The trend toward using alternative dispute resolution (ADR) methods as a means of settling disputes without resorting to national or regional court systems began in the U.S. in the 1970s.

Commercial litigation is lengthy, costly, hard to enforce and, because of the adversarial nature of the proceedings, will often damage business relationships beyond compare.

ADR aims to resolve disputes in a way that is less expensive, faster and more predictable than adversarial judicial proceedings.

Assessing your options

There are several forms of ADR:

1. Arbitration

This is a legal form of ADR. The disputing parties refer the problem to an arbitrator or an arbitral tribunal and agree to be bound by its findings.

2. Conciliation

This is a form of ADR in which the disputing parties use a conciliator, who meets with each party separately to determine their issues and help resolve their conflicts. It is different from mediation because the main goal is to conciliate, usually by seeking concessions.

3. Mediation

This is a process that sues a neutral third party to help the disputing parties resolve their disagreement. The mediator assists communication between the parties and generates options that might help resolve the conflict. A mediator helps the parties form their own solution, rather than making a decision.

4. Fact finding

This form of ADR uses an impartial group of experts to determine what the facts are in a dispute. The fact finders might be requested to investigate or evaluate the matters under dispute and present a report that establishes the facts. In some circumstances, the fact finder might also be asked to prepare a situation assessment or a recommendation for resolution.

Fact finding is often a valuable form of ADR because many international trade disputes arise from different understandings of the facts by the parties involved.

Save money, time and business relationships

Besides the cost and time advantages of ADR, there are additional benefits.

It offers a less formal and simplified forum in which conflicting parties can negotiate, and it presents the possibility of a more flexible or creative decision.

For example, parties can agree to settle a dispute over the cost of production materials where the manufacturer wants the materials at a lower price than the supplier is willing to pay.

Through mediation, the supplier concedes on the promise of a future contract commitment. Not only does this ADR please the manufacturer who gets materials at lower cost, while avoiding the possibility of costly litigation, but the ADR means that the business relationship has been salvaged, enabling future trade.

Arbitral awards and damages are often easier to enforce than those ruled in foreign courts. There are a number of international, national and regional AFR institutions whose goals are to educate entrepreneurs about the advantages of ADR and to provide professional ADR services.

Find the best option for your business

If an organization is seeking an ADR institution to specify in a contract, attention must be paid to the procedures and techniques they offer. Many international law experts will offer services in these areas.

Some can offer procedures and techniques such as negotiation, mediation, conciliation and arbitration, whereas some may only offer services for arbitration. Also, some ADR organizations specialize their services for specific industry sectors, such as mining, oil and commodities.

Care must be taken to choose the right kind of organization to represent the services an organization requires, as well as those who will have experience and expertise in its area of business.

For a complete list of national and regional ADR institutions, please visit https://www.worldbank.org/.

How can your business relationships be improved by using ADR to resolve conflicts?

The aim is to ensure the right balance between levels of production, inventory, transportation and customer supply, to identify all potential resources, and to use the most appropriate resources in the most effective manner.

Taking a comprehensive approach to ensure supply chain planning success

A supply chain plan is a written document that details the strategy a company must employ to develop or improve a global supply chain.

Supply chain plans must have the following qualities:

1. They must ensure end-to-end management of the supply chain.
2. They must be as simple and as streamlined as possible.
3. They must minimize the complexity of supply chain operations to reduce costs.
4. They must include clear processes that can be understood by all users.
5. They must be able to be reliably applied across the supply chain.
6. They must be adaptable in response to changing customer demands or business conditions.
7. They must map to company strategic objectives.

Use your supply chain plan to add value to your entire business

Before starting to map out a global supply chain plan, managers must have a very clear idea of their company’s business plan.

A business plan is a company’s formal statement of its business goals and its plan for achieving them. For companies wanting to trade internationally, these goals will often have a financial focus, such as improving profits or reducing costs.

They might also focus on branding issues, such as improving customer perceptions, or be based on new research and development initiatives.

