research about international trade

CONTENT:
INTRODUCTION
I. General information about International Trade
1. Definition
2. The benefits of international trade
3. The risks of international trade
4. Definition of export
II. Lessons that exporters must learn:
1. Pricing Considerations:
2. Quotations and Pro Forma Invoices:
3. Terms of Sale
III. Security in payment exporters must know
1. Cash in advance;
2. Documentary letter of credit;
3. Documentary collection or draft;
4. Open account;
5. Other payment mechanisms, such as consignment sales.
IV. Achievements, disadvantages and methods for exporting in Vietnam
1. Achievements
2. Disadvantages
3. Recommendations to further the exporting Vietnam - EU
CONCLUSION
REFERENCES
INTRODUCTION

International trade is the exchange of capital, goods, and services across international
borders or territories. In most countries, such trade represents a significant share of gross
domestic product . While international trade has been present throughout much of history
its economic, social, and political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the international trade system. Increasing

international trade is crucial to the continuance of globalization. Without international trade,
nations would be limited to the goods and services produced within their own borders.
International trade is also a branch of economics, which, together with international
finance, forms the larger branch of international economics. International trade is, in
principle, not different from domestic trade as the motivation and the behavior of parties
involved in a trade do not change fundamentally regardless of whether trade is across a
border or not. The main difference is that international trade is typically more costly than
domestic trade. The reason is that a border typically imposes additional costs such as tariffs,
time costs due to border delays and costs associated with country differences such as
language, the legal system or culture.
I. General information about international trade
1. Definition
“International trade is the act of sending goods and services from one nation to others”.
Relatively, international trade would be defined as “all goods and services sent from one
country to other nation” . Companies export products when the international market place
offers opportunities to increase sales and in turn profits. Those companies may be small,
medium-size or large multination firms, but they all engage in exporting. However, not all
companies get involved in export activities to the same extend. Some companies perform
few or none of necessary activities to get their product a market abroad. Instead, they use
intermediaries that specialize in getting products from one market to another. Other
companies perform all of their activities themselves with an infrastructure that bridges the
gap between two markets.
2. The benefits of international trade
- Attracting Investment
Investment follows trade. Many foreign companies will invest in an office, factory, or
distribution warehouse to simplify their trade and reduce cost. This investment also creates
more jobs. It also attracts international investors.
- Grow your business
When trading internationally the “universe” of potential clients and suppliers will increase
significantly. Just imagine increasing the number of potential clients by 100 percent each

time you start selling in a new country. In all likelihood, this will probably be much easier
than trying to expand your market place in your “home” country.
- Diversify risk
The idea that a business relies solely on one market and directs all its resources into a
single currency may prove to be more risky than it may first seem. Just look at the number of
unprecedented global “disasters” (financial meltdown, earthquakes and unrest in the Middle
East) over the last few years and the drastic impacts these have had on markets. Your home
market could contract or even disappear, but your business may be saved by the revenue it
generates overseas.
- Better margins
As well as seeing increased sales, you may well enjoy better margins. Sterling which is
currently weak may give you a head start when exporting. Pricing pressure could be less and
it could also reduce seasonal market fluctuations.
- Earlier payments
When working with companies overseas, both you and your customer will want to execute
the transaction in the safest and most efficient manner possible. One of the many advantages
when trading internationally is that overseas payers often pay upfront. This reduces payment
risk and may well help your working capital.
- Less competition
The ability to stand out amongst competitors is a crucial factor in business. When there are
fewer competitors, this task is made easier. Your business, which may be viewed as
comparable to others in the UK, may, when placed in a larger and more diverse environment,
turn out to be a unique product or service not to be missed. By making the product or service
available to worldwide buyers, you instantly create another life line for the business by being
in less competition and increasing the possibility of standing out. This will in turn boost sales
potential and allow your business to flourish.
3. The risks of international trade
- Not spending enough time defining the risks of international trade
Are you clear why you want to trade internationally? Are you aware of its risks? What are
the reasons you want to sell or buy from overseas? It is crucial that you have a clear

