Alternative Payment Procedures

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Chinese techniques to acquire raw materials and consumer goods via import have forward integration. To exemplify, the Chinese have put up a vapor-heat treatment plant in Thailand for processing fresh mangoes. The equipment is consigned to the local Thailand firm in corroboration with the Thai government, from which all mango produce will be bought back. In the Philippines, decorticating machines for coconut fiber were consigned to the branch of government that handles the coconut industry. The policy is all the fibers that the machines would produce will be bought back.

It is a loan that of a chattel mortgage type and buy-all, buy-back policy which connotes and lead to monopoly, Chinese style. China therefore is in the market for the items mentioned above, except those which they have solved the supply problem partially or wholly. China has established off-shore trading companies, some based in Singapore, Philippines and even Japan. For a trader to penetrate their import market that is where they should negotiate and it takes talking to government officials or heads of committees in main Beijing, provinces or sub-provinces.

From there, the officials can give information where the offshore companies have their offices located and who the contact persons are. The protocol is designed or patterned after Japanese and Korean trade policies wherein a quasi government company will be the conduit of all negotiations pertaining to trade but the policies are monopolistic in nature and have vision for forward integration. Part B: If a country the marketing firm is trading with has a shortage of hard currency, how should management prepare to negotiate price? Banking Knowledge and Alternative Payment Procedures

Letters of Credit (L/C) specifying the premises of the contract to sell/deliver, and mode, terms and conditions of payment for imported goods have been the standard procedure for importation and payment of goods. The seller checks the bank coordinates of the buyer via banking dialogue, or what can be called a bank to bank due diligence. In order to trigger a Letter of Credit, a pro-forma invoice is offered to the buyer by the seller wherein the premises and stipulations of the contract to sell are elaborated. This would include shipping details, insurance, freight charges, etc..

Recently, in the Asian market, this procedure has been the subject of investigative due diligence by trading firms. The reason behind this is the widespread offers of fake pro-forma invoices by unscrupulous and fly-by-night traders or seller’s representatives. Now the protocol seems to have changed with the addition of Letters of Intent (LOI) to supply from the seller and Irrevocable Corporate Purchase Orders (ICPO) from the buyer. The LOI specify the veracity and legal existence of the seller or trading firm which contains bank references and contact persons.

This makes it easier for the buyer to conduct due diligence. On the other hand, the ICPO contends that the buyer is truly capable of payment. Another protocol added, especially with Chinese buyers, is the visitation and ocular inspection of the stocks where it is stored or manufactured. The seller or trader has to foot the bill for airfare and hotel accommodations of the buyer or its representative to conduct ocular and physical inspection of the goods. China might not have the problem of lack of hard currency to backup the Letters of Credit it issues for import purchases.

However, in cases where accepted currency for trading is in shortage, alternative measures can be resorted to. Prices of commodities, especially in bulk, have indicative price indexes published either in stock exchanges or regular issue business journals. Negotiations for a higher or better price can only come through if the seller is in a position to play around with a wider range gross margin. Thus, the practice is pricing the commodity at its highest, and then offering the buyer a discounted price in order to close the deal.

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