Examples of strategic business goals include the following:

• To become the global leader in the industry
• To improve customer service in one or more markets
• To develop innovative new processes
• To ensure a low customer turnover in identified markets
• To become more competitive in the domestic market
• To achieve a set level of growth and profitability
• To invest in global community initiatives and reduce the company’s environmental footprint
• To establish a sustainable, competitive entry into a foreign market

Follow through on your plan to achieve strategic goals

The strategic goals outlined in a business plan will have an important influence on the strategies that must be used to develop or improve a supply chain and on the way in which a supply chain can be structured and managed.

They will also indicate the types of improvement that need to be made in the supply chain.

For example, if a company’s business plan states that a goal is to improve customer satisfaction levels in a foreign market from 85 percent to 95 percent, managers will want to identify where changes can be made in the supply chain to increase customer satisfaction.

Perhaps the company can establish distribution centers in the market to reduce the time it takes for products to reach customers. Perhaps the company can collaborate with another organization in that market to provide a service directly to local customers.

Companies that map their supply chain plan to their business plan in this way are more likely to see improvements in their business performance.

Your supply chain plan can be a top priority for your business

Different divisions within a company and different company initiatives will always compete for access to limited funds within a corporation.

Often, supply chain initiatives that require capital expenditure are in competition for the same funds as other projects.

One strategy that can be used to increase the likelihood of successful supply chain project financing is to make sure the project closely links to corporate objectives.

The fact that that the project can increase customer satisfaction while reducing administrative costs should be articulated so that company executives understand that it will increase returns on investment.

What steps do you need to take with your supply chain planning?

Sales takes this process one step further and can be characterized as the process of fulfilling the needs of customers. This is done by offering a satisfactory product or service, which is finalized by the exchange of money.

One hasn’t truly entered a market until a customer has paid money for the product or service being offered.

Commercial transactions are the ultimate goal of international trade and, indeed, trade of any kind. The pattern of international market development often follows a series of stages:

Stage 1: Domestic-market establishment

The domestic market is often an appropriate place to test products and fine-tune performance before tackling the complexities of international trade. It can also give a good indication of performance. However, in some instances, this stage of the export process doesn’t serve any purpose at all. This may be the case for a Canadian software company, for example, that has developed a product specifically for a foreign market.

Because international-market development requires resources of time and money on the part of the exporter, it’s important to ensure that a strong foundation has been built in the domestic market upon which to base future export-market-expansion activities, so that international activities do not compromise the company’s core business.

Stage 2: Export research and planning

When companies begin trading abroad, they often target a country similar to their own. For example, countries that are similar in language, financial structures, legal and economic systems or culture. For example, Canadians entering the international marketplace usually address the U.S. market first.

Before venturing into an unfamiliar market, companies should prepare themselves properly. By analyzing how successful the proposed product or service may be in a potential market, the exporter can narrow the target markets down to three or four.

A well-researched marketing plan can give the potential exporter the confidence to commit to exporting.

Such concentrated effort is preferable to the common and costly mistake of ‘chasing orders around the world’.

Another advantage to undertaking appropriate international-market-research and planning activities is that by creating a written document, potential problems and weaknesses can be identified more easily. This enables exporters to foresee potential challenges prior to making the investment of time and money that will be required for successful export-market development.

Want to learn more about conducting proper research, selecting the most effective entry strategy and implementing it efficiently? Check out the FITTskills International Market Entries Strategy online course!

Stage 3: Initial export sales

When implementing an export plan, it’s advisable to begin modestly by testing the market. A graduated strategy enables the novice exporter to acquire practical experience in a market without incurring unnecessary or unmanageable risk.

Developing markets in phases enables the exporter to monitor their progress and make any necessary changes as they progress along the path to export success.

During this stage, the exporter should use initial shipments to become familiar with the mechanics of exporting. These mechanics include documentation, distribution channels, transportation and collections as well as learning about regulations that might affect the business. The exporter should also get to know the customer target group, to determine what product modifications may be necessary. This is also the stage at which to revise the initial plan.