understanding of what international trade involves. It is easy to become engulfed in the
excitement of its benefits and marginalise the risks to your detriment.
- Misunderstanding the local legal framework
It is dangerous to assume that laws in other countries are similar to that of the UK. The
reality is laws differ in every country which means it is essential you spend sufficient time
educating your company about the legal framework of the country you are doing business
with. Identifying a local lawyer is a good idea so that you can get a full picture of the laws
that will apply and which ones will affect your business. Doing something legally right the
first time can save you a lot of time, money and possible future heartache.
- Not communicating effectively with your business partners
Relationships have to be worked at as there are always problems and emails can be very
easily misunderstood. Time spent on the telephone and visiting will make life so much easier
in the long term as you are likely to develop a rapport and gain a firmer understanding of
how your partner works and thinks. Invaluable.
- Not spending enough time with your potential business partners
Long distant relationships leave a lot to be desired. Two good friends of mine who have
been buying goods from China and selling to a number of countries for more years than any
of us wish to remember, spend even now, a huge amount of time up front with new potential
partners. This is time very well spent as it has meant they have developed some very good
partners and avoided some very dodgy characters along the way.
- Unstable profits
With so many aspects to consider when trading at an international level, it is easy to leave
currency exchange to the last minute. Unfortunately, in doing this, there is a risk of not
getting the best exchange rate which in turn could have a negative impact on your business’
profit.Aanything we export or import will have to be exchanged into sterling. This means
that between setting your budget, buying the goods and then paying for them, if you do not
plan ahead, the market’s volatility could always change the worth of the sterling – and not
always for the best.
4. Definition of export
“Export” is a function of international trade whereby goods produced in one country are

shipped to another country for future sale or trade. The sale of such goods adds to the
producing nation's gross output. If used for trade, exports are exchanged for other products
or services. Exports are one of the oldest forms of economic transfer, and occur on a large
scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.
II. Lessons that exporters must learn
When doing the exports, the exporters have to consider many many factors which will
significantly affect their result after completing their export contract. There are 3 main
factors we would like to clerify: Pricing, Quotations, and Terms. Proper pricing, complete
and accurate quotations, choosing the terms of the sale, and selecting the payment method
are four critical elements in selling a product or service overseas.
1. Pricing Considerations:
The price considerations listed below will help an exporter determine the best price for the
product overseas:
• At what price should the firm sell its product in the foreign market?
• What type of market positioning (customer perception) does the company want to
convey from its pricing structure?
• Does the export price reflect the product's quality?
• Is the price competitive?
• Should the firm pursue market penetration or market-skimming pricing objectives
abroad?
• What type of discount (trade, cash, quantity) and allowances (advertising, trade-off)
should the firm offer its foreign customers?
• Should prices differ by market segment?
• What should the firm do about product line pricing?
• What pricing options are available if the firm's costs increase or decrease? Is the
demand in the foreign market elastic or inelastic?
• Are the prices going to be viewed by the foreign government as reasonable or
exploitative?
• Do the foreign country's antidumping laws pose a problem?
As in the domestic market, the price at which a product or service is sold directly

determines a firm's revenues. It is essential that a firm's market research include an
evaluation of all of the variables that may affect the price range for the product or service. If
a firm's price is too high, the product or service will not sell. If the price is too low, export
activities may not be sufficiently profitable or may actually create a net loss.
The traditional components of determining proper pricing are costs, market demand, and
competition. Each of these must be compared with the firm's objective in entering the foreign
market. An analysis of each component from an export perspective may result in export
prices that are different from domestic prices.
It is also very important that the exporter take into account additional costs that are
typically borne by the importer. They include tariffs, customs fees, currency fluctuation
transaction costs and value-added taxes (VATs). These additional costs can add substantially
to the final price paid by the importer, sometimes resulting in a total of more than double the
U.S. domestic price.
1.1. Foreign Market Objectives:
An important aspect of a company's pricing analysis is determining market objectives. For
example, is the company attempting to penetrate a new market, looking for long-term market
growth, or looking for an outlet for surplus production or outmoded products? Many firms
view the foreign market as a secondary market and consequently have lower expectations
regarding market share and sales volume. This naturally affects pricing decisions.
Marketing and pricing objectives may be general or tailored to particular foreign markets.
For example, marketing objectives for sales to a developing nation where per capita income
may be one tenth of that in the United States are necessarily different from the objectives for
Europe or Japan.
1.2. Costs:
The computation of the actual cost of producing a product and bringing it to market is the
core element in determining if exporting is financially viable. Many new exporters calculate
their export price by the cost-plus method. In the cost-plus method of calculation, the
exporter starts with the domestic manufacturing cost and adds administration, research and
development, overhead, freight forwarding, distributor margins, customs charges, and profit.
The effect of this pricing approach may be that the export price escalates into an

