204 negotiatingwithforeignsuppliers

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204 negotiatingwithforeignsuppliers

  1. 1. Negotiating with foreign suppliers within budget
  2. 2. Problems when buying from overseas <ul><li>Cultural </li></ul><ul><li>Political and ethical </li></ul><ul><li>Communication </li></ul><ul><li>Quality </li></ul><ul><li>Foreign exchange risk </li></ul><ul><li>Legal difficulties </li></ul>
  3. 3. Foreign exchange risks
  4. 4. Exercise <ul><li>You are an importer in USA buying wine goblets from China. </li></ul><ul><li>In mid-January you sent an order for 10,000 goblets. Payment of US$40,000 is due in mid-June. </li></ul><ul><li>You expect the RMB to rise from its present rate of RMB1=US$0.149 to RMB1=US$0.170 by June. </li></ul><ul><li>What currency of payment would you prefer to be stated in the contract in the settlement of this purchase? Why? </li></ul>
  5. 5. Foreign exchange risks <ul><li>Transaction exposure </li></ul><ul><ul><li>Risk in an adverse exchange rate </li></ul></ul><ul><li>Minimizing foreign exchange risks (Pg 519) </li></ul><ul><ul><li>To buy in the currency of buyer </li></ul></ul><ul><ul><li>Reduce risk by hedging with forward contracts </li></ul></ul><ul><ul><li>Buy currency options </li></ul></ul><ul><ul><li>Buy at spot price on the day of purchase </li></ul></ul><ul><ul><li>Negotiate currency adjustment clauses </li></ul></ul>
  6. 6. Discuss <ul><li>Describe how IBM and Keytronics carried out negotiations with foreign suppliers to purchase within budget. </li></ul><ul><li>Briefly discuss the problems of dealing with overseas suppliers (E.g. Culture, distance, etc) </li></ul><ul><li>Focus on foreign exchange risk </li></ul><ul><li>How to minimize foreign exchange risks so that purchase is done within budget? </li></ul>

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