Stage 4: Expansion of international sales

If initial sales have been good, planning for larger orders and expanded activity should follow. This stage is usually accompanied by intensified market research, more aggressive participation in international trade shows and other marketing activities and greater emphasis on strengthening networks and contacts in the target market.

The firm may enter negotiations with potential local partners to strengthen its position in the market in win-win business relationships.

By the time exporters have reached this stage, they ‘ll have learned a great deal about the export market. This will assist them in making adjustments to their strategy as they proceed with strengthening their position in the market.

Stage 5: Investment abroad

If sales are brisk, profits encouraging and opportunities promising, the company may choose to expand its presence in the target market. It can, for example, open a local office, tighten relations with local partners, buy an existing local company, form a joint venture or invest in R&D or production facilities.

The target market may serve as a stepping stone to adjacent markets and become a focal point for a larger trade strategy.

This final stage carries additional ramifications and responsibilities, beyond those of a company that is based elsewhere simply operating remotely in a foreign market. New issues come into play because the scope of a company’s presence broadens when it takes on a permanent physical presence in the market.

For instance, the investing company must take into account the impact on and interaction with the community and stakeholders. This includes employees, local government, the environment, legal and tax compliance, transparency, public image and sustainability. All of these impacts must be managed seriously and carefully as a corporate citizen, with strong corporate social responsibility as a policy that should be demonstrated at every opportunity.

Back in 2013 when I joined FITT, we had a social media community of about 3,000 users. Little more than a year later, that community of global trade experts is now at 11,000…and growing fast.

How did we do it? Or to put it more accurately, how did you, the members of our community, make this happen?

Well, with people as passionate about international trade as all of you, it was only a matter of time. Your generous support for our community shines through on all of FITT’s social feeds and digital outposts.

Your amazing words of wisdom on global trade topics are a mainstay on our Facebook, Twitter and LinkedIn pages.

Showcasing a goldmine of international trade expertise

Here at FITT, we just love showcasing the knowledge and experience of our community of global trade experts. We built the TradeReady.ca publication so we could start leveraging the opportunity to present this goldmine of international business experiences and stories from our community of trade experts.

This publication started with two paid writers and now has over 30 authors who voluntarily contribute their time, tips and ideas to help the global trade community.

As you can imagine, the thought-leadership demonstrated by our expert authors has attracted readers from all around the world, increasing the overall reach of our network. We hope that even more of you take advantage of this opportunity to connect with and reach out to our rapidly growing community of global trade professionals.

Your insightful posts on our LinkedIn groups (FITT, CITP), Facebook page and Twitter stream bear testimony to the  valuable support and expertise you already provide to your peers in international trade!

A global trade community of early adopters of technology

You’ve also played a huge role in helping us roll out our own global trade application—TradeEliteClub.com. As you continue to discuss relevant international trade topics and grow your ranking on this app, all of us here at FITT are committed to providing you with even more tools and resources that will empower your success as the elite of global trade.

You’ll soon be able to access the iOS and Android versions of the app. We envision you using it to access the database we develop from the pioneering International Trade Competency Standards project.

Coming together to lead global trade standards

Your participation in the International Trade Competency Standards has helped get FITT on Times Square!

Of course, that isn’t all. In focus groups around the country, your excitement and passion for international trade is laying the groundwork for what will be the go-to global framework for international trade competencies. As part of this effort, we are tying up with like-minded global trade educational leaders around the world to set international standards based on these competencies.

Coming together as a community toward this far-reaching effort will redefine how companies across the world address international business challenges by adequately identifying the knowledge, skills and abilities required for trade success.

The ICS focus groups have also spawned casual Meetups, like the Vancouver, Niagara and Ottawa Meetup groups of global trade enthusiasts. Do let us know if you’re interested in organizing one of these Meetups in your own city!

Global trade knowledge in 140 characters

You’ve made our monthly Twitter chats an event to look forward to on the first Thursday of every month. The useful, insightful and rapid fire global trade information you provide during these chats displays how success in global business depends upon an understanding of the subtleties of your field. These events are a pleasure for us at FITT to help facilitate.

