Practical Assignment 2

Explain advantages and rationale of buying abroad, state and explain documents used in
international purchasing, analyze factors considered in selecting international modes of
transport, explain dispute resolution methods and setting disputes in international
purchasing. Explain the role of international purchasing in the supply chain and also
evaluate factors influencing international trade. [100 marks]

Introduction

International purchasing is the process of contracting goods and services from suppliers outside
of one’s own country. It can be beneficial for businesses in a number of ways, including allowing
them to save on costs, broaden their supplier base, and increase access to new markets.
Additionally, international purchasing can help companies build relationships with potential
partners and customers around the world. There are many reasons why businesses might choose
to engage in international purchasing. Some may find it advantageous to reduce
costs by sourcing goods from multiple sources. Other businesses may want to tap into new
markets or supplier bases that they wouldn’t otherwise have access to. In any case,
international purchasing should be considered an important part of any business’ strategy.

Advantages

Cost Savings

Purchasing from countries with lower labour and material costs can significantly reduce
expenses.

Access to Unique Products

International markets may offer products unavailable domestically, providing a competitive edge.

Market Diversification

Expanding supplier bases can mitigate risks associated with relying on local suppliers.

Quality Improvement

Certain countries specialize in high-quality goods, enhancing the overall quality of products.
Innovation Access

Buying from abroad can provide access to advanced technologies and innovative products.

Rationale

Companies often seek to optimize costs and improve margins; international purchasing supports
this by leveraging global price differences. The global market allows businesses to respond to
customer demands more flexibly and efficiently, adapting to trends that may not be present in
domestic markets.

Documents Used in International Purchasing

Proforma Invoice

A preliminary bill of sale sent to buyers in advance of a shipment, outlining the items and costs.

Purchase Order (PO)

A formal document issued by buyers to suppliers, specifying the details of the purchase (quantity,
price, delivery).

Commercial Invoice

A document provided by the seller detailing the goods sold, including quantities, prices, and
terms of sale.

Bill of Lading

A legal document issued by the carrier to acknowledge receipt of cargo for shipment, serving as a
contract and a receipt.

Certificate of Origin

A document affirming the country where the goods were produced, often required for customs.

Import/Export Licenses

Necessary permits for shipping goods across international borders, ensuring compliance with
local regulations.

Insurance Certificate
A document that provides proof of insurance coverage for the goods during transit.

Factors Considered in Selecting International Modes of Transport

Cost

Evaluating the transportation expenses associated with different modes (air, sea, rail, road).

Speed

Time requirements for delivery; air transport is faster but more expensive than sea.

Cargo Type

The nature of goods (perishable, fragile, heavy) influences the choice of transport.

Distance

Longer distances may favor sea transport for cost-effectiveness, while shorter distances might be
better served by air.

Reliability

The consistency and dependability of transport methods; air transport is generally more reliable
than sea transport.

Infrastructure

Availability of ports, airports, and road networks in both the exporting and importing countries.

Regulatory Compliance

Ensuring that the chosen mode of transport meets international trade regulations and customs
requirements.

Dispute Resolution Methods in International Purchasing

Negotiation

The most common method, where parties discuss and resolve disputes amicably.

Mediation
Involves a neutral third party who facilitates a resolution without imposing a decision.

Arbitration

A more formal process where a neutral third party makes a binding decision, often preferred for
its speed and confidentiality.

Litigation

Taking disputes to court, which can be lengthy and costly and is often avoided in international
trade due to jurisdictional complexities.

Setting Disputes

Choice of Law

Agreeing on which legal framework governs the contract.

Jurisdiction

Specifying the legal venue for dispute resolution.

Arbitration Clauses

Including provisions in contracts that mandate arbitration for disputes can simplify resolution.

Role of International Purchasing in the Supply Chain

Cost Efficiency

Reduces procurement costs, contributing to overall supply chain savings.

Supplier Diversification

Increases resilience and flexibility in the supply chain.

Quality and Innovation

Access to superior materials and innovative products enhances competitiveness.

Risk Management

Spreads risks across multiple suppliers and geographies, reducing reliance on any single source.
Market Responsiveness

Enables businesses to adapt quickly to global market changes and customer demands.

Factors Influencing International Trade

Economic Policies

Tariffs, quotas, and trade agreements significantly impact international purchasing decisions.

Currency Exchange Rates

Fluctuations can affect pricing and profitability in international transactions.

Political Stability

Countries with stable governments are more attractive for trade due to lower risks.

Cultural Differences

Understanding and adapting to cultural nuances can influence supplier relationships and
negotiations.

Technological Advancements

Innovations in logistics and communication facilitate international trade.

Legal Framework

The presence of fair-trade laws and intellectual property protections can encourage international
business.

Global Supply Chain Trends

Factors like sustainability, ethical sourcing, and transparency are increasingly influencing
purchasing decisions.

Conclusion

The several facets of international purchasing are explored in detail in this thorough overview,
along with its importance in the global supply chain, the paperwork required, and the variables
influencing trade and transportation choices.
References

Bailey, P., Farmer, D., Crocker B., Jessop, H. and Jones D, (2008). Procurement principles and
management 10th edition, Prentice Hall Pearson Education, England.

Handfield, R, B., Monczka R, M., Giunipero L, C. and Patterson, L. (2009). Sourcing and supply
chain management 4th edition, South Western Cengage Learning Canada.

International Trade Centre (2015). Specifying requirements and planning supply, international
Purchasing and supply management modular learning system UCTAD/WTO.

Leenders, M., Johnson P. F., Flynn, A. and Fearon H. E. (2006). Purchasing and supply
management, McGraw Hill Irwin USA.

Lysons, K. and Farrington, B. (2016) Procurement and Supply Management 9th ed. Pearson
Education Ltd, UK.