uncompetitive range. Table 4 gives a sample calculation. It clearly shows that if an export
product has the same ex-factory price as the domestic product, its final consumer price is
considerably higher once exporting costs are included.
Marginal cost pricing is a more competitive method of pricing a product for market entry.
This method considers the direct, out-of-pocket expenses of producing and selling products
for export as a floor beneath which prices cannot be set without incurring a loss. For
example, additional costs may occur due to product modification for the export market that
accommodates different sizes, electrical systems, or labels. On the other hand, costs may
decrease if the export products are stripped-down versions or made without increasing the
fixed costs of domestic production.
Other costs should be assessed for domestic and export products according to how much
benefit each product receives from such expenditures. Additional costs often associated with
export sales include:
• Market research and credit checks;
• Business travel;
• International postage, cable, and telephone rates;
• Translation costs;
• Commissions, training charges, and other costs involving foreign representatives;
• Consultants and freight forwarders; and
• Product modification and special packaging.
After the actual cost of the export product has been calculated, the exporter should formulate
an approximate consumer price for the foreign market.
For example:
Table 4
Sample Cost-Plus Calculation of Product Cost
Domestic Sale Export Sale
Factory price $7.50 $7.50
Domestic freight .70 .70
subtotal 8.20 8.20
Export documentation .50

subtotal 8.70
Ocean freight and insurance 1.20
subtotal 9.90
Import duty (12 percent of landed cost) 1.19
subtotal 11.09
Wholesaler markup (15 percent) 1.23
subtotal 9.43
Importer/distributor markup 2.44
subtotal 13.53
Retail markup (50 percent) 4.72 6.77
Final consumer price $14.15 $20.30
1.3. Market Demand
For most consumer goods, per capita income is a good gauge of a market's ability to pay.
Some products may create such a strong demand such as popular goods like Levis, that even
low per capita income will not affect their selling price. Simplifying the product to reduce its
selling price may be an answer for the exporter to most lower per capita income markets.
The firm must also keep in mind that currency fluctuations may alter the affordability of its
goods. Thus, pricing should try to accommodate wild changes in the U.S. and/or foreign
currency. The firm should anticipate the type of potential customers. If the firm's primary
customers in a developing country are expatriates or belong to the upper class, a higher price
might be feasible even if the average per capita income is low.
1.4. Competition
In the domestic market, few companies are free to set prices without carefully evaluating
their competitors' pricing policies. This situation is true in exporting, and is further
complicated by the need to evaluate the competition's prices in each potential export market.
If there are many competitors within the foreign market, the exporter may have little choice
but to match the market price or even underprice the product or service in order to establish a
market share. On the other hand, if the product or service is new to a particular foreign
market, it may actually be possible to set a higher price than in the domestic market.
1.5. Pricing Summary

In summary, here are the key points to remember when determining your product's price:
• Determine the objective in the foreign market.
• Compute the actual cost of the export product.
• Compute the final consumer price.
• Evaluate market demand and competition.
• Consider modifying the product to reduce the export price.
• Include "nonmarket" costs, such as tariffs and customs fees.
• Exclude cost elements that provide no benefit to the export function, such as domestic
advertising.
2. Quotations and Pro Forma Invoices:
Many export transactions, particularly initial export transactions, begin with the receipt of
an inquiry from abroad that is followed by a request for a quotation. The preferred method
for export is a pro forma invoice, which is a quotation prepared in invoice format.
A quotation describes the product, states a price for it, sets the time of shipment, and
specifies the terms of the sale and terms of the payment. Since the foreign buyer may not be
familiar with the product, the description of it in an overseas quotation usually must be more
detailed than in a domestic quotation. The description should include the following 15
points:
• Seller's and buyer's names and addresses.
• Buyer's reference number and date of inquiry.
• Listing of requested products and brief description.
• Price of each item (it is advisable to indicate whether items are new or used and to
quote in U.S. dollars to reduce foreign-exchange risk).
• Appropriate gross and net shipping weight (in metric units where appropriate).
• Appropriate total cubic volume and dimensions packed for export(in metric units
where appropriate).
• Trade discount (if applicable).
• Delivery point.
• Terms of sale.
• Terms of payment.

• Insurance and shipping costs.
• Validity period for quotation.
• Total charges to be paid by customer.
• Estimated shipping date from U.S. port or airport.
• Currency of sale.
Pro forma invoices are not used for payment purposes. In addition to the 15 items
previously mentioned, a pro forma invoice should include two statements. One that certifies
the pro forma invoice is true and correct and another that gives the country of origin of the
goods. The invoice should also be clearly marked "pro forma invoice."
Pro forma invoices are models that the buyer uses when applying for an import license,
opening a letter of credit or arranging for funds. In fact, it is a good practice to include a pro
forma invoice with any international quotation, regardless of whether it has been requested
or not. When final commercial invoices are being prepared prior to shipment, it is advisable
to check with the U.S. Department of Commerce or another reliable source for any special
invoicing requirements that may be required by the importing country.
If a specific price is agreed upon or guaranteed by the exporter, the precise period during
which the offer remains valid should be specified. Additionally, it is very important that
price quotations state explicitly that they are subject to change without notice.