Q4 Are we getting to a point where prioritizing GREEN makes commercial sense? If so, yes! #TradeElite

— Alexander R. Malaket (@ARMalaket_OPUS) December 4, 2014

A4: Yes they should. Collaboration on environmental issues and planning to minimize the use of energy. #tradeelite

— Louei Ali, MBA (@LoueiAli) December 4, 2014

@LyndaEllenA I think as trade barriers break down, companies will continue to evolve to take advantage of their FDI locations #TradeElite

— Becky Park DeStigter (@intlentreprenr) November 6, 2014

A5: business is done between people. technology that enhances that is valuable, but can’t substitute #tradeelite

— Ed Marsh (@edbmarsh) October 2, 2014

@globethoughts Do the full research needed to mitigate risk and protect margines. @FITTNews #TradeElite

— John Treleaven CITP (@jht4x4) July 3, 2014

It’s inspiring to see experienced professionals like John Treleaven using his 140 character might to such great affect. What’s also wonderful is that John, Alexander and Alberto also sit on our board of directors. How many organizations do you know of that have board members who are actively involved in their social-media community building?

Working with you to break new ground in 2015!

Shout out to our most engaged community members. Thank you for keeping the global trade conversation going!

Abed Rabbo Ahmad,
Albert Aguirre,
Alexander R.Malaket,
Andy Roo,
Astrik Avagyan Tupikova,
Audrey Ross,
Becky DeStigter,
Brian Dakers,
Callum Makkai,
Cerasis,
Christian Höferle,
Craig Atkinson,
Daniel Vaugeois,
David Mark Noah,
David W.Weaver,
Doug Taylor,
Ed Marsh,
Emiliano Introcaso,
Eyes on Freight,
Export Development Canada,
Fadi Ghaby,
Gabriela Castro-Fontoura,
Geunwoo Ryu,
Giovanni Gonzalez,
Hernan Cortez,
iBiz247,
Icecorp Logistics,
Jim Feir,
John Treleavean,
John Boscariol,
Justin Bedi,
Kim Stuart,
Laurel Delaney,
Liesl Harewood,
Louei Ali,
Lynda Arsenault,
Mariette Mulaire,
Michael Muhich,
Mike Au,
Mike Strawson,
Nova Scotia Business Inc.,
Rany Ibrahim,
Rick Feltenberger,
Rob Gnaedinger,
Robin MacNab,
Ronan Caillo,
Ryan Weaver,
Sara Haq,
Saskatchewan Trade and Export Partnership,
Sergio A. Rodr¡guez S.,
Siddha Param,
Susan Vaughan,
Susan Yovic Hoeller,
Virginie de Visscher,

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With such a vibrant, growing community, we may be tempted to conclude that this is as good as it gets. However, we at FITT are sure that the best is yet to come.

Relatively new community members from the United States, the United Kingdom, and the rest of the globe are sure to make their presence felt further.  In fact we’re already seeing the impact our American friends are having on our Twitter chats and on Tradeready.ca.

We look forward to working with this growing network of international trade professionals as we continue to address global trade challenges in 2015.

Our plans for our own social media platform (TradeEliteClub.com) for the global trade community and our growing community across social media channels like Tradeready.ca, Twitter, Facebook and LinkedIn will provide even more motivations for you all to continue to participate and grow your network.

Do let us know if you have any ideas for how we can continue to grow and create value for you, our community of elite trade professionals.

From all of us at FITT, a BIG ‘Thank You’ for making all this happen!

Today, this definition has been expanded to include the acquisition of a controlling interest in a company in another market. Under this definition, there are several ways in which companies can invest directly in foreign markets:

• Construction of facilities or investment in facilities in a foreign market (Greenfield investments)
• Mergers and acquisitions
• Investment in a joint venture located in a foreign market

However, most foreign direct investment is still made by large companies investing in the construction of facilities abroad.

