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Basic Concept of Foreign Trade


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Basic Concept of Foreign Trade

  1. 1. 1. Basic Concept of Foreign Trade
  2. 2.  Malaysian SMEs can be grouped into 3 categories: Micro, Small or Medium.  An enterprise is considered an SME in each of the respective sectors based on the Annual Sales Turnover or Number Employees Micro-enterprise Small enterprise Medium enterprise Manufacturing, Manufacturing-Related Services and Agro-based industries Sales turnover of less than RM250,000 OR full time employees less than 5 Sales turnover between RM250,000 and less than RM10 million OR full time employees between 5 and 50 Sales turnover between RM10 million and RM25 million OR full time employees between 51 and 150 Services, Primary Agriculture and Information & Communication Technology (ICT) Sales turnover of less than RM200,000 OR full time employees less than 5 Sales turnover between RM200,000 and less than RM1 million OR full time employees between 5 and 19 Sales turnover between RM1 million and RM5 million OR full time employees between 20 and 50
  3. 3.  An extension of domestic trade.  The import and export activities carried out by any nation with another nation or by any company in one country with a company in another country. Eg: Japan is a highly industrialised country export high quality machineries and import agricultural products from Malaysia.  The exchange of services or goods between different countries.
  4. 4. Benefits From Export activities:  Cost reduction by mass production. - By entering the international market, a company can gain advantage from the economies of scale with the increase of supplies needed for a wider target market, the cost of production per unit of product should decrease.  More profit by increase in sales. -With an expanded market, sales of product will increase and company may gained higher profit if the company continuously supplies and retains good quality products, innovates and invests in product development when needed.
  5. 5. Benefits From Export activities:  More market information from larger markets. -Small business may gain various experiences which can be used to improve both its domestic and foreign businesses. It can gain information on new technologies, new product and marketing ideas. Such knowledge can be used to develop better products and sell them effectively.  Higher reputation by export. -A small business can also gain market share globally through exporting. Obviously, when a company starts doing international trading, it becomes part of the global market. It will have a good opportunity to expand its customer base, and this will bring about better potential for long term growth.
  6. 6.  Development of new markets, new items, new technology. - Exporting can lengthen the life of a product. A typical product has a life cycle of launch- growth-maturity-decline. An exporting business is able to extend these stages and significantly extend the lifetime of its products by launching it to export markets while the domestic market is still in the maturity. Product development to replace that product in the home market can be financed by export sales.
  7. 7. Benefits From Import activities:  Maximum profit by cost reduction.  Buying cheaper from foreign countries. - Companies have opportunities to find cheaper sources overseas. E.g: Import goods from China.
  8. 8.  More sales and profit by new supply sources.  More market information from wider business contacts.
  9. 9.  Development of new markets, new items, new technology.
  10. 10.  To find out good customers. -E.g. sales distributor who will buy company’s product and sell them on it’s behalf. -several conditions of good customers; 1.Competitiveness – Have good knowledge of markets and familiar with the various requirements of exporter’s products. 2. Ability to execute contracts/commitments- Has interest and effort to advise and help exporter. 3. Ability to settle claims- effective, reliable and trustworthy when doing his roles/duties.
  11. 11.  To find out good customers. 4.Aggressive business policy and strong intention to expand business. 5.Strong financial standing- Financially sound. 6. Good standing – well represented in the market.
  12. 12.  Management. -Identify the management objectives; 1. What are the company’s reasons for pursuing export markets? E.g., to increase sales volume or develop a broader or more stable customer base. 2. How committed is top management to an export effort? 3. What are management’s expectations for the export program?
  13. 13.  Management. The main field of management is considered as follows: - Education of person in charge, ability of international communication, general experience off business and knowledge of international business. - Top management policy. - Legal matters: export & import regulations, intellectual property rights, contracts. - Clear delegation of authority:
  14. 14.  Management. The main field of management is considered as follows: - Clear delegation of authority: i. Authorisation of decision making must be given to their staffs depending on their levels. ii. The delegation of authority should include the rights and responsibility for signature of documents. - Company rules for document keeping.
  15. 15.  Management. The main field of management is considered as follows: - Company rules for document keeping. i. A company must have their own internal rules to specify the period of keeping documents. ii. For instance; - Contract notes should be kept permanently. - Shipping documents; 5 years.
  16. 16.  Financial Plan. - Management must prepare financial reports accordance with the business plan; discuss company’s cash position with before exporting. - Finance especially for increase of business and period between longer payment from the buyers and shorter payment for the suppliers must be arranged in time. - The possible time lag between shipment of goods and payment affects company’s cashflow. - When arranging sales, ensure payment terms are defined. Use the internationally recognised rules.
  17. 17.  Financial Plan. - Minimise foreign currency risks. -If you sell in local currency, exchange-rate fluctuations between the date you agree a sale price and the date your customer pays can mean you receive less than expected. -May protect against exchange risk using foreign exchange contracts and currency options.
  18. 18.  Marketing Plan- research on export markets. 1. Identify your target markets – Check which markets have demand for your product or service. 2. Find out about difficulties you might face in certain countries – your professional or trade association may help with this. 3. Identify the best way to sell your product – you may sell direct in your home market but the preferred sales channel in your target market may be online or via affiliates.
  19. 19.  Marketing Plan- research on export markets. 4. Find out about any modifications required to make your product or service acceptable to different cultures.
  20. 20.  Cultural considerations. - Management need to understand the culture of the target market in order to establish a successful relationship with your customers. - Analyse local cultural meanings behind your product brands. For example; bicycles might be perceived as a leisure item in one country but as essential forms of transport elsewhere.
  21. 21.  Each groups are required to do a research on one of the Malaysia’s SMEs from the selected industry below: - Agriculture, Livestock, Plantations & Commodities. - Food and beverages. - Furniture and Wood based Manufacturing. - Transportation and Logistics.