An example of ProForma Invoice:
PROFORMA INVOICE
Export References:
Medical Imaging Minnesota, Inc. quote number BT10102
Mendez Equipo Médico S.A. purchase order number M3652
Expiration Date:
1FEB09
Exporter Name and Address:
Medical Imaging Minnesota, Inc
100 North Sixth Street
Minneapolis, MN 55403 USA

Ultimate Consignee Name and
Address:
Mendez Equipo Médico S.A.
Col. Roma
Mexico D.F., C.P. 06760
Sold To Name and Address:
Mendez Equipo Médico S.A.
Col. Roma
Mexico D.F., C.P. 06760
Intermediate Consignee/Consigned to:
Galfiro Montemayor Brokers
Avenida de Colombia
1025 Veracruz, Mexico
Notify Party Name and Address:
Mendez Equipo Médico S.A.
Col. Roma
Mexico D.F., C.P. 06760
Phone: 5 25 1 348 1572
Contact: Carlos Mendez
Date of Shipment: 3 - 4 Weeks from Order
AWB/BL Number:
Currency: USD
Letter of Credit Number:
Conditions of Sale and Terms of Payment:
Freight (please mark):
Pre-paid X Collect___
Title Transfer Occurs At:
Minneapolis, Minnesota
CPT Veracruz, Mexico per Incoterms 2000
Payment Terms: Payable by letter of credit

Transportation method:
Via: Ocean
From: Port of Houston, Texas to Port
of Veracruz, Mexico
Total Number of Packages: 4
Total Net Weight (kgs): 1,820
Total Gross Weight (kgs): 2,000

Item Number, Product Description, Tariff Classification Number, Country of Origin Quantity Unit
Pri
ce
Total Price
This invoice is for export/import purposes only and not intended for payment purpose
3. Terms of Sale
In any sales agreement, it is important that there is a common understanding of the delivery
terms since confusion over their meaning can result in a lost sale or a loss on a sale. The
terms in international business transactions often sound similar to those used in domestic
business, but they frequently have very different meanings. For this reason, the exporter
must know the terms before preparing a quotation or a pro forma invoice.
The following are a few of the more frequently used terms in international trade:
Model BT002043 Ultrasound Imaging Machine USA origin
Tariff Classification 9018.12
Export Packing/Crating
U.S Inland freight: Minneapolis to Houston
Forwarding fees
Ocean freight
Total CPT Veracruz, Mexico per Incoterms 2000
4 80,000 320,000 USD
800
300

240
6,060
USD 327,400
Please Note: These commodities, technology, or software were exported from the United States in accordance with the Export Administration
Regulations. Diversion contrary to U.S. law prohibited.
Authorized Signature:
Company: Medical Imaging Minnesota, Inc.
Name: Ms. Amelia Goeppinger Title: Export Manager
Date: 10JAN08 E-mail:
Telephone Number(s)
Voice: 987 654 3210 Facsimile: 987 654 3211
• CIF (cost, insurance, freight) to a named overseas port where the seller quotes a price
for the goods (including insurance), all transportation, and miscellaneous charges to
the point of debarkation from the vessel. (Used only for ocean shipments.)
• CFR (cost and freight) to a named overseas port where the seller quotes a price for
the goods that includes the cost of transportation to the named point of debarkation.
The the buyer covers the cost of insurance. (Used only for ocean shipments.)
• CPT (carriage paid to) and CIP (carriage and insurance paid to) a named place of
destination. These terms are used in place of CFR and CIF, respectively, for all
modes of transportation, including intermodal.
• EXW (ex works) at a named point of origin (e.g., ex factory, ex mill, ex
warehouse)where the price quoted applies only at the point of origin. The seller agrees
to place the goods at the buyer's disposal at the specified place within the fixed time
period. All other charges are put on the buyer's account.
• FAS (free alongside ship) at a named port of export where the seller quotes a price for
the goods that includes the charge for delivery of the goods alongside a vessel at the
port. The seller handles the cost of wharfage, while the buyer is accountable for the
costs of loading, ocean transportation, and insurance.
• FCA (free carrier) at a named place. This term replaces the former "FOB named
inland port" to designate the seller's responsibility for handing over the goods to a