Globalization has led to increased flows of inward investment between countries & created benefits for recipient countries. #TradeElite

— Lynda Arsenault (@LyndaEllenA) November 6, 2014

Reasons for foreign direct investment

Some of the many reasons why companies consider making direct investments in a foreign market are:

• Some governments prohibit or limit imports of goods produced in other countries, but a company can build a production site in the foreign market and produce locally.
• Producing goods in the target market avoids import duties and other taxes and the requirement for import permits.
• Companies can obtain the services of skilled employees in the target market or gain intelligence held by people in that market.
• In certain countries, companies can take advantage of lower costs, such as cheaper labour.
• Companies can become more competitive.

Whatever the reason for making an investment decision, it should be in the context of what the firm wants to achieve strategically.

The choice of strategy will, in most cases, determine the mode of entry.

Investment to gain access to closed markets

Investments are often made in countries as a way of gaining access to markets that are closed or limited by trade barriers, procurement practices or government regulations. For example, the defence sector in most countries usually requires local participation. In some cases, this means manufacturing the contracted equipment in the country.

Using foreign direct investment for intelligence

Companies can also make investments as a way of securing information or intelligence.

@LyndaEllenA I also think FDI imports new ideas and best practices from other parts of the world. Arbitrage! #TradeElite

— Becky Park DeStigter (@intlentreprenr) November 6, 2014

High-tech companies can invest in research and development consortia as a way to find out what others are doing. Other companies can use investment as a window into a market, helping them gather information and intelligence on market dynamics and the operations of competitors that would not otherwise be available.

Taking advantage of lower costs

Traditionally, investment decisions were based on low factor costs, including inexpensive labour and cheap raw materials. While these continue to be important in many industries, companies today also demand innovation, access to technology and other things that give them a competitive advantage.

Factor costs are not enduring. Currency devaluation, runaway inflation and improved standards of living can all have an impact on costs. Singapore and Hong Kong were traditionally low-cost countries, but they have been overtaken by India, China and Vietnam, where costs are even lower. If factor costs are an essential element of competitiveness, the company’s strategy must be flexible enough to change locations, partners and venues to take advantage of shifting cost structures.

Foreign direct investment to enhance competitiveness

Investments can be made to enhance a competitive position or to anticipate and counter the actions of competitors.

There can be strong advantages to being the first to develop a market, such as Eastern Europe, where there is a high demand for western services and products with strong brand-name recognition. Such a strategy can yield a competitive advantage that can last for years. 

@LyndaEllenA @FITTNews The opportunities are almost endless-it is the risk level SME’s feel in trading with emerging markets that hinders it

— Doug Taylor (@globethoughts) November 6, 2014

Importing: second-string no more?

Under the integrative trade model, imports and global sourcing are critical to the success in exports and export development, and therefore are afforded greater focus and resources. Successful importing is now a matter of competitive advantage.

Foreign trade is an essential ingredient in the economic development and prosperity of most nations.

Many countries have entered into trade pacts or agreements and, through negotiation, have established rules and regulations to govern orderly trade. These trade agreements, along with the relative reduction in trade barriers that ensue, make it simpler to import from abroad.

Importers of materials, finished goods or products for resale either identify unfilled niches in the domestic market and seek to fill them from foreign sources, or identify promising foreign products for which they try to develop domestic demand.

In either case, importers run the risk of importing products for which there is no viable resale market. Effective market research is the key to minimizing that risk.

1. Take time to carefully evaluate your in-market supplier

Similarly, once a promising market opportunity has been identified, a rigorous approach to product sourcing and supplier evaluation can reduce the risk of entering into arrangements with unreliable suppliers.

Supplier evaluation may involve a considerable investment of time and effort, but it is well worth it if the result is a smoothly functioning and mutually beneficial long-term business relationship.

It is usually best to evaluate different foreign suppliers before settling on one. Even after a deal has been initiated, it may be wise to keep track of several alternative suppliers. This helps to avoid dependence on one source and to minimize risk if the foreign supplier selected turns out to be unsatisfactory.

