negotiation, signing the contract and the actual operations of import that follow. Below is a rough plan of the report:
Commercial letters. Offer Demand.
Characteristics of Thai culture. Negotiation in an intercultural context
Signing the contract
Example of the contract
Transport and Freight
Payment. Letter of Credit
Customs and Custom Duties
The first thing that the importer will be concerned with is identifying the Thai market and possible partners. This kind of information is usually delivered by mixed (bilateral) chambers of trade. As of my knowledge, a bilateral Canadian- Thai chamber of trade does not exist as such, so that information on producers and exporters of tins from Thailand will most likely be gathered either from the International Chamber of Trade in Paris or from local sources.
Once the Thai exporters have been identified, the Canadian importer can proceed to send each of them an offer demand. An offer demand represents the importer's will to buy (that is, to contract), but does not make him commit in any way. In our case, it is useful as a further way to get acquainted to the Thai market and to its players: an offer demand will allow the Canadian importer to make a further selection on the number of Thai exporters and choose, from the couple of offers that he will receive, the one that is best, from his point-of-view, in terms of quantity, quality and price.
Once he has selected the best offer, the Canadian importer can now proceed to face-to-face negotiation with the Thai exporter. This is important because of several reasons. The first would be that, given the fact that this is the first trade operation between the two parties, one cannot actually contract by mail or by phone. Has it been that the parties were in business for some time, then such formal meetings probably would not have been necessary. As such, a formal negotiation in a formal context will set the basis for a longer business relationship.
The negotiation between the Canadian importer and the Thai exporter takes place in an international context, a context where cultural differences abound. As of such, the Thai negotiator can be included in a larger category of Asian or Oriental negotiators that comprises cultures from the Far East (Japan, China, Thailand, Malaysia, etc.). The oriental cultures are characterized by a long-term view of things (as opposite to the occidental way of looking at things: short-termed and profit oriented), they are also non-individualistic cultures (they tend to put the accent on the group and not of each member of the group) and it is most probable that the leader of the negotiation team will be older and more respected than the rest of the members.
If we analyze these characteristics, we will have an idea about how the negotiation team should be formed and how negotiation should take place in order to have a high probability of success. For example, the negotiation team should have a broader look at the deal: instead of regarding this opportunity as a one time deal, it should leave space for eventual deals to come. In this sense, the negotiation should not take place as a confrontation or a conflict, but rather as cooperation, as a way to set ground for a long-term business opportunity. This comes from the idea that the negotiation is in fact a win-win type of game, where the two parties have to come up with solutions in order to find an agreement from which both can profit. Common mistakes made in negotiations with foreign cultures (in this specific case, praising only one of the members of the Thai team would be a mistake, because it will single out somebody from the group and we have already seen the importance of the group in Thai culture) should especially be avoided. The main clauses of a contract of international trade should be negotiated. These resume to:
Packaging and Marking
Terms of Delivery
Of all, price is the most important. It should be noted here that the price that the Canadian importer will support in the end is not the actual price that the exporter wants paid. To this (price asked by the exporter is equal to the production price plus a certain margin), the Canadian importer should also add additional expenses such as the cost of packaging, logistic costs (that is, cost of transport and cost of insurance in CIF condition) ad additional costs such as costs with depositing the merchandise and custom related expenses. This is why in negotiating the exporter's price, the Canadian importer should obtain the smallest price possible, which will allow it to be competitive on the Canadian market with a price that will cover all import expenses and an additional profit margin.
The main risk regarding the negotiated price is the exchange rate risk. Selecting from different methods of insurance (index clause, escalated price clause, renegotiation, hedging) against this type of risk, I have selected two. The first one refers to renegotiating the price clause in case the variation of the Thai Baht surpasses a certain acceptable limit discussed by the parties (in the case of the Thai Baht, I would suggest something around 10-15%. Studying the recent variations of the Baht, the variations revolve around this amount). An additional way to insure oneself against currency rate risk is to take an opposite position on the stock exchange. In this case, the importer will suffer if the Baht appreciates. He will speculate this on the financial markets by buying Thai Baht. In this sense, he will not lose because, if the Baht will appreciate, he will lose something from the trade operation, but, at the same time, he will gain on the market. Additionally, the importer can use the currency clause. This means that the value of the import, payable in Thai Baht, can be expressed in a stable currency, with low fluctuations, such as the British Pound for example. The price of the contract will only be recalculated in case the stable currency fluctuates.
The delivery terms refer to the INCOTERMS conditions. As for this particular import case, the agreement will probably be for FOB (Bangkok). This determines the fact that the transfer of both risks and expenses will pass from the exporter to the importer once the merchandise is loaded on the ship. In this sense, the cost of loading the goods onto the ship is to be supported by the exporter, while the importer will support the costs of transport and insurance to the destination. Additionally, the delivery modality determines whether the merchandise is to be delivered in several shipments or in one global shipment. This is of course determined by the quantity that the importer decides upon. If this is quite large, then it would be more advantageous to have several shipments because, even if he will support more than one insurance and freight, he will not have to worry about depositing the merchandise in Canada. This is to be determined however.
The easiest method of payment that can be chosen is through a payment order. This represents a disposition given by the importer to his bank (the Royal Bank of Canada) to pay the value of the goods purchased (tins) to his Thai counterpart. The only impediment for this method of payment is given by the fact that this is the first trade operation that goes on between the two parties. In this sense, the Thai partner has no real guarantee that the importer will actually pay for the goods that he has bought. However, I would suggest this method of payment because of its ease of use. Another question that arises is given by the moment of payment. I would recommend here the COD condition (Cash On Delivery). This protects the importer against frequent risks, such as the possibility that his Thai partner will be late in delivering the merchandise.
The main elements of the contract have been negotiated and agreed upon, the contract has been signed, so now we have to deal with the actual import operations. The packaging, labeling and marking of the merchandise falls in the competency of wither the producer or the exporter. However, we should previously mention that all imports to Canada have to have labels both in English and in French. Additionally, Canada is one of the countries that require that the country of origin be marked clearly on the merchandise. We will not deal with the actual documents that the exporter has to prepare, however, these include: the quality certificate, health certificate (in our case, this is necessary to certify that the tins correspond to the legal norms in Thailand) and, most importantly, the export invoice.
As the contract specified that the merchandise will be delivered on board in Bangkok, there are several things that the importer needs to handle in order to transport the merchandise to Canada. These include transport, insurance and customs formalities…