named carrier at the named shipping point. It may also be used for multimodal
transport, container stations, or any mode of transport, including air.
• FOB (free on board) at a named port of export where the seller quotes the buyer a
price that covers all costs up to and including the loading of goods aboard a vessel.
• Charter Terms:
- Free In is a pricing term that indicates that the charterer of a vessel is responsible
for the cost of loading goods onto the vessel.
- Free In and Out is a pricing term that indicates that the charterer of the vessel is
responsible for the cost of loading and unloading goods from the vessel.
- Free Out is a pricing term that indicates that the quoted prices include the cost of
unloading goods from the vessel.
It is important to understand and use sales terms correctly. A simple misunderstanding may
prevent exporters from meeting contractual obligations or make them responsible for
shipping costs they sought to avoid.
When quoting a price, the exporter should make it meaningful to the prospective buyer.
For example, a price for industrial machinery quoted "EXW Saginaw, Michigan, not export
packed" is meaningless to most prospective foreign buyers. These buyers would find it
difficult to determine the total cost and might hesitate to place an order.
The exporter should quote CIF or CIP whenever possible, as it shows the foreign buyer the
cost of getting the product to or near the desired country.
If assistance is needed in figuring CIF or CIP prices, an international freight forwarder can
help. The exporter should furnish the freight forwarder with a description of the product to
be exported and its weight and cubic measurement when packed. The freight forwarder can
compute the CIF price usually at no charge.
III. Security in payment exporters must know
An experienced exporting firm extends credit cautiously. It evaluates new customers with
care and continuously monitors older accounts. Such a firm may wisely decide to decline a
customer's request for open account credit if the risk is too great and propose instead
payment on delivery terms through a documentary sight draft or irrevocable confirmed letter
of credit or even payment in advance. On the other hand, for a fully creditworthy customer,

the experienced exporter may decide to allow a month or two to pay, perhaps even on open
account.
Other good credit practices include being aware of any unfavorable changes in your
customers' payment patterns, refraining from going beyond normal commercial terms, and
consulting with your international banker n how to cope with unusual circumstances or in
difficult markets. It is always advisable to check a buyer's credit (even if safest payment
methods are employed). As being paid in full and on time is of the utmost concern to
exporters, the level of risk in extending credit is a major consideration. There are several
ways in which you can receive payment when selling your products abroad, depending on
how trustworthy you consider the buyer to be. Typically with domestic sales, if the buyer has
good credit, sales are made on open account; if not, cash in advance is required. For export
sales, these ways are not the only common methods. Listed in order from most secure for
the exporter to the least secure, the basic methods of payment are:
1. Cash in advance;
2. Documentary letter of credit;
3. Documentary collection or draft;
4. Open account;
5. Other payment mechanisms, such as consignment sales.
1. Cash in advance:
With the cash-in-advance payment method, the exporter can eliminate credit risk or the
risk of non-payment since payment is received prior to the transfer of ownership of the
goods. Wire transfers and credit cards are the most commonly used cash-in-advance options
available to exporters. With the advancement of the Internet, escrow services are becoming
another cash-in-advance option for small export transactions. However, requiring payment in
advance is the least attractive option for the buyer, because it tends to create cash-flow
problems, and it often is not a competitive option for the exporter especially when the buyer
has other vendors to choose from. In addition, foreign buyers are often concerned that the
goods may not be sent if payment is made in advance. Exporters who insist on cash-in-
advance as their sole payment method for doing business may lose out to competitors who
are willing to offer more attractive payment terms.

Characteristics of Cash-in-Advance:
Applicability
Recommended for use in high-risk trade relationships or export markets,
and appropriate for small export transactions
Risk
Exporter is exposed to virtually no risk as the burden of risk is placed
almost completely on the importer
Pros
- Payment before shipment
- Eliminates risk of non-payment
Cons
- May lose customers to competitors over payment terms
- No additional earnings through financing operations
Key Points
• Full or significant partial payment is required, usually via credit card or bank or wire
transfer or escrow service, before the ownership of the goods is transferred.
• Cash-in-advance, especially a wire transfer, is the most secure and least risky method
of international trading for exporters and, consequently, the least secure and an
unattractive method for importers. However, both the credit risk and the competitive
landscape must be considered.
• Exporters may select credit cards as a viable cash-in-advance option, especially for
small consumer goods transactions.
• Exporters may also select escrow services as a mutually beneficial cash-in-advance
option for small transactions with importers who demand assurance that the goods
will be sent in exchange for advance payment.
• Insisting on cash-in-advance could, ultimately, cause exporters to lose customers to
competitors who are willing offer more favorable payment terms to foreign buyers.
• Creditworthy foreign buyers, who prefer greater security and better cash utilization,
may find cash-in-advance unacceptable and simply walk away from the deal.