Once a potential foreign supplier has been identified, the buyer initiates the process with a purchase order or with a request for a quotation to supply the goods required. The initial request may open up a process of offer and counter-offer as the importer and the foreign supplier clarify, negotiate and agree upon trade terms. Once an offer has been accepted, it constitutes a legal contract.

2. Make sure the price is right for your foreign imports

Negotiating price is a critical element of the process, and several key questions ought to be kept in mind:

• What volume is being purchased?
• Are discounts available as volumes increase?
• What logistics costs related to importing the products are covered in the price?
• Does the price include packing, transportation, cargo insurance and customs duties? Each of these items will be borne by either the exporter or the importer and will be included or excluded from the quoted price of the goods.
• When do the seller’s responsibilities end and those of the buyer begin? The importing firm should clearly set out its requirements in writing. The importer should also respond in writing to the exporter’s requests for clarification in a clear, direct style and in as much detail as required. The aim is to avoid misunderstanding and to secure a deal that will benefit both parties.

Additional considerations include agreement on payment methods and terms and clear agreement on the documents (including content and format, specified to the appropriate level of detail to ensure payment as well as transport and clearance of the goods).

The sales contract will typically be complemented with a purchase order, which may serve as the basis for issuance of a documentary letter of credit—a payment and financing mechanism provided by banks in support of trade transactions.

3. How are the items you’d like to import classified?

Another important consideration includes the classification of an imported item, which determines any associated tariff due, as well as import-valuation procedures.

It should be noted that, in the same way the importer verifies the reliability of the potential foreign supplier, that supplier also investigates the reliability and creditworthiness of the importer.

Recognizing this fact, the partners can go a long way toward instilling mutual confidence while accelerating the validation process by providing each other with appropriate information and references.

What else is important for companies to consider before importing products or raw materials from abroad?

The existence of large receivables, the consummation of large deals or contracts, even the successful closure of a first international transaction are not as vital—especially for small- and medium-sized enterprises—as healthy cash flow.

Cash flow: cash and flow

Not only must the organization be doing business (cash!), but the revenue must also be coming in (flow!) within reasonable, and predictable, time-frames.

It does little good to do business successfully and issue an invoice for products or services duly rendered (and acknowledged to be satisfactory), only to have to wait 30, 60 or 90 days (or longer) for funds to be credited to the company account, while operating expenses, debt servicing payments and a host of other obligations force a company to abandon international expansion, or worse, push a business to the brink of bankruptcy.

Earning a good personal income, but being paid only every six months, would make it difficult to meet monthly mortgage payments and could conceivably result in foreclosure.

Similarly, earning good revenues from a business does not guarantee the viability of a business. Monies need to flow at regular, predictable intervals to facilitate good and effective conduct of business. Cash. Flow!

Using international trade finance to manage your cash flow

International trade finance products, techniques and mechanisms exist to support effective management of cash flow for both importers and exporters across industries and across all segments, from SME to multinational.

The core needs of a company in terms of financing can be linked, for illustration purposes, to the size and stability of a business.

Small businesses survive and thrive on good cash flow, larger commercial ventures will look for financing solutions and large corporations and multinationals will typically be more concerned with risk mitigation.

Trade finance offers numerous solutions and instruments to ensure adequate cash flow.

Similarly, trade financiers have developed product and service offerings—in conjunction with other specialists—to assist clients in assuring there is adequate cash flow at critical stages in a trade transaction.

Increasingly, the optimization of cash flow and working capital is a value proposition offered by various providers to importers and to exporters.

Forms of international trade finance: How many ways can you get paid?

There are a variety of options in terms of payment mechanisms and other trade finance solutions. The basic and most common forms of settlement of international trade transactions are open account (where payment on delivery is the most common), documentary collections, documentary letters of credit and payment in advance.

There are numerous features, variations and options related to these payment types, which make them very flexible, adaptable and enduring as business solutions.

It should be noted explicitly that certain payment options or types of payment transactions have a variety of features or characteristics, which can be incorporated in a given transaction, or not.

