country in a poor state. Biggest challenge for government was to construct new strong democratic constitution and keep integrity of country intact. Farming was primary source of income and employment. Therefore government concentrated building strong agricultural sector by helping farmers with various financial aids and policies.

                 During 1960s and 1970s local businesses florist and they were able to served need of local market. Government concentrated building basic infrastructure such as schools and hospitals. Till 1980s India had all its products made indigenously and almost consumed indigenously. During this period of time country lost some great leaders. To protect local market, conservative government put restrictions on foreign imports and started encouraging exports. However during this period of time industrial sector has grown up fast and government already completed building major large projects such as chemical factories, oil refineries. However population growth rate keep getting higher and unemployment rate increased. In 70s and early 80s, some states started private engineering and medical colleges; government too funded schools and colleges. Other state government followed same path. Education was given more importance along with life necessities. With computer revolution in late 80s, this talented work force was viewed and used to explore more in the world and particular in United States who was leading technology revolution. In 80s and 90s many state governments formed Export processing zones to help companies setup export infrastructure, provided benefits and facilities to encourage exports and hence provide ample of employments to youth. Indian students were offered educational assistance in foreign universities and were employed in multinationals in US and Europe. Many software companies offered direct employment to readily available talent.

                  During period of 1990s, India attracted many foreign direct investment (FDI) and many international companies either setup their subsidiary or did collaboration with local companies. Many software companies opened software development and support centers in cities like Bombay, Bangalore and Chennai where ample source of talented workforce were available. Companies also viewed India as source of cheap and quality labor compare to rate in international market. With fear of year 2000 Y2K bug, many companies around the world started looking for software partner companies to patch their code. Looking at future growing market, many state governments and federal governments came together to help companies setup and open operations in India. Many multination companies such as Vipro, Satyam, and Tata Consultancy Services emerge as big software player in the market. Many well-known software giant like Microsoft, Oracle made India as their primary base for future software development. This tremendous demand for software professional gave rise to many new educational institutes, increased country’s foreign reserves, florist various local business and kept money circulation in the economy ever before.

                    After Internet bubble burst in year 20001, many companies started outsourcing their work to India to cut their operating cost. India has then become main source of outsourcing services providers. Many foreign companies outsourced their operations to either their Indian subsidiary or outsourced to big players like Infosys and Satyam computers. Call centers were moved to India and it gave rise another source employment to youth. Other service industries like medical record keeping, technical support, and product support were outsourced to India as well. Many new cities were developed and got equipped with infrastructure to support new businesses. Overall effect caused local economy to grow in all sectors, making new job opportunity available with much higher return than expected. This in turn caused increase in people’s life style and increased consumer spending. Consumer sector showed strong growth, many multi national car companies like Ford, Toyota entered car market and Motorolla, and LG has entered into consumer market to serve such a huge population. This in turn created more jobs and prospect for new business.

                 Today, Indian market has all top multinational companies and their products, serving mass population. Private sector is developing by lips and bonds, that in turn putting pressure on government to open more public sectors for private companies to do business. Government has sold non-profitable and sick public sectors to private sectors, private foreign banks changed face of traditional banking sector, and government is forced to invest in infrastructure. Today many Indian manufacturing companies are winning big contracts in the world market, trying to acquire companies oversees. Stocks of Indian companies are getting traded in all major stock exchanges in the world. Private companies are helping government setting up strong infrastructure in various fields like communication, building super highways, and building world-class airports. Overall life style of a common man has been improved.

                 However, there are challenges in front of Indian government and people of India. Population growth and control is the one of biggest challenge. Corruption within government agencies is another burning issue face by common man every day. Legal system is still in hand of corrupt officers and needs dramatically change. However looking at growth of Indian market and people’s response to it, most of government agencies will be run by private sectors in next 10 to 20 years autonomously. Existing government structure will change dramatically, government officers such as IAS, IPS and so on will soon get replaced by qualified people from private industry. Such officers having exposure to industry and global market will run government administration. Government will run as a separate entity as can be seen in any capitalist country. Indian marketplace and its economy might lead to new avenues which world has never seen before.

July 26, 2007

Balance of payments accounting system (BOP)

Filed under: International Business — Jagdish Hiray @ 7:48 pm

            Balance of payments accounting system (BOP) is an accounting system design to track buy and sell transactions between countries by an individuals, businesses and government agencies. It is double entry system in which each transaction creates a credit entry and a debit entry of equal value. Buying goods and services creates debit entries and selling things produces credits entries.

             BOP reocords only those trasactions that has some monetary value. It records transactions done in certain period of time, say for a year. It records transactions between residents of one country and residents of other countries. Residents can be individuals, businesses or government agencies. A branch of a firm is considered as resident of parent country since it is not incorporated in host country. Whereas a subsidiary is incorporated in host country and considered as resident of host country.

             Conceptually BOP system consists of four major accounts: current account, capital account, official reserv acount and errors and omissions. The current account records four types of transactions: exports and imports of merchandise, exports and imports of services, investment income and gift, between residents of different countries. Capital account records capital transactions such as purchaes and sales of assets. Capital account includes foreign direct investment (FDI) and portforlio investment. Official reserves account records official reserves held by a national government. It includes assets such as gold, SDRs, convertible currencies and reserve positions at IMF. The errors and omissions acount is used to adjust BOP balance such that sum of all four account type approximates to zero. 

            BOP helps to understand the performance of each country’s economy in international market. It helps business people identify emerging markets, understand market competitiveness and helps policy maker to define new policies accourding to market trend. It also helps policy maker to watch and act as feedback system for their newly implemented policies. It also gives exporters and importers good knowledge about internaltional market transactions and trend to plan their business better. It also reflects country’ export and import potential and in turn helps business analysts to monitor international market. 

July 22, 2007

Taiwan : Journey from low income to high income country

Filed under: International Business — Jagdish Hiray @ 7:28 pm

                 Today Taiwan has one of the fastest growing economies in the world. Taiwan has achieved this rapid economical growth and development through its try, learn and improve policy backed by hard work of the people of Taiwan. This abstract is devoted to chronological development of Taiwan over period time and its rise from low-income country to high-income country in Asian.            

                 After World War II in 1945, government of Republic of China recovered Taiwan from Japanese, infrastructure was collapsed and the island was in a state of devastation. There was shortage of necessary food supplies, power and other goods. Population was growing fast and island was not able to procedure enough for its need. Government (Republi of China on Tiwan) is forced to take action and started concentrating on basic needs and foundation. It started agriculture reforms and started initiatives to grow locally. Till 1962 agriculture contributed more to GDP than industrial production and Taiwan had agriculture-based economy. During this period economy structure went through gradual changes due to international completion and growth of domestic industries.

             Taiwan’s industrial era started from 1962 when industrial output exceeded agricultural production, economy started transformed from agriculture based into industrial based. Government opened export processing zones, prompted exports, lifted many trade restrictions, lowered tariffs and created more employment. Took economical measures to attract foreign investment and encourage the development of export industries. Government started projects to improve basic infrastructure, promoted development of construction and chemical industry. The period between 1963 and 1980 marked as the most rapid growth period in Taiwan’s history. In 80s government focused on liberalization and globalization of economy as well as privatization of government run sectors. Taiwan’s economy continues to grow with in both agricultural and industrial sectors in next several years.

             Government initiatives and people’s hard work moved Taiwan’s economy from war zone to rapidly growing economy. Their spirit to survive and develop county, along with government initiatives made Taiwan to grow faster than other countries. People of Taiwan have showed to the world, how undeveloped country can change into a country with fastest economy in the world, backed by people’s hard work and government’s strategic planning and implementation.

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