2. Documentary letter of credit:
Letters of credit (LCs) are one of the most versatile and secure instruments available to
international traders. An LC is a commitment by a bank on behalf of the importer (foreign
buyer) that payment will be made to the beneficiary (exporter) provided that the terms and
conditions stated in the LC have been met, as evidenced by the presentation of specified
documents. Since LCs are credit instruments, the importer’s credit with his bank is used to
obtain an LC. The importer pays his bank a fee to render this service. An LC is useful when
reliable credit information about a foreign buyer is difficult to obtain or if the foreign buyer’s
credit is unacceptable, but the exporter is satisfied with the creditworthiness of the importer’s
bank. This method also protects the importer since the documents required to trigger
payment provide evidence that goods have been shipped as agreed. However, because LCs
have opportunities for discrepancies, which may negate payment to the exporter, documents
should be prepared by trained professionals or outsourced. Discrepant documents, literally
not having an “i dotted and t crossed,” may negate the bank’s payment obligation.

Characteristics of a Letter of Credit:
Applicability
Recommended for use in higher-risk situations or new or less-established
trade relationships when the exporter is satisfied with the creditworthiness
of the buyer’s bank
Risk
Risk is spread between exporter and importer, provided that all terms and
conditions as specified in the LC are adhered to
Pros
- Payment made after shipment
- A variety of payment, financing and risk mitigation options available
Cons
- Labor intensive process
- Relatively expensive method in terms of transaction costs
Key Points

• An LC, also referred to as a documentary credit, is a contractual agreement whereby
the issuing bank (importer’s bank), acting on behalf of its customer (the importer or
buyer), promises to make payment to the beneficiary or exporter against the receipt of
“complying” stipulated documents. The issuing bank will typically use intermediary
banks to facilitate the transaction and make payment to the exporter.
• The LC is a separate contract from the sales contract on which it is based; therefore,
the banks are not concerned with the quality of the underlying goods or whether each
party fulfills the terms of the sales contract.
• The bank’s obligation to pay is solely conditioned upon the seller’s compliance with
the terms and conditions of the LC. In LC transactions, banks deal in documents only,
not goods.
• LCs can be arranged easily for one-time transactions between the exporter and
importer or used for an ongoing series of transactions.
• Unless the conditions of the LC state otherwise, it is always irrevocable, which means
the document may not be changed or cancelled unless the importer, banks, and
exporter agree.
3. Documentary collection or draft:
A documentary collection (D/C) is a transaction whereby the exporter entrusts the
collection of payment to the exporter’s bank (remitting bank), which sends documents to the
importer’s bank (collecting bank), along with instructions for payment. Funds are received
from the importer and remitted to the exporter through the banks in exchange for those
documents. D/Cs involve using a bill of exchange (commonly known as a draft) that requires
the importer to pay the face amount either at sight (document against payment [D/P] or cash
against documents) or on a specified future date (document against acceptance [D/A] or cash
against acceptance). The collection cover letter gives instructions that specify the documents
required for the delivery of the goods to the importer. Although banks do act as facilitators
(agents) for their clients under collections, D/Cs offer no verification process and limited
recourse in the event of non-payment. D/Cs are generally less expensive than letters of credit
(LCs).
Characteristics of a Documentary Collection:

Applicability
Recommend for use in established trade relationships, in stable export
markets and for transactions involving ocean shipments
Risk
Riskier for the exporter, though D/C terms are more convenience and
cheaper than an LC to the importer
Pros
- Bank assistance in obtaining payment
- The process is simple, fast, and less costly than LCs
Cons
- Banks’ role is limited and they do not guarantee payment
- Banks do not verify the accuracy of the documents
Key Points
• D/Cs are less complicated and less expensive than LCs.
• Under a D/C transaction, the importer is not obligated to pay for goods before
shipment.
• If structured properly, the exporter retains control over the goods until the importer
either pays the draft amount at sight or accepts the draft to incur a legal obligation to
pay at a specified later date.
• Although the goods can be controlled under ocean shipments, they are more difficult
to control under air and overland shipments, which allow the foreign buyer to receive
the goods with or without payment unless the exporter employs agents in the
importing country to take delivery until goods are paid for.
• The exporter’s bank (remitting bank) and the importer’s bank (collecting bank) play
an essential role in D/Cs.
• Although the banks control the flow of documents, they neither verify the documents
nor take any risks. They can, however, influence the mutually satisfactory settlement
of a D/C transaction.
4. Open account:
An open account transaction in international trade is a sale where the goods are shipped