From a financial point of view, a transaction may prove unrealistic if the cost of entering a market is too high, the competition is grueling, or the price the company needs to charge in the new market is not competitive.

A transaction is not viable if the resulting sales generate losses or cannot adequately support the cost of doing business.

Make sure your products retain their value

An importer needs to be sure that the product remains of interest to themselves or their potential customers after factoring in all the landing costs (all costs associated with the delivery of the goods to the country of destination), the packaging and the expense of any up-front travel and due diligence.

An exporter must ensure acceptable and timely returns from international business activities in proportion to the associated costs and risks.

A transaction that cannot be completed at a profit, or one that is not compatible with the criteria and objectives of both the exporter and the importer, could harm domestic operations and may even threaten the long-term survival of the company.

For an exporter, the decision to enter a new market may stem from a marketing plan based on solid market-research or may be the result of a reactive response to an unsolicited request. In some sectors, notably knowledge-based industries, exporting may be a competitive imperative undertaken on the first day of operations.

Regardless of the driver, financials must remain ‘top of mind’ in planning a foray into international markets.

For exporters:

Once a company has decided to export, and before shipping any goods, it must do the following:

• ensure that the transaction is viable;
• determine the export cost; and
• determine the optimum sales price.

For importers:

For an importer, dealing with a new supplier may be as simple as switching companies they deal with in the same country. Nevertheless, dealing with a whole set of new variables and any long-term arrangement will require:

• quality testing;
• researching the optimum shipping method or logistics provider;
• fully understanding the full cost when goods arrive at their factory or warehouse; and, if the product is to be sold domestically,
• understanding what the required markup should be to meet profit criteria or to be competitive with other local suppliers.

As an importer or an exporter, what other tips do you have to protect your activities and create the best environment for profit?

There are a number of ways in which a company can pursue an offensive strategy:

1. Direct attack

It can slash prices, introduce new features, launch comparison advertisements unfavourable to the competition, or go after parts of the market that the competition has served poorly.
For smaller companies, such strategies can be accompanied by low-cost guerrilla marketing campaigns designed to attract attention.

2. End-run

Companies can avoid direct competition but still pursue an offensive attack by going into unoccupied markets or countries that have been ignored completely by the rest of the industry.

3. Pre-emption

Sometimes the first company into a market gains a position from which later entrants cannot dislodge it. The first company into a market can secure relationships with the best suppliers, it can acquire the best locations, and it can target and build relationships with the best customers.

4. Acquisition

A truly aggressive company with deep pockets can eliminate a rival simply by purchasing it. Acquiring a company in a foreign market can also bring with it a position in the marketplace, geographic coverage, and established relationships. Even so, such a strategy is complex and expensive, and it should not be pursued unless it can be shown to be contributing to the firm’s bottom line. It may also run afoul of local competitive or anti-monopoly legislation.

On the other side, there are also a number of defensive strategies that managers can adopt to deflect attacks from competitors.

Want to learn more about how to keep your customers happy by addressing the specific needs of your target markets? Check out the FITTskills Products & Services for a Global Market online course.

Defensive strategies:

 1. Exclusion

One way of defending a position is to set up exclusive arrangements with key suppliers in the market. Such exclusive arrangements can block the access of rivals to the best suppliers, sources or partners.

2. Pricing

A simple strategy is to match any price cuts by the competition with similar discounts, as long as the price war does not get out of hand and ruin both sides.

 3. Features

Adding new features or capabilities can be a positive and appealing way of countering a competitive challenge.

 4. Service

A company can respond to competitor price-cuts or new features by emphasizing after-sales service or warranties, implicitly demonstrating that it stands by the superiority of its products.

5. Advertising

A strong public campaign demonstrating commitment to the market, confidence in the products, or a willingness to meet the competitor’s challenge.

6. Counter-parry

Companies respond to an attack in their own market from a foreign competitor by moving into the competitor’s home market. This can draw off resources and blunt the initial foray. When Fujitsu entered the American market, Kodak responded by marketing in Japan. Goodyear responded to Michelin in North America by marketing in Europe. To do this effectively, the new entry has to establish itself as a good corporate citizen in the new environment. Companies will participate in community and family oriented events to position themselves as friendly and familiar rather than foreign and aggressive.

