The Practise Of International Trade

The Role Of InternationalTrading House

What is Trading House

Trading house are service companies. They do not manufacture anything and must, therefore, justify their intervention by the value added that their service can bring to an international transaction.

For manufacturer, the type of market he is prospecting will determine if a trading house is useful to him

Reasons

Trade Liberalization and the constant lowering of tariff barriers

The mounting industrialization of developing countries

An Increased in international competition

What do Trading Houses Do ? Trading houses as intermediaries in four type of commercial

activities :Exporting ImportingOffshore trading

The Manufacturer’s markets

1. Local Market2. Cross-border markets (neighbouring and

regional states and countries)3. Overseas markets (all others)

Local Market

1. The prime market for the manufacturer is the domestic market. He knows the competitive environment, the language, the transport and currency of transaction.

2. Inter-provincial trade barriers are non-existent for most manufactured products.

Cross-Border Markets

• There are high similarities in living standards, personal tastes, technical norms, banking and commercial practices.

• Three elements should be considered:1. The currencies are different2. There is an international border to be crossed with the help

of customs brokers can easily handle the paper work and the payment of duties

3. The two governments can vote different trade policies, but the Free Trade Agreement goes along way to reduce the barriers.

Overseas Market

• A trading house that acts as a principal or merchant in a transaction offers a particularly important service to the manufacturer

• It provides a ready market at his door, and saves him the export formalities and risks. In effect, the transaction is negotiated as if it were a”domestic” sale.

• Company priorities will determine the degree of need to a Trading House.

Trading House functions

1. To identify a potential market for a given product2. To find buyers or agents and to elicit their interest3. To establis the product specifications in the light of

market needs, standards and regulations and in accordance with the suppler’s capabilities

4. To determine the appropriate mode of transportation and the routing , with regard to cost, quality of service and security

Trading House functions

5. To price the goods for delivery at destination6. To determine the buyer’s credit worthiness7. To negotiate the transaction8. To execute all the logistics steps which are

necessary to receive and deliver t he merchandise

9. To obtain, if necessary, proper coverage for maritime risks and currency fluctuations

Trading House functions

10.To prepare the documentation as prescribed in matters of international trade

11.To finance the transaction and pay for the goods and services received

12.To collect payment for goods delivered13.To respond to and settle claims

• Most Trading house act as principals for their own account. They are not consultans. They are firm buyers making a profit (or a loss, sometimes) on the transaction.

• Other traders will act as manufacturers’s agent and will represent a wide spectrum of complementary products. They can then distribute their cost over the whole range of products from a number of suppliers. Agent earn commission if a deal is concluded..and after payment has been received by the manufacturer