and delivered before payment is due, which is typically in 30, 60 or 90 days. Obviously, this
option is advantageous to the importer in terms of cash flow and cost, but it is consequently a
risky option for an exporter. Because of intense competition in export markets, foreign
buyers often press exporters for open account terms. In addition, the extension of credit by
the seller to the buyer is more common abroad. Therefore, exporters who are reluctant to
extend credit may lose a sale to their competitors. However, though open account terms will
definitely enhance export competitiveness, exporters should thoroughly examine the
political, economic, and commercial risks as well as cultural influences to ensure that
payment will be received in full and on time. It is possible to substantially mitigate the risk
of non-payment associated with open account trade by using trade finance techniques such as
export credit insurance and factoring. Exporters may also seek export working capital
financing to ensure that they have access to financing for production and for credit while
waiting for payment.
Characteristics of an Open Account Transaction:
Applicability
Recommended for use (a) in low-risk trading relationships or markets and
(b) in competitive markets to win customers with the use of one or more
appropriate trade finance techniques
Risk
Substantial risk to the exporter because the buyer could default on
payment obligation after shipment of the goods
Pros
- Boost competitiveness in the global market
- Help establish and maintain a successful trade relationship
Cons
- Significant exposure to the risk of non-payment
- Additional costs associated with risk mitigation measures
Key Points
• The goods, along with all the necessary documents, are shipped directly to the
importer who has agreed to pay the exporter’s invoice at a specified date, which is

usually in 30, 60 or 90 days.
• The exporter should be absolutely confident that the importer will accept shipment
and pay at the agreed time and that the importing country is commercially and
politically secure.
• Open account terms may help win customers in competitive markets and may be used
with one or more of the appropriate trade finance techniques that mitigate the risk of
non-payment.
5. Other payment mechanisms, such as consignment sales:
Consignment in international trade is a variation of the open account method of payment in
which payment is sent to the exporter only after the goods have been sold by the foreign
distributor to the end customer. An international consignment transaction is based on a
contractual arrangement in which the foreign distributor receives, manages, and sells the
goods for the exporter who retains title to the goods until they are sold. Payment to the
exporter is required only for those items sold. One of the common uses of consignment in
exporting is the sale of heavy machinery and equipment because the foreign distributor
generally needs floor models and inventory for sale. Goods not sold after an agreed upon
time period may be returned to the exporter at cost. Exporting on consignment is very risky
as the exporter is not guaranteed any payment and someone outside the exporter’s control
has actual possession of its inventory. However, selling on consignment can provide the
exporter some great advantages which may not be obvious at first glance. For example,
consignment can help exporters compete on the basis of better availability and faster delivery
of goods when they are stored near the end customer. It can also help exporters reduce the
direct costs of storing and managing inventory, thereby making it possible to keep selling
prices in the local market competitive. However, though consignment can definitely enhance
export competitiveness, exporters should keep in mind that the key to success in exporting
on consignment and in getting paid is to partner with a reputable and trustworthy foreign
distributor or a third-party logistics provider.
Characteristics of Consignment:
Applicability
Recommended for use in competitive environments to enter new markets

and increase sales in partnership with a reliable and trustworthy foreign
distributor
Risk
Significant risk to the exporter because payment is required only after the
goods have been sold to the end customer
Pros
- Help enhance export competitiveness on the basis of greater availability
and faster delivery of goods
- Help reduce the direct costs of storing and managing inventory
Cons
- Exporter is not guaranteed payment
- Additional costs associated with risk mitigation measures
Key Points
• Payment is sent to the exporter only after the goods have been sold by the foreign
distributor.
• Exporting on consignment can help exporters enter new markets and increase sales in
competitive environments on the basis of better availability and faster delivery of
goods.
• Consignment can also help exporters reduce the direct costs of storing and managing
inventory, thereby making it possible to keep selling prices in the local market
competitive.
• Partnership with a reputable and trustworthy foreign distributor or a third-party
logistics provider is a must for success.
• The importing country should be commercially and politically secure.
• Appropriate insurance should be in place to mitigate the risk of non-payment as well
as to cover consigned goods in transit or in possession of a foreign distributor.
• Export working capital financing can help exporters of consigned goods have access
to financing and credit while waiting for payment from the foreign distributor.
IV. Achievements, disadvantages and methods for exporting in Vietnam:
Vietnam officially joined the WTO on 11/1/2007, so that, our export markets are now