It should be noted that all of the preceding examples were framed as individual instances of offence or defence.

In fact, the international environment is far more complicated, with global corporations pursuing numerous lines of business in many markets with many competitors simultaneously. As a result, competitive strategy can get extremely complex.

Ultimately, the choice of a strategy will depend on country-by-country analysis. International managers should remain sensitive to regional differences and local variations, developing strategies customized to the specific circumstances in each country in which they operate.

There is, however, also the possibility of pursuing corporate-level strategies that focus on getting the best mix of products and markets given the nature of the competition.

The basic and most common forms of settlement of international trade transactions are open account (where payment on delivery is the most common), documentary collections, documentary letters of credit and payment in advance.

There are numerous features, variations and options related to these payment types which make them very flexible, adaptable and enduring as business solutions.

It should be noted explicitly that certain payment options or types of payment transactions have a variety of features or characteristics, which can be incorporated in a given transaction, or not. A documentary credit, may be payable at sight (immediately) or on a term basis (at maturity, at an agreed date in future).

The use of certain features changes the nature of the transaction. However, the payment is still effected through a documentary credit in the end.

The FITTskills International Trade Finance training course considers each instrument type/variation in turn, in the following order:

Open account and payment in advance

These are the two extreme options, providing maximum security to one party and exposing the other party to the greatest risk.

Payments on an open-account basis are basically transfers of funds to the account of the exporter. Historically, open-account payments have been used in trade between very stable and secure markets such as the United States and Canada, or in intra-EU trade, and in cases where the trading relationship is established and trusted.

At the opposite extreme, payment in advance presents the highest risk to the importer, given that the exporter could easily receive the funds and not carry through with the promised shipment.

Documentary collection

These are somewhat secure, but generally used in established trading relationships involving reasonably stable and secure markets.

Documentary collections are types of transactions where banks act as intermediaries between the importer (buyer) and exporter (seller), in effect, agreeing to facilitate payment to the exporter only once a set of shipping documents has been prepared and presented to an intermediary bank.

These documents typically include documents of title to the cargo, representing ownership of the goods as well as demonstrating that the goods have been shipped.

Documentary credits

These offer the most balanced security for both parties. Documentary letters of credit (abbreviated as DLC, D/C or L/C) are trade finance instruments issued by a bank on behalf of an importer, promising payment to an exporter, provided that all the terms and conditions specified in the letter of credit are fully complied with by the exporter.

CAUTION: 60-70% of documents presented by exporters under Documentary Credits are in some way non-compliant with the terms of the Letter of Credit (L/C).

In those instances, the protection to the exporter is minimal, as the importer can refuse the shipment, or take advantage of the discrepancies to demand a substantial discount on the shipment. Some banks exercise judgment and will not identify “trivial” discrepancies, while others take a very literal approach to the examination of documents.

Confirmed documentary credits

These provide additional security to the exporter, while preserving security for the importer. The basic documentary letter of credit is a straightforward instrument which represents a payment promise by the issuing bank in favour of the exporter or beneficiary against the presentation of fully compliant documents.

Documentary letters of credit offer numerous powerful and valuable features that address certain aspects of trade finance. A major one of these features is referred to as a confirmation of a documentary letter of credit. A confirmed documentary credit (contrast the basic, unconfirmed letter of credit described above), is one in which an additional, separate and independent payment undertaking is added to that of the issuing bank by another financial institution—the confirming bank—to provide further security to the exporter.

Confirmation is added at the request of the issuing bank, on behalf of the exporter.

If an exporter is considering exporting to a high-risk market, and is not reassured by a straightforward documentary credit, the option to confirm that letter of credit may provide the added comfort that will enable the exporter to proceed with the transaction.

Major features and characteristics of various payment options are discussed in greater detail throughout the FITTskills International Trade Finance course.