expanding more and more. We only mention the exporting between Vietnam - EU.
1. Achievements
- Vietnam-EU export turnover of the period of 1990 to 2005 had increased with rather
high average growth rate of 33.62% per year.
- Vietnam has made use of its comparative advantages in concentrating on exporting
some commodities in strong position to the markets of European countries: tropical
agricultural products, textiles, and art and handicraft commodities.
- Thanks to industrial export strengthening, the process of economic structure transfer
increasingly occurs; especially, there are big changes in industry-agricultural-service
structure.
2. Disadvantages
- The structure of Vietnam exports to the EU is poor in variety of goods, and only
highly emphasis in some kinds of commodities such as textile, footwear, coffee
and fishery.
- Most of Vietnam exports to EU are passed though middlemen. Vietnam footwear
still remains some typical limitations in manufacturing ability, failing to meet
requirements of the present-day development.
- The majority of Vietnam exports to the EU must be shipped through mediators,
which causes some retrains and inconveniences in their transportation.
- Because the system of Vietnam laws, policies for its economy and commercial
management is not fully made and uninvited, it causes many difficulties for
implementation of its commitments with international organizations. The
competitiveness of Vietnam business is still weak.
- Furthermore, the advertising and marketing skills of Vietnam enterprises remain
many restrictions.
3. Recommendations to further the exporting Vietnam - EU:
Here are some suggestions for Vietnam enterprises so as to promote exports to the EU, in
particular, and to the World market, in general.
3.1. Recommendations to Vietnamese enterprises:
3.1.1 To select the suitable method to actively penetrate into the distribution channels

in EU market:
In the forthcoming time, Vietnam enterprises should speed up the direct export activities in
EU market; at the same time they should selectively study penetrating methods either join
venture or direct investment. What so ever the mode is selected, they should carefully
research the following factors: market capacity, consuming taste, distribution channels,
competitors, and prices, etc.
3.1.2. To reinforce investment activities and perfect management of work to produce
goods suitable with EU market:
The suitable kind of good for EU market which is fully meets 5 standards of products:
quality, hygiene, safety for users, friendly environment, and labor protection. In order to
produce this kind of goods, Vietnam enterprises should intensify their investing activities
and better their export managing activities for these are two way key factors deciding what
and how the products are produced.
3.1.3. To set up applying e-commerce in business :
Vietnam enterprises should make preparations to use the Internet services in their
operations to exploit information and put their information into the websites and publicize
their products on the market. In the other hand, they can find out almost the information
necessary for their business activities.
3.1.4. To improve the operating capacity and competitiveness with their rivals to
produce the suitable products with EU market
Strategy for price: Vietnam enterprises should build Strategy for price, Strategy for
products, Service publicizing and marketing strategy to expand the export activities. In
addition, they should apply the following ones: Human developing strategy, Strategy for
enterprises culture, Capital strategy
3.2. Recommendations to the Goverment:
3.2.1. To construct and perfect economic and commercial policies to promote export.
The Government should have necessary changes and additions to his system of laws on
foreign trading, make them suitable to be the international trading customs and normal
practice as followings: To extend the regulation scopes of these laws to conform with
requirements of WTO; To regulate more closely and specifically trading activities and

relating ones to appropriate to the market-opening and integrating tendency encouraging
export.
3.2.2. To restructure the economy, schedule production operations forward towards
export, fully exploit the advantages to enhance the competitive capacity and reduce the
disadvantages.
Government should restructure the economy; scheduling production operations toward
export include reconstruction of the industry, agriculture, and service sectors in the direction
of modernization
3.2.3. To support credits for the export enterprises
Government should assist export enterprises to get loans with low interest rate, resolve
difficulties in floating capital and the one for facility innovation. The export credit guarantee
facilitates the export enterprises’ penetration in to the EU –the one with strict requirement for
imported products and complex distribution channel.
3.2.4. To innovate administrative machinery and import-export mechanics.
Government should innovate administrative machinery and import-export mechanism is
made in order to simplifying the customs procedure, making it become more convenient and
clearer but closer for the importers and exporters. As a result, Vietnam enterprises will have
to seriously ensure the quality and quantity of exports, conform to the regulations for
exports, and conform with the regulations for exports to the EU.
CONCLUSION
To succeed in today’s global marketplace and win sales against foreign competitors,
exporters must offer their customers attractive sales terms supported by the appropriate
payment methods. Because getting paid in full and on time is the ultimate goal for each
export sale, an appropriate payment method must be chosen carefully to minimize the
payment risk while also accommodating the needs of the buyer. As shown above, there are
five primary methods of payment for international transactions. During or before contract
negotiations, you should consider which method in the figure is mutually desirable for you
and your customer. It is the thing that determines the success or failure of yours.
